On: The NCAA Pay for Play - Hyperbole and Hypocrisy

Preface:

I think the best way to get corruption out of college sports is to compensate the players better. In the ESPN’s 30 for 30 documentary “The U” 2 Live Crew Rapper Luther Campbell insinuates that if he did (and he’s not saying he did) illegally give money to University of Miami players, it may have been so they could buy food.

In my opinion a compensation package that includes the following is more than fair:

  • Food money
  • A nice stipend
  • A Car
  • Laptop every year
  • Real deal tutors
  • Financial education*
  • 401k/retirement plan.
  • Long term healthcare 

Here is what I’m thinking on the retirement plan end: each athlete gets a 401k when they first start out (and maybe a ROTH IRA too), and a portion of their stipend is diverted into the 401k to provide for them later in life.

I think the above is more than fair and it might even motivate players to work even harder. Either way, you don’t have situations like Reggie Bush at USC if players can receive the benefits legally that they often currently receive under the table. To look at it from another perspective, how much would schools like USC, Ohio State and others have saved if they weren’t hit with sanctions either due to being to pay players OR not punishing players for selling their own memorabilia for exchanging autographs for tattoos and food money?

The caveat here is that only a small fraction of schools generate profits from sports and the cost of these benefits could lead to schools cutting non-revenue sports UNLESS the NCAA makes rules forbidding them from doing so.  Remember the pool of money is finite so if you increase costs in one area, the natural thing is to reduce them in another. Furthermore the overwhelming majority of NCAA athletes aren’t playing revenue sports.  

All that being said boosters provide a lot of the above benefits illegally anyway, if you make it out in the open and regulate it properly it very well may not be a problem.

This could also have “some” impact on competitive balance. If I’m being recruited for Football and I know I have little chance of playing at U. Oregon but could be a starter at say a non-major conference school that maybe can’t afford to pay me as much, I might go to Oregon anyway.

Finally, it stands to reason that there are going to be unforeseen consequences as the laws of thermodynamics apply to money too, in other words: there is no free lunch.

Either way, I’ve seen Autzen Stadium in Eugene Oregon – it’s a pro caliber facility if not better than most NFL facilities. I.e. let’s stop pretending that some college teams aren’t economically on par with many pro ones. 

After all the Cleveland Browns made $17.1 million during the 2012-2013 season, and the U. Oregon made about $30 million ß the department of education provides terrible guidelines around what to count as an expense, but still….

That was a long ass preface I know, moving on….

It’s a refrain we hear all the time, “The NCAA Makes Billions”, you hear it on social media, one of your friends might say the same at the proverbial water cooler, at happy hour, etc. There is also plenty written saying same: 

Student Newspapers

Progressive Media Outlets

Pro Athletes

Even business publications are in on the act of noting the NCAAs Billions

There is just one thing, in some cases the billions are actually referring to ad spending – which, is what the television networks rake in. In essence a TV deal works via paying an organization a certain amount to televise a sporting a event, and then trying to make a profit off the delta between ad dollars and the cost of the broadcast rights.

In other cases the numbers are just an aggregate of all the revenue generated by all member schools, which, again, is not the money comes directly into the NCAA itself.

As for the NCAA’s actual money, you can easily find it as they make ALL of their audited** financial reports public. You can see some of that data via the links below: 

2009-2010 audited financial statement + the prior five years

Fiscal Year 2011 and 2012 Statements

In fiscal year 2012*** (the fiscal year ends on August 31) – the NCAA took in $849,722,358.00 and had $780,951,834.00 in expenses. Of the ~$849 million in revenue, the NCAA paid out ~$745 million***( or 87.72% back to the schools, and spent ~$35.5 million or 4.18% on operational expenses. The net surplus for the year was ~$71 million.

In other words: it’s not billions, it’s 100s of millions going to the schools, 100s of millions going to broadcast partners and tens of millions to the NCAA.

