free market

Posted: April 19, 2014
By: Clay Cerny

 

As I’ve written before, I support paying college athletes in sports that produce multimillion dollar revenues for the schools and the NCAA. Today’s Chicago Sun-Times features an editorial by Salim Furth of the Heritage Foundation that also supports paying student-athletes. However, Furth suggests a different approach that would destroy college sports, a free market approach to paying players, a business model professional sports leagues no longer follow.

Furth begins his essay by affirming that a certain type of college athlete should be paid: “Division I football players are professionals. They are given room, board, and health care in exchange for their time, and served by tutors, coaches, and trainers. They are paid only if they work.” He goes on to say that under the current model “college football players earn little for their work, because the employers collude through the NCAA to cap wages.” Here I agree and disagree. I would say student athletes who receive scholarships in all Division I sports are compensated. Whether we call it pay or compensation, there is an exchange similar to employment. The second quibble I would have with Furth is that the NCAA colludes with the colleges to “cap wages.” No, the NCAA controls the student athlete’s ability to earn any income. Moreover, one of the players’ biggest complaints about the current system is that it does not cover injuries that often impact their lives long after their college careers are done.

Where Furth and I strongly disagree, however, is over the issue of how students should be compensated. Under a union model, compensation would be negotiated for groups, not individuals. Furth advocates a system where players can “reap the rewards of their own talents and labor.” Each player would bargain with a university and be paid as an individual. Professional sports leagues found two problems with this approach in the era of free agency. First, player salaries rose at a pace that threatened the survival of teams and leagues. Every sports has introduced some mechanism to control the rise of player salaries. In a related concern, every league wants competition. If the same team wins again and again, interest in a sport wanes. Large market teams often dominant. Without caps, luxury taxes, and drafts for new players, only teams that generate the most revenue would be competitive.

Furth advocates a free market approach that sounds good on paper. Every person should be able to earn a wage that is commensurate to his or her skill and contribution to an employer’s success. This model has been tested in professional sports, and it has failed. It has also been tested in professions like law, where the ABA and law schools limit the pool of new applicants through admissions policies and standards for passing the bar exam.

The free market that Furth calls for creates a society of a few winners and many losers. Under the current system in college football, many of the same teams dominant year after year. Under Furth’s system, the teams that can pay the players most would be competitive year after year. A healthy sports league – and a healthy economy – needs balance, which can only come from some kind of regulation. I’m for compensating college athletes. But it must be done in a model that works for the players, schools, and the often ignored fans. The NCAA – or an organization like it – is needed to keep the system fair and honest. We can’t have a game without rules and referees.

Posted: December 26, 2012
By: Clay Cerny

I was listening to Ed Schultz’s radio show today, which included an interview with the great union leader Leo Gerard, President of the United Steelworkers, who asked this question: Why do CEOs and executives get the security of contracts?  A small faction of unionized employees have such security, but that piece of the labor pie gets smaller every day.  The best paid employees – the executives – are also the most secure.

Corporations now specialize in transferring risk from the company and executives to workers.  I met with a client today who drives a small truck.  His company is being put out of business by competitors that require drivers to purchase their trucks and routes, which is a method FedEx uses for some of its vehicles.  When the company is no longer responsible for the vehicle, it can cut its price while increasing its profit.  The company wins, so does it customer.  Who loses?  The employee who now has to own the truck, maintain the vehicle, and eventually replace it.

This example is just one way that workers are carrying the burden of “productivity.”  The more a company can ask of its workers: own the vehicle, own your tools, pay for your entire pension, pay for most of your health care; the more it can take as profit.  Those who believe in the “free market” will argue that these business models would be impossible if workers did not accept the terms.  I think a more accurate way of describing this situation would be that desperate people will make bad choices.  Those bad choices will cause all of us to suffer.  First we will pay more to support social programs accessed by low wage workers.  The next step will be much worse.  What happens when wages fall so low that the shrinking middle class can’t subsidize the system that pushes money up?  Our lives will be very ugly.

We need a system that offers real security as well as the opportunity for reasonable profit.  Our current system is out of balance, asking the least of those who have the most, setting up a system where those who are most secure are getting even more security.