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Thursday, May 08, 2008
Professors Thomas Hazlett and Joshua Wright on Insuring Top College Basketball Players
George Mason University School of Law professors Thomas Hazlett and Joshua Wright have published a provocative and engaging op-ed in today's Chicago Tribune that proposes insurance as a way of offsetting the risk to players and schools that the players leave early for the NBA Draft.
Here is an excerpt from their piece:
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Cross-town rival USC was left in even worse shape by its freshman sensation, O.J. Mayo. A bitter fan posts: "As a Trojan alum, I have a hard time feeling like O.J. Mayo was ever a Trojan at all . . . I'm glad he's off to mediocrity in the NBA."
Many call for an end to this "college" charade. Proposals include urging the NBA to restore its old rule, drafting high schoolers, or going back to the old-old rule, waiting to draft until four years after high school. But the NBA is unlikely to be moved: This isn't the NBA's problem. Our suggestion is to attack the problem at the college level, where the sport is left twisting in the wind.
First, we note a standard economic problem. Players jump to the NBA because prices (wages) tell them that that is where they are valued. But those price signals are wrong. The college game delivers as much or more excitement, pound for pound, as the pros. What mucks up the system is the NCAA cartel, which restricts payments to college players. The universities maintain that students are amateurs and that it would violate ethics to pay them cash money. This recalls the elitist tripe that the International Olympic Committee maintained for a century, a laughable lie that fell soon after the collapse of Soviet communism—a provocative correlation we'll leave to historians.
Second, we posit that there are two reasons that freshman stars are so likely to leave college early. One is that NBA salaries are high, and that each year a player waits to cash in is one very rich year they lose. Until the NCAA cartel is smashed, that problem is beyond our solution. But the second motive is to mitigate risk. One clumsy leap and a $7.6 million guaranteed contract—the expected price tag for this year's 12th NBA pick—goes poof! And, as financial economists will tell you, that first $7.6 million is probably more important to you than the next.
So the answer, given that universities cannot pay athletes market wages, is to at least insure them. Were underclassmen to be appraised, via draft rankings, and then offered compensation in the event—post-graduation—they slipped by some increment, they could hedge this very considerable exposure. The NCAA allows players to insure, but the player pays even though it is largely the university (and its fans) that benefits. Moreover, policies can only insure against career-ending injuries, leaving the more common outcomes—less serious injuries and performance-related changes in draft status—terrifying prospects.
The schools should extend broader coverage. The contracts we propose do not fully compensate college athletes for their valuable service, and would thus retain only some of the talent now jumping early to the pros. Yet, the approach would preserve the NCAA's "amateur" wink, while allowing student-athletes to play college ball until their 21st birthday without risking the family jewels. A slam dunk, really.
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To read the rest of the piece, click here. To check out Professor Wright's excellent blog, Truth on the Market, click here.