You could argue that the second half of this blog post contradicts the first, but, hear me out:

If we’re going to have this conversation we need to have a concrete financial one. E.g. “How much do the big money schools generate in profits, how much do the smaller schools LOSE (most D1 schools operate at a loss) and how do we distribute the money fairly?” 

When it all shakes out is probably not going to be the player windfall many are thinking of, which is okay, I think. I’d much rather have big school vs. no name school in the regular season blowout games or bowl games involve players on both sides getting paid, rather than “they’re going to murder us and drive away in their new cars, while we go home to eat ramen”.

Looking at the numbers I wonder if the real reason the schools are pushing back is that they know that for this to work they have to subsidize the schools that are losing money, which may be a bigger issue for them than paying players.

Especially since, we all know schools break the rules on benefits, enable boosters to pay players, etc., all the time.

Either way, concrete numbers and realism is the key, because trying to base policy on hyperbole is a losing proposition.  

*By financial education I don’t just mean teaching them about managing a checkbook and credit cards. I mean teach them about the real world of wealth, about real deal financial advisors, how wealth = your net worth/net liquid assets and not your income. Get these guys to the level where if they get that $20 million contract and the $10 million endorsement deal, they think about establishing or joining a family office.

**This means a 3rd party, an accounting firm goes over the NCAA’s books and verifies/audits books and certifies them as accurate.

***You can find this data on page 21 of the 2nd link, I used the NCAA column to not revenues and cash out to the schools and the total column for the surplus as it aggregates data from other NCAA related entities.

****Roughly 2/3rds of the payout number was for DI football. 

Profit Sharing, Motivation & Incentives

The recent news of Southwest Airlines’ profit sharing payout got me thinking about incentives, compensation and motivating employees, but not in terms of profit sharing, but in terms of internal operations.

E.g. if an employee comes to management with a project that will generate significant operational savings, the employee gets to pocket say 2% of those savings above a certain threshold.

My thinking here is that large companies often have old, inefficient legacy systems whose negative impact isn’t always exposed to Sr. Management. The reason for this is that a (for example) retail executive wants to see same store sales increase, profits increase, etc., if that’s happening despite an employee time tracking system that is driving everyone nuts and wastes $50 million/year, it’s unlikely the Sr. executives will be aware.

A similar situation is occurring at a client of mine, we’re working on a project to replace a very wasteful system that EVERYONE agrees should’ve been scrapped years ago. BUT the reason we’re finally doing is because the stars aligned: it got on the right person’s radar, segregated budget so other priorities don’t hurt us, it supports other major initiatives, the right people were around at the right time, etc.

Still – the project is still one of those: “this has been tried before and it was abandoned, not because it wasn’t possible, but due to how complex it is” Furthermore I’ve heard people say that about aspects of the project, let alone everything we’re trying to do.

Now imagine a different world where the Sr. Executives say:

“I have money set aside specifically to replace legacy systems and/or for any operational improvement projects you bring me. If the value of these projects is above a certain threshold, I’ll give the exec budget owner X%, the primary team members Y% and the secondary ones Z% of the first year or comparable prior year cost savings.”

So in the retail example: a couple of frustrated store managers team with a corporate wide IT solutions manager and a few other people, and they research and design a new time tracking management system. They plan, execute and even if the project is ½ as successful as anticipated, the threshold was $10 million so each get say 2% of $20 million or $400k/each.  

Better yet the managers of the IT solutions manager and/or store managers might have his people actively looking for such projects.

If any of that was the case at my client, my current project would’ve been knocked out years ago as, well, 7-figure payouts are a huge motivation.

Extend the same thinking to people getting a % of sales and profit increases they had a direct hand in generating, in a way that goes beyond the usual bonuses and I suspect productivity and creativity increases across the board; a company full of employees looking for opportunities to take home millions will probably crush the competition.

