What’s the Right Compensation for Student Athletes? | Ken Shropshire

Should Student Athletes Get Paid for Playing?

Dan Loney: As students gear up for the new school year and fall sports start to get back into session, we’re going to spend some time today exploring the dynamic world of athletic endorsements. It’s a pleasure to be joined here in-studio by Ken Shropshire, professor emeritus of legal studies and business ethics here at the Wharton School. He is also senior advisor to Dean Erika James. How are you, my friend?

Ken Shropshire: I’m doing great, Dan. How are you?

Loney: I’m doing well, but this topic of endorsements in NIL obviously has taken the world of athletics, college athletics by storm the last couple of years. We’re almost three years from when we first started to hear NIL really hit our language. What kind of impact do you think it has had in those three years, and to the positive or to the benefit of the overall collegiate athletic experience?

Shropshire: It has had a huge disruptive impact which I don’t know if we gauge as positive or negative yet. It’s an appropriate change. It’s an appropriate disruptive change to have dollars that are coming into the system to the labor that has produced it. Also in some sense, you’re not giving these student athletes something new. It’s something they really had the right to, that the NCAA had taken away this right to make money off of your name, image, and likeness, which is sort of the beginning of what this thing was. It has evolved into something a little bit different than just what we think about. You referenced endorsements. It has turned out to be something a little different than what we contemplated it was going to be when these conversations first came into effect.

Loney: I’ll get into what’s going on at the college level, but I think there’s also the component I wanted to talk to you about, about the expectation of what student athletes coming from high school going into college really should start to think about because it’s a very uneven system that is seemingly playing out, where high-level football players, high-level basketball players, seemingly are getting a lot of the attention and the resources from that. Some of the other athletes in other sports are not getting it. So I think the perception of what a student or what a parent should expect for their student going into this situation is important to talk about.

Shropshire: That’s right, and it’s going to vary to some degree, institution by institution, how important are the — especially in this Olympic year — how important are some of these Olympic sports to the school, like swimming, gymnastics, whatever, which are not revenue-generating sports for the most part, anywhere? But they may be part of the cachet of the school, and there may be a special interest in getting some elite athletes and providing some extra dollars to those recruits that are in that space.

The traditional places where we think about this would be with elite football players, elite basketball players — basketball men and women. Those make a little bit of sense to people in terms of if they’re the star player, and somebody wants them to endorse something, they should be able to get paid for that. Even with the Olympic sports, we thought in the beginning, “Well, these kids can go home and give tennis lessons or swimming lessons, and they should be able to get paid for that. Or they can participate in these camps that are organized by the schools, and they should get paid for that.” This NIL space has become something completely different from what was originally contemplated. There was some original legislation in California that made this distinction between endorsements, licensing NIL, versus this idea of — the best way to phrase it is “recruiting” NIL — just paying someone outright to join an institution.

And that’s where we’ll see a little bit of a break, where some schools say, “Yes, we want to pay to recruit the swimmer. We want to pay to recruit the gymnast.” Some schools will say, “Well, they’re not bringing any money in, so we’re not looking to provide any of these dollars for these things called ‘collectives’ to those students.”

How Will NIL Collectives Impact Student Athletes?

Loney: Then the question becomes: What should we expect to see play out in the years ahead in terms of the investment from these collectives? To a degree, it does feel a little bit like the old days of the under-the-table payments. Back in the day, you and I both know of —

Shropshire: Although neither of us received them because — [LAUGHTER]

Loney: No, no, no. We never — we did not. But the booster support that used to be there. And it feels a little bit like that, but maybe a little bit more structured because you have this “collective” component around it.

Shropshire: Yes, so the collectives have become exactly that. It’s really above-board, old-school booster payments to athletes that schools desire to recruit out of high school, that they want to retain because of the transfer portal. They don’t want their student athletes to leave, so, “We’ll just make these payments to keep these students as part of [an] old, great university,” whatever it might be. So that’s not what people contemplated this was going to be. But what happened when California, Florida, all these states began to pass legislation saying, “NIL is okay”?

