Paid for Play

Paid for Play

Will letting college athletes monetize their gam blow holes in the U's budgets? The U doesn't want to talk about it.

Roger Chamberlain imagines a world where University of Minnesota athletes receive their fair share of the $122.7 million they generated for the school last academic year. For example, it’s not right, the Republican state senator from Lino Lakes maintains, that P.J. Fleck, the head football coach, has a seven-year, $33.25 million contract while his players are barred from earning what their talents could win them on the open market. Granted, some of the 680 athletes at the U receive full or partial scholarships, but many consider this far short of their true value.

“These kids have been exploited for a while,” Chamberlain says. “It’s fair and common sense—they have a right to make a living from their skills and talent.”

He recently introduced a proposal in the state Senate that would allow collegiate athletes to be compensated for use of their name, image, and likeness, and would allow them to hire agents. Rep. Nolan West (R-Blaine), introduced a nearly identical proposal in the House.

The move followed the lead of California, which became the first state to pass such a law in September in direct challenge to the National Collegiate Athletic Association’s (NCAA) long-standing requirement that student athletes retain amateur status. Since then, at least 10 other states including Minnesota have introduced similar bills, with another 10 expected to do so soon.

While student athletes are certain to benefit from the change, some insiders believe it could provide a bonanza to the university’s athletic department, while others foresee financial liabilities ahead. Experts agree the early days of implementing the changes will involve confusion that only the courts will be able to clear.

We have to follow the state laws and the NCAA rules.
If they’re in conflict, what will we do?”—Darrin Rosha, regent, University of Minnesota

The NCAA initially declared the California law “unconstitutional,” but a month after its passage issued a statement saying it would explore allowing student athletes to benefit from use of their name, image, and likeness. NCAA president Mark Emmert has since met with members of Congress to discuss how federal legislation might head off a patchwork of state laws. The NCAA, which declined comment for this article, later announced, “The California law and other proposed measures ultimately would lead to pay-for-play and turn college athletes into employees.”

The NCAA, with more than $1 billion in revenue in fiscal 2018—about 85 percent of that from the sale of TV and marketing rights to the Division I men’s basketball championship—has been clear it wants to preserve the “collegiate model.” “That’s the very model the legislatures are trying to upend—it’s the problem,” says Ramogi Huma, executive director of the National College Players Association, a nonprofit group that advocates on behalf of collegiate athletes.

If Minnesota passes legislation before the NCAA changes its rules, the University of Minnesota leadership would find itself in a difficult predicament. “We have to follow the state laws and the NCAA rules,” says Darrin Rosha, an attorney and U of M regent since 2015. “If they’re in conflict, what will we do?”

The legislative bills, as drafted, anticipate that situation. Both specify that a conference or the NCAA cannot prevent a student athlete from earning compensation from use of their name, image, and likeness, cannot revoke scholarships for doing so, and cannot ban a school that allows students to do so from participating in competition. The NCAA could challenge the state’s authority in court.

“It’s the unintended consequences everybody’s worried about. The downside has the potential to be much greater than the upside for any college athletic department and its student athletes as a whole.”
—Chris Werle, collegiate athletic marketing and issues-management consultant

Redirecting the dollars

nitially, it was thought only elite athletes participating in revenue-generating sports (football, men’s basketball, and men’s hockey at the U of M) would profit from a relaxation on NCAA amateur status strictures. But West and regent Michael Hsu think more will benefit, including any athlete with a large social media platform or a skill to promote via their stature as a varsity collegiate athlete, such as a baseball player who records music.

“In the age of social media, you don’t have to be a star in your sport,” Hsu says. “You can be a gymnast with a large Twitter following and have a restaurant who wants you to tweet about them. It’s going to cause every business to rethink their marketing. An insurance company could sponsor the football team’s offensive line with the tagline, ‘They protect the quarterback; we protect your assets.’ ”

It might not mean big money for the athlete, but even a few thousand dollars on a college budget can make a difference.

On the other hand, if sponsors started reallocating their advertising dollars, bypassing the school and dealing directly with student athletes, the athletic department could take a palpable hit. Even a 5 percent revenue loss in this scenario could blow a $632,000 hole in the university’s royalties, licensing, advertising, and sponsorships revenue, which last year totaled $12.6 million.

Merchandise sales, which fall under royalties, licensing, advertising, and sponsorships, represent another form of exploitation for Chamberlain. “If the U is selling a jersey with a name or number on it,” he says, “the player deserves something for that.”

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Giving student athletes a 10 percent cut of their merchandise sales could siphon more than half a million dollars from the university’s revenue stream.

But Hsu doesn’t see it working that way. “Everybody thinks of this as a zero-sum game. It’s not,” he says. “There will be more people who can advertise who aren’t currently. There are a lot of advertising dollars out there the university is not getting anyway. We’ve got plenty of car dealerships, restaurants, and other businesses that might want to use [University of] Minnesota athletes in their advertising.”

The deep pass

ifting the prohibition on student athletes profiting from their name, image, and likeness could bring additional revenue to the university in several different ways, according to Lee Hutton, a wide receiver at the university in the mid-1990s, now an attorney who specializes in sports law at the Minneapolis firm Hutton Kluz Evans.

