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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.


Interesting, but who or what insurance market would cover these insurance contracts? And wouldn't insurance against diminished performance be prohibitively expensive for all but a few?

I also don't think the professors take into account the fact that the quicker the players sign their first contract, the quicker they can begin accruing time towards that second contract (which doesn't have the same rigid rookie cap in place). Assuming that the insurance would cover diminished performance or injury, it doesn't make up for the fact that a player leaving college after year 1 signs his next major contract in three years, as opposed to the player who stays 4 years. In essensce, the player would be taking the risk of an initial injury while at school, and then an additional three years of injury in the NBA before a significantly larger payday is available. Although, perhaps the professors would propose some type of insurance for that, too?

Anonymous Anonymous -- 5/08/2008 11:16 AM  

Sounds like ivory-tower-itis to me.

Anonymous Anonymous -- 5/08/2008 11:47 AM  

Ludicrous. Even assuming this far-fetched idea of this new insurance product was workable, the professors are saying that college players would give up actual money paid now, for potential money paid in the future. So, let's see, you can get $1 million a year for the next four years, or you can stay in school on the promise that if you don't get $1 million a year when you get out, we will make up the difference. Ridiculous.

If colleges want to compete for these players, it should pay the players. If they're not going to compete financially for their services, they can't complain when they go somewhere where they will be paid.

Anonymous Anonymous -- 5/08/2008 11:50 AM  

Well, the professors did get the NCAA = cartel part right. Other than that, well, sorry about Love...I guess.

Anonymous Anonymous -- 5/08/2008 11:59 AM  

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Anonymous Anonymous -- 5/08/2008 2:36 PM  

I might try to write more on this, but wouldn't an overhaul to the current prohibition on agents/endorsements be just as effective? Arguably, the prestige and fame of playing the sport at the highest level is another factor on top of the millions of dollars in potential earnings. It's all connected, but wouldn't allowing endorsements cut into both the economic and prestige factors involved with professional sports?

Granted, this would never happen in the current view on college athletics. And arguably, if we want to change how college sports operate as far as treating student-athletes who expect to play professionally, it shouldn't happen at all.

Blogger Satchmo -- 5/08/2008 5:54 PM  

OK gang. Article ripe for comment.

Blogger Mark -- 5/09/2008 9:47 AM  

very good blog! congs!

Blogger bookanalyzer -- 5/09/2008 10:14 AM  

Only problem with this is going to be two words:


Because as soon as this comes up, either (a) one of the other sports (i.e. golf, tennis, volleyball, gymnastics, crew, etc.) or (b) some crazy feminist types from the Women's Sports Foundation will come along and demand equality under Title IX.

Another good reason to modify or outright repeal Title IX--no, make sports EXEMPT from Title IX, since no college sports get federal funding!

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Blogger YA76OO -- 5/11/2008 8:09 AM  

Are there any instances of US high school players jumping to European leagues immediately after high school then returning to the US NBA in order to meet the NBA requirements of being one year removed from high school and at least the age of 19? Would the immediate payday in Europe for one year be diminished by the hype created by US media in NCAA ball?

Anonymous Anonymous -- 5/12/2008 11:19 PM  

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