August 27, 2013

Why College Athletes Shouldn’t Get Paid

The 2013 college football season is here again, and as always, there’s at least one investigation under way involving a college athlete.

One of the most publicized stories is that of returning Texas A&M quarterback, Heisman Trophy winner Johnny Manziel, aka “Johnny Football,” who allegedly signed autographs for compensation. With the premise of college athletes getting paid over and above their scholarships as a backdrop, I thought it would be interesting to explore the actual financial details of the annual debate: Should college athletes get paid to play, or should their free education be enough?

In order to analyze my question, we have to convert the “true” financial benefit of an athlete’s full scholarship into a real world comparison. Based on the College Data website, the 2012-2013 moderate cost for an in-state public college education averages roughly $22,260 per person annually, with private college averaging roughly $43,290. The numbers include the cost of tuition, fees, housing, meals, books and school supplies, which I believe are reasonable estimates to use in analyzing the following questions.

Question 1: What’s the tax equivalent employee benefit a student would have to earn to pay for the same education a college scholarship provides?

Let’s make some simplistic assumptions:

  • The employee is a single taxpayer with a flat 15% federal tax rate and a 5% state tax rate
  • We’ll add back the total FICA wage taxes (both employee 7.65% and the employer match of 7.65%)
  • We’ll exclude all tax deductions and exemptions

Given these parameters, a non-athlete student attending an in-state public college would have to earn a gross benefit package of about $31,540, and a private college student would have to earn roughly $61,330 to equal the same tax equivalent benefit that scholarship athletes receive each year. Over four years, that’s about $126,150 for a public institution and $245,320 for a private college or university.

Question 2: What are the tax equivalent benefits (other than basic educational costs mentioned above) for athletes compared to non-scholarship students?

It’s a difficult number to quantify, but the best way I found was to use research done in 2010 by Delta Cost Project. Their research summarizes various conclusions based on spending for 2005 to 2010 by athletic vs. academic departments for public Division I universities. The findings show athletic departments spent roughly $92,000 per athlete, compared to academic spending for a full-time student of less than $14,000 per year.

If you compare that as a taxable wage to real world income for a working student paying taxes, an athlete earns roughly $135,775 as a complete employee benefit package. This assumes the same FICA tax calculation mentioned above, while this time using a single filer marginal federal tax rate of 20% and a 5% state tax rate while still excluding all deductions and exemptions. 

What we can’t quantify, however, is the value of future benefits such as name recognition, future networking and business/job opportunities or even the possibility of personal royalties and endorsement deals—on top of the free college diploma each athlete is afforded—because a university invested in their personal future. 

Question 3: What is the average income for a high school graduate looking to work his or her way through college?

According to Wikipedia, the median personal income for someone with a high school diploma ranges from $21,117/year to $32,085/year. This is probably a good income comparison to a college athlete, because any high school graduate working to pay their way through college would most likely fall into this range until they obtain their college degree. So in essence, college athletes are afforded a full-time salary higher than what the average high school graduate will ever make.

Luckily, I had the privilege of playing in college athletics on a scholarship, but it never crossed my mind that I should get compensated over and above my free scholarship—just for shooting or dribbling a basketball, lifting weights, and/or running suicide drills every day in the gym! 

Trust me when I say that the future opportunities athletes have compared to non-scholarship students is very much an intangible, which could never be priced or even remotely compensated. Therefore, in my opinion as both a former athlete and now an investment professional/CPA, college athletes today are already well compensated. If they don’t capitalize on the free education and networking benefits their athletic scholarship already offers, then extra compensation, aka “paid to play,” surely isn’t going to help the situation.

The most important return any athlete should be looking for is an education, allowing that athlete to one day say, “My family is far better off today because of the opportunity a university provided me.”

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