As a bitter friend of mine noted a few years ago: “while I’m grateful to be in a situation where I regularly get $8-$12k bonuses every year, it’s kinda bullshit when you realize I had a direct hand in adding $100 million to the bottom line”

Put certain incentives in place and they’ll probably pay for themselves. On the team my friend worked on (I was a consultant on the same team), the employees had a pool for how small their bonuses would be in relation to the profits they helped drive.

Imagine how much happier they would’ve been if they know they’d get say 0.5-1.5% of whatever they generated over a certain threshold? As it is, nearly all of them quit the company within 24 months of my friend’s bitter comment.

The final irony is that while the banking industry is often THE Hobgoblin in the income inequality fight, they understand the value of sharing the wealth with employees better than most.  After all, how many companies are ANYONE a $10-$20k bonus, let alone a secretary?

Several years back when I was a Jr. Executive running a business that generated in the mid eight figures, had the highest margins in the company (Fortune 1000 size), operated in five countries, etc., my annual bonus wasn’t that high and I made a multiple of the typical Goldman Sachs secretary.

If you think of bonus as a % of base salary, Goldman valued its secretaries more than my former employer valued its Sr. Managers and/or folks with executive level responsibility*

Go figure.

I suppose one could read this and roll one’s eyes, as it’s really a story of say the 2-10% wanting the 1% to share some of the wealth, but I think it applies to all levels of workers. Just think of the apathetic retail and airline employees we’ve all suffered through, if they knew that they’re getting a chunk of your return business I suspect they’d work harder.  

*Yes, I’m still mad bro. 

Today’s mystery, whose Amazon fresh order is this? I didn’t order anything, so is someone using my account? Did delivery mess up? A surprise gift from Amazon? 

Someone get Sherlock Holmes on this. 

#Amazon #Mysteries

Today’s mystery, whose Amazon fresh order is this? I didn’t order anything, so is someone using my account? Did delivery mess up? A surprise gift from Amazon?

Someone get Sherlock Holmes on this.

#Amazon #Mysteries

Misguided Inequality Protests

Lately, I’ve looked at a lot of the inequality discussions I see online and via social media with a combination of bemusement and confusion.

 Wal-Mart is often part of the discussion for the simple fact that they pay people low wages, crappy benefits and are largely taxpayer subsidized via their employees needing various social services to survive.

 The funny thing is that big tech companies are part of the discussion as well.

 Google is being protested in San Francisco.

In the Seattle area Microsoft has been the subject of ire from inequality activists as well.

The last two examples are where I get confused: the inequality problem is being caused by two companies that pay people really well and provide great benefits; companies that are some of the country’s most generous when it comes to sharing a large piece of the wealth pie?

Huh?

What an absurd paradox: “The inequality problem is being caused by companies that pay poorly AND companies that pay well”

Maybe someone should tell the protestors that inequality is caused by the lack of availability of good jobs, educational opportunities and overall social mobility, not by people with good jobs living in and around your city.

Not to mention the fact that having a base of people in your area with good incomes helps the economy and creates jobs, via the money those people spend in bars, at retail stores, hiring people for home renovations, etc.

I live in a tech enclave of sorts and someone’s house is always being remodeled. I doubt the guys who have been working on the house(s) next door and waking me up at 7 AM every morning for the past month want to protest my neighbors and I. Especially since both sets of workers tried to pitch their companies services to me after seeing me walk down my driveway.*

Perhaps the issue isn’t the existence of nerds in your town as it is the lack of solidly middle class jobs for average people.

But I think there is a much larger issue here.

If you’re trying to work to resolve the inequality issue, doing so via ill-formed arguments makes it easy for people to dismiss you AND it takes attention from the real issues.

It pretty much plays into the hands of Mr. Burnsian mofos like the Koch brothers.

Maybe it’s time for a different strategy. I suspect they’d get more traction by pitching community development projects that would be a win/win for everyone, instead of saying: “you’re terrible because you’re paid well, go away” 

Quand Lady Olenna est absolument merveilleuse.

pantheremina:

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