The discovery process in student athlete wages

FiveThirtyEightSports has a great piece about how much college quarterbacks are really worth in terms of market value. I’m neutral-but-leaning-against on the issue of paying college athletes, but the piece begins with University of Iowa Athletic Director Gary Barta giving a very bad reason to oppose it: it’s too complicated to figure out how much they should be paid. He’s right given how he’s conceiving the issue, he’s just not conceiving the issue in the right way.

Wages are not determined by a person or group of people independently evaluating what a job is “really” worth. That’s what markets do, i.e. that’s what innumerable decisions over time by innumerable anonymous consumers operating within the price system do. The failure to understand how the price system works in allocating resources by preferences is not unique to Barta. Very few people understand it, and lamentably even people who do understand it often forget what they know when they think about how it applies to wages. I don’t mean to pick on Barta. Within the bounds of how people ordinarily think about prices and wages he’s right. It would be unfair to expect him to be an expert in economic topics on top of being an athletic director. In fact, not even all the economists in the world put together can really tell you what a particular position is worth. Nobody can. It’s a discovery process. It takes trial-and-error in endless iterations to find out what the social value of a job is, and it’s always changing.

FiveThirtyEight does an admirable job attempting to estimate the added value of particular quarterbacks in their prime seasons. But let’s not get too comfortable. This kind of estimate is only the first pass. I assume if universities had to pay student athletes they would start with something like this, as they clearly have to start somewhere. But the feedback they get from the bottom line would lead to adjustments at the first opportunity, and these new numbers would also be adjusted ad infinitum with continuing feedback. Would it be perfect? No, probably never. It’s not always easy to parse out the relative contributions of the various members of a team effort, not even with the discovery process. But it would certainly be closer to the mark than any wage-setting entity could come up with.

Also, on a side note, student athlete pay would lead to a change in transfer rules. If a player feels underpaid at one school and sees bigger dollar signs at another—maybe his skills fit in better there or he’s currently a good player warming the bench behind a great player—he would naturally want to transfer. As nobody knows going into college how well players will fit on a team two years later, and as the pay would give them better estimates, I imagine this would lead to a whole lot of players wanting to move around a lot more. At some point this amount of pressure would almost have to lead to a rule change. I’m sure there are other rules that would change as well. This doesn’t mean they shouldn’t institute athlete pay, it just means the issue has a lot of ramifications that they should consider.

I can’t imagine the NCAA would actually institute a pay system that mirrors that of the professional leagues. For one thing, where would this leave the sports that fewer people pay to see? Many less popular programs operate at a loss, and surely they don’t want to charge those student athletes to play them. Simply upping the stipends and benefits the players currently receive still leaves many athletes, especially the stars, getting paid far less than they contribute, which wouldn’t satisfy the critics, and upping them so much that it averages out may be beyond the means of most institutions. (If the standards are not universal, there will be other problems.) But saying that they can’t do it because they don’t know how much they should pay is not the appropriate response. New entrants to established industries have some decent ideas about the starting point by reference to their incumbent competitors. Starting to pay student athletes on the scale of the NCAA, well, they’d just have to find out. No doubt it would be chaotic for the first few years, but it wouldn’t be chaotic forever. If an outsider website like FiveThirtyEight can come up with these numbers, I’m sure that college sports programs that have access to financial information and data on all their players can find a starting point. The rest is out of their hands, as it always will be.

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Author: rfmcelroyiii

Student and instructor of economics.

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