Exploitation Is Everywhere in Men’s College Basketball

This past week it was announced that Mike McAdoo — a former football player at the University of North Carolina — is suing the university over the practice of “paper classes.” Such classes involved little or no academic effort and seemed to be designed to ensure that athletes maintained eligibility to play sports at North Carolina. Although this practice might have kept athletes on the field, it also — as McAdoo’s lawsuit alleges — may have dramatically diminished the value of the athlete’s education.

One can easily see that an athlete is not getting a good deal if he/she competes for the school but doesn’t receive the promised education. But let’s consider a different scenario. Let’s imagine the North Carolina scandal never happened and every athletes received all the education promised when they were recruited to the school. Did the athletes get a good deal if that happened?

In economics, a worker receives a “good deal” if they are paid a wage equal to the revenue the worker generates for the firm. When a worker gets a “bad deal,” economists say the worker has been “exploited.” Such a word can be quite inflammatory in public debates. But it is also a term used frequently in labor economics and it has a simple definition.

This past February I was asked about “exploitation” when I provided expert testimony at a hearing of the National Labor Relations Board. The hearing was called to decide whether or not the football players at Northwestern University could form a union (I was testifying on behalf of the players). During my testimony I was asked if football players were “exploited.” I responded that I thought they were, and my argument began with the standard definition of “exploitation”: A worker is exploited if the wage the worker received is less than their economic contribution to the firm. In terms of college sports, an athlete is “exploited” if the athlete generates more revenue than he/she is paid in terms of his/her scholarship and housing at the school.

Let’s illustrate this point by looking at the men’s basketball players at the University of North Carolina in 2012-13 (another group that was supposedly impacted by the UNC scandal). According to numbers reported by North Carolina University to the Department of Education, the men’s basketball program generated $20.9 million in revenue in 2012-13 (this is the last year the Department of Education reports). Currently the NCAA restricts the payment of athletes to essentially the cost of attending the institution. But in a typical labor market, the payment to workers is unrestricted. If the North Carolina Tar Heels had to hire workers in such a market, how much of this $20.9 million would the players receive?

For an answer, let’s look at professional sports leagues in North America. Major League Baseball and the National Football League tend to pay about 50% of their revenue to their players. A similar story is told in the NBA and the NHL. One should note, though, that each of these leagues has labor markets restrictions (i.e. reverse order drafts, reserve clauses, luxury taxes, salary caps, etc…) that do not exist outside of sports. As we see in European sports, without these restrictions players are paid more than 75% of league revenues. So the 50% figure we see in North America sports is likely not what we would see in a completely free market.

Nevertheless, let’s imagine that in a free market the Tar Heel basketball players received 50% of the revenue the program generates. If this was the case, the players would have received $10.45 million in 2012-13. And with 16 players on the roster, and equal split of this money would give about $650,000 to each player. North Carolina says the out-of-state cost of attendance in 2014-15 is about $50,000. If this represents the value of the education North Carolina is providing its players — and given what we have heard about this program, this might be an exaggeration — this means that even if the players are receiving all the education they were promised, the players are still very clearly exploited.

Of course, professional teams do not pay every player the same amount. Players are generally paid in professional sports to win games. And if we 1) measure how many wins each player produces (in a fashion similar to what has been done for the NBA), and 2) divide the aforementioned $10.4 million among the players in terms of the wins each player produced; then the three most valuable players on the 2012-13 Tar Heels would be as follows:

Again, the cost of attendance at this school is about $50,000. So if these three players received all the education promised they were only paid about 2.4% of the revenue they generated with their on-court production for the school.

So the top players at a top basketball program are clearly very much exploited. Is this true elsewhere?

Let’s travel a few miles from Chapel Hill and visit Durham, North Carolina. Many college basketball fans might know that this is the home of Duke University. According to the numbers provided by the school to the Department of Education, the men’s basketball program at Duke generated $27 million in revenue in 2012-13. So Duke is even more successful than North Carolina when we consider revenue. And with only 11 players appearing on the court in 2012-13, the average player was worth more than $1 million. Duke University says it will cost about $63,000 to attend in 2014-15. So again, like we saw at the University of North Carolina, the men’s basketball players at Duke are very much exploited.

That is not probably not surprising. If North Carolina players are exploited then it follows that Duke players will be as well. But let’s look a little bit south of the Duke campus in Durham. There we will find the campus of North Carolina Central University. The Eagles have only played four seasons of Division-I college basketball. So this is not a big time college program. And people probably suspect that at such a small program, players cannot be exploited. But the data tell a different story.

If we look back at the 2012-13 season we see that the Eagles won 22 games while playing its conference games in the Mid-Eastern Athletic Conference. And according to the data provided by the school to the Department of Education, NCC generated $1.22 million in revenue during the 2012-13 season. If we again argue that the players should be paid 50% of team revenue, this means the players should be splitting about $610,000. With 14 players on the roster, this works out to about $43,000 per player.

North Carolina Central is not quite as expensive as UNC or Duke. According to the NCC website, it cost a little bit less than $15,000 to attend the school in 2014-15. So if the players employed at NCC received all the education promised, it is still the case that these players were exploited.

And just like we saw at UNC, the level of exploitation for the top players is even larger at NCC. The three most productive players — and their economic value — is as follows:

So the most productive players at NCC are producing at least six times more revenue for the school then the value of their education. And that suggests exploitation is likely everywhere in Division I-A college basketball. We don’t have to investigate the quality of education the players receive to see that at both big and small schools there are players generating more revenue than they are being “paid.”

So when we think about the scandal at North Carolina we should remember: Yes, not getting your education is a bad deal for a student-athlete. But even if these athletes get all that they are promised, it is still a bad deal.