The NCAA, for whatever reason — partly because there was a Supreme Court case, the Alston case, that said, “You know what? You’d better allow some more revenues to go to these student athletes.” The NCAA kind of froze, and then institutions started doing what they wanted to do because there was no regulation by the NCAA, and that’s when it flowed over from this whole idea of licensing to this idea of, “Hey, we can just give money to bring in student athletes that we want.”

Loney: And the state law or regulation becomes that much more important in terms of what you can and can’t do, and maybe what we will see play out in other states over the next several years. It also makes me wonder, again, are we seeing another layer to the control of the NCAA being whittled away because of this?

Shropshire: We are, and the other piece that we are starting to see — Well, I’ll be surprised if it does happen. This conversation has been going on for a while. Congress, Senator Cory Booker, and others — Senator Blumenthal and others leading the way — we need federal legislation to cover this, so we have this patchwork now. It’s about 27 or 28 states that have regulations. We have the NCAA coming in every now and then. And this is a classic spot, as a lawyer, where we understand federal legislation is supposed to come in and make this kind of controversial issue uniform across the states.

But the problem is, it’s an important issue, and I might think it is because it’s sports, but there are a lot of other things going on in the world that Congress should be focused on rather than, “How do we take care of these issues regarding athletes and payments?”

Loney: I was thinking about this the other day, but when you look at what has played out, I think there’s also a case to be made that there is a benefit — and I use the term in air quotes — for the individual, for the student athlete in the understanding of what this process is and the component of their brand, because I don’t think it was discussed as much in years past. It’s probably something that most student athletes didn’t even consider, that they actually have a brand that has some value, depending on where you are, and that’s an important lesson to understand as you move forward and move your way through college and into the business world.

Shropshire: That’s exactly right. We do a program here at Wharton for NFL athletes. We started doing it again this year. It’s about 36 athletes. One of the topics we have is “Understanding Your Brand.” The great Professor Americus Reed comes in and talks to them about this value. And for some of them, it’s the first time the light bulb is going off: “Hey, the way that I am projected out there may match with a company or some endorser or whomever, so I have to be cognizant of how I am out there.”

Now wouldn’t it be great — maybe or maybe not — the younger you start thinking about that, the stronger your brand is, and the stronger you are in thinking about those kinds of issues and being able to monetize them. So some of what started early on as NIL began to flourish. I know at Tennessee, Texas A&M, and a couple of other schools, they did incorporate instructors from their business schools and otherwise to talk to student athletes about this.

Another piece that came into play, kind of related to what you’re saying, is the idea of financial literacy, fluency. And so a number of investment companies joined the schools to deliver this information. “What do you do if you get $400 extra a month? What should you do with it?”

Loney: Right. And it becomes that much more important for the growth of the college student.

Shropshire: Right. If you challenge your 18-year-old Dan self with $400 extra a month, what are you going to do with it? The answers are probably not good. [LAUGHTER]

How Does NIL Affect High School Student Athletes?

Loney: Back in 1985, that could have been a dangerous question. I think, also, do you have to look at this from how it could potentially impact high school athletes? Because there’s even more of a conversation about the component of your name, image, and likeness as these young individuals are in high school. And obviously, there’s the component of social media. Everybody is on social media, and you’re promoting yourself and things that you’re doing on those different platforms. It makes me worried of how much farther this path goes, in terms of the connection around NIL.

Shropshire: Yes, I tell people in the sports space, the younger this athlete gets, the more we should be okay with being paternalistic, the more we should be okay with thinking, “Is this really the right thing for this young person to have?” For example, should an eighth- or ninth-grader have businesses approaching them about having these relationships? What kinds of requirements can we have in there to make sure it goes through parents, of all these things, the younger they get?