Enterprising students looking to capitalize on their status are likely to turn to their roots, Hutton maintains. That could expand Gopher nation into territories where it has not penetrated or focused its marketing efforts, whether that be in hometowns far from Minnesota or communities of color. It becomes a win-win situation for the student athlete and the university. “Say a well-known wrestler books a speaking engagement in his hometown in Georgia. That puts money in his pocket, and the university touches an area it hasn’t [before].”

A deeper reach into tertiary markets could yield higher ticket sales but is more likely to boost merchandise sales. “All this is about selling merchandise, because you can only make so much selling tickets,” Hutton says. Pointing to the NFL’s push to promote football in Mexico and collegiate games between Mexican and U.S. schools, he says, “think about the day when you get fans in Mexico City buying University of Minnesota merchandise.”

That day may be a ways off, but Hutton believes the athletic department has a more immediate opportunity to work with student athletes, even coach them on how they can use social media to broaden their reach—and in turn, the university’s. “My advice to the university is do not resist the change,” Hutton says. “If the school is able to row the boat with the change, it can be effective in this new environment.

Hutton intentionally quoted P.J. Fleck’s “row the boat “ mantra. “Fleck is a prime example of the way a coach can monetize a slogan and bring revenue to the school. There’s personal and school benefit. It’s a benchmark of what could happen with a player if they coin a phrase the university can buy into.”

Indeed, Gopher football revenue has risen $13.7 million—a remarkable 28 percent—since Fleck arrived in 2017 with his “row the boat” slogan. Hutton foresees a possible similar boost to the university’s marketing revenues. “We’re into the multimillions here if the school is able to do it right,” he says.

University athletics director Mark Coyle did not respond to requests for comment.

Recruiting with benefits

big question is how state legislation will affect recruiting, which is the backbone of university athletics. If Minnesota passes its bill but surrounding states do not enact similar laws, it would give the university a boost, drawing recruits who might not have given the U a look in the past. (The Minnesota bill would forbid schools from promising deals or offering to facilitate them before a recruit commits.)

If other states do pass similar legislation or Congress passes laws that override the states, then the U’s advantage is unclear. On one hand, a recruit might choose the U, which is in a midsize corporate and media market, over schools such as Wisconsin or Iowa, which are based in far smaller markets. On the other hand, students might prefer smaller markets where they do not compete for endorsements with pro athletes. Decisions could hinge on boosters offering to pay above market value for endorsements.

Or on local corporations willing to make a larger investment. “If the university could get Cargill, Target, 3M, General Mills, and Best Buy serious about putting up big dollars, it would help in recruiting,” says Blake Baratz, founder of The Institute for Athletes, which represents NFL players.

The compliance conundrum

erhaps the largest impact on schools will be monitoring student endorsement deals. Someone will have to track who is getting what, and from whom, to ensure the athletes comply with the law and/or NCAA rules, and that responsibility is likely to fall upon schools. The university will probably incur administrative costs. This will almost certainly become a line item affecting the athletic department’s bottom line, which already relies on supplemental assistance from the university, averaging $2.6 million over the past eight years.

This will be no simple job. For instance, could a student sell jerseys with the school’s trademark “M” on the front and his or her name on the back? Or sell the jerseys without the trademark but in the same colors? What happens if a microbrewery asks an underage student athlete to appear in its ad? Could the university place limitations upon the deals their students accept? “Early on, there is going to be a lot of confusion,” Hsu admits. “It’s going to be a massive change.”

Other potential pitfalls loom. A student athlete who receives a car in exchange for signing autographs at a dealership might be surprised come April 15 when he or she has to declare the market value of that perk as income without the resources to pay the federal and state taxes on it. Or the school could be in violation of Title IX if female student athletes do not receive equal opportunities for endorsement as their male counterparts. Coaches could find themselves accused of taking money out of players’ pockets by not playing them in critical situations or enough in general.

“It’s the unintended consequences everybody’s worried about,” says Chris Werle, a collegiate athletic marketing and issues-management consultant based in Minneapolis. “The downside has the potential to be much greater than the upside for any college athletic department and its student athletes as a whole.”

This could be because the state authors of the legislation do not understand the complicated workings of big-time collegiate sports. Chamberlain, who did not speak to university officials when drafting his bill, was unaware, for example, that Learfield IMG College, the country’s largest sports marketing company, pays the university a lump sum annually for the right to negotiate the sale and use of its multimedia rights beyond any deals secured by its conferences.

Student athletes negotiating sponsorships could undercut Learfield IMG’s profits and ultimately lead to a lower annual payment to the university. Athletic department chief financial officer Rhonda McFarland would not answer questions about how much the Learfield IMG contract yields the university and when it comes up for renewal. She also would not speculate on how much proposed legislation might affect the department’s bottom line or how much additional administrative costs it might incur. A Learfield IMG spokesperson said it was too early to comment on the new legislation.

“It was drafted hastily,” Werle says of the California law. “The legislators clearly lacked deep understanding of the financial, regulatory, and administrative workings of a collegiate athletic department.” It seems the same could apply to the proposed bill in Minnesota.

The months ahead will reveal more. But at this point the genie is out of the bottle, and the only question is how dramatic the changes to the landscape will be.

John Rosengren is a Minneapolis-based writer who covers sports business topics for TCB.

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