But the idea where I push back — when people are disturbed by it — is everybody should have the right to make as much money as they can by legal means, especially from their name, image, and likeness. So that’s where we have to be careful. I think it is okay to think about having more concern for how these young people are treated and what they learn in this process.

Loney: So then what do you think is the path, then? Is there a path to truly find a scenario that works for everybody? There is the benefit, but you’re also doing it in a landscape where the structure is complementary to the individual, as well.

Shropshire: Yes, here’s what I think in the end. So there are laws in place — for years there have been laws in place, especially in California and New York, for regulating child actors. You hear some of the old Mickey Rooney stories and Judy Garland. How do you make sure these kids get their money in the end?

So those regulations have never been perfect. We’ve seen some kids grow up — but they’re tried and true and probably the best that we’re going to have. And at the higher end, the idea of — There was one kid that was offered apparently $14 million to come to Florida or Miami or one of the schools, and he ended up accepting 9 somewhere else, and he didn’t get paid that. So lawsuits and all.

This is a very Wharton answer. The market will eventually settle out. There is a lot of crazy stuff going on now, but if you let the Wild, Wild West take place for a while, and you let legislators try to figure out where can we play in this? “Oh, yeah, we have these existing laws. Let’s put these in place.” And maybe there’s some overlay of federal law that comes into play, but it’s going to take time. In the end, what we have is the myth of amateurism has been exploded, the idea that athletes should not receive revenue for their athletic ability at some age. All that has been pretty much blown out of the water.

With these Olympic games coming up, it does remind us again: Why were we so concerned about keeping college athletes from receiving compensation, when every other commercial we see during the Olympics is one of these Olympic athletes out there performing?

Loney: It makes you wonder where we’re headed with this in general over the next handful of years, as this becomes more and more the landscape. I’m a dad who has three teenagers, two of which might very well have a chance of playing college athletics, but I want to make sure that they’re in a good framework, good set. And I think this also puts more pressure on the parents to really make sure that they have the framework in place so that their young Johnny or Jane is prepared for this component of the college experience.

Shropshire: Parents have to be in this. It’s not easy, but it’s important to allow it to move forward because it’s going to take us to a better place than we were, where absolutely you can’t receive anything.

Loney: Is this part of the downfall, then, longer term of the NCAA, as we move forward here?

Shropshire: The NCAA, somebody told me years ago — When I first got to Wharton, a professor had done some work and wrote a great, great book on the NCAA. I talked to him. This wasn’t in the book. He said, “You know, in the end, the one thing the NCAA does great is run championship tournaments.” So let us continue to find ways for the NCAA to focus on that. They’ve lost the college football championship already, but the basketball tournament and all these other tournaments in different divisions, they do a great job. So there is some level at which — and you almost compare the NCAA with — you know, the NFL, the league office is great at putting together schedules, but don’t have them do the day-to-day running of a team.

So there’s some movement that needs to take place. I don’t think the NCAA is going away completely at any point. This association kind of setting for college sports is important, but there’s a lot that they should not be involved in.

Loney: So it sounds like you’re fairly optimistic on that. [LAUGHTER] Well, that’s a tough question, I think, right now because of all of the issues around the NCAA and around college — I mean we’re talking about a time where you have conference upheaval, and you don’t know where you’re going to be playing, and all these different components that, if we can have some level of confidence about this component of college athletics moving forward, then at least we’re taking at least one step in the right direction.

Shropshire: We’re headed to a better place. The Ivy sports, which have never had this big money problem in the modern era, you know, parenthetically — This was the place where the problem did exist historically. That sport is as exciting as it has been, and guess what the SEC and the Big Ten are as exciting as they’ve been, and there are plenty of others aside from that. They’re going to have a lot more money there, where the Ivies are going to be kind of where they are.

Loney: It was great seeing you again. Thank you. Ken Shropshire, who is professor emeritus in legal studies and business ethics here at the Wharton School.