Higher ed's other financial storm cloud.
A conversation with Extra Points’ Matt Brown about the changing economics of college sports and how they could change college.
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For generations, college administrators didn’t pay college athletes a portion of the revenue they generated for their universities. Thanks to a recent antitrust settlement, the bill has come due—and at a particularly awful time for higher education.
The Trump Administration has made warring on four-year colleges a key part of its agenda, something repeated last week in its new workforce blueprint. In recent hearings, the Administration’s Republican allies in Congress have asserted that they think too many people are going to college. Financial aid changes enacted in July will make that a reality, and cuts to federal grant spending are putting four-year schools in a deeper funding crunch.
I’m very much Team Pay the Damn Players, but I have to admit the timing is rough due to the ongoing efforts by the Trump Administration to undermine colleges it views as an ideological threat. Thanks to funding shifts and financial viability, some colleges may no longer be able to offer majors that help fill shortages in professions that still require degrees. If smaller colleges close due to all these new pressures, we could have another group of skilled professionals out of a job and nowhere else to go, raising the demand for workforce training (which the Administration also wants to cut) and creating downstream damage to local economies.
To help break down the impact of the college sports changes, I chatted last week with Matt Brown, the proprietor of the excellent Extra Points newsletter. I strongly recommend subscribing if you’re anywhere near higher ed because of the nuts-and-bolts way Matt breaks down the business of college athletics. It’s a great resource for policymakers, and I was thrilled to guest over there earlier this month to talk about the Trump Administration’s executive order purportedly “saving college sports.”
Matt and I talked about the financial pressures above, plus why college athletes might not want to be employees, an immigration impact you might have missed, and how the Trump Administration’s actions here might foreshadow more federal consolidation into the Labor Department.
Our conversation is below, with edits for length and clarity.
The fundamental economic shift in college sports.
Nick Beadle: If I was a workforce-type individual who had only a slight familiarity with what's going on in college sports right now, how would you explain what's happening and why—and what the Trump administration is now trying to do about it?
Matt Brown: The core economic model of college sports at the Division I level is changing. A major part of that is because of a huge antitrust lawsuit that the NCAA and the [largest athletic] conferences have settled of a couple of cases that were rolled up together under the House v. NCAA umbrella. Those cases are mostly concerned with athletes not being able to take advantage of [name, image, and likeness payments] as well as revenue that they should have been given via broadcast television.
As part of this settlement, you have changes happening in Division I. One is that everybody in Division I—big school, small school, Big Ten, Big Sky—is responsible for paying hundreds of millions of dollars in back damages to the plaintiffs. Those damages will be taken out of NCAA distributions over the course of a decade.
So, it's not like one $800 million check at the beginning, but if you're a small school, you're down maybe $22,000, $25,000 a year, which is meaningful. If you're a big school, you're out several million dollars a year in money that you would otherwise be getting to pay football players.
No. 2 is that for the first time, schools are allowed to pay athletes directly. Though these legal contracts are saying that they are buying NIL rights for athlete, you and me and God knows that these are not marketability or promotional contracts so much as they are talent acquisition or retention fees. But what it means is that schools have a max of $20.5 million, essentially a soft salary cap that they can use should they wish to directly pay athletes to keep them enrolled, or keep them from transferring, or sign recruits.
The last change is there's a new entity called the Collegiate Sports Commission that's set up that's not the NCAA to serve as a clearinghouse to enforce the terms of the settlement. The biggest common thing to note about that is it is meant to prevent teams from overtly and getting around the cap. So if you sign a marketing deal or any kind of NIL deal with an athlete that's more than 600 bucks, you have to submit it to this clearinghouse, which then goes to Deloitte who operates this huge formula and they decide whether that deal lines up with expected fair market value or range of compensation, based on a variety of factors, then approves it or doesn't approve it. It's supposed to be set up so you can't money launder deals through a charity to pay a right tackle $800,000 for two autographs.
Whether that will stand up to legal challenges, nobody knows. There are plenty of attorneys that will tell you it is an absolute antitrust violation—[that] it will get smacked down.
The Trump Administration is signaling that they want to support these efforts. They want to get rid of pay to play and impose a sense of structure on athlete compensation that has largely been absent over the past couple of years.
Why an athlete might not want to be an employee (and how it ties to immigration).
Nick: So ultimately the the athletes are not employees, though, right?
Matt: Well, ultimately the athletes are not employees as currently stated by interpretation of labor law. There is a federal case working its way through the courts right now in Pennsylvania, Johnson v. NCAA, which seeks to challenge that.
And it's it's specifically about FCS [the lower subdivision of Division I] players in the Northeast that says, “Hey, based on the level of control that these schools are exerting over athletes, that meets the employment test that they should be given workers compensation and minimum wage.” And there are several athlete advocates who say athletes should be employees. The Trump Administration and Republicans in Congress vehemently deny this. As of this exact second, a college athlete is not an employee.
Nick: Got it. And there are college athletes who don't want to be employees. I think for some of the worker advocates that read my newsletter, that might be a surprise. Why would a college athlete not want to be an employee?
Matt: I think it's important when we talk about college athletes, we're really talking about an enormous group of people, right? There are over 11,000 people that just play FBS [the higher football subdivision] college football. They run the gamut from people who are top-100 recruits at Ohio State—who are almost certainly going to make NFL rosters—to thousands of extremely athletic and ripped future dentists and Enterprise Car Rental managers at Eastern Michigan and South Alabama who are never going to have a pro athletic career.
But beyond that, we're also talking about hundreds of thousands of athletes across Divisions I, II, and III and multiple sports. Many of those athletes generate no meaningful revenue and have no meaningful professional opportunities to pursue their sport after college. And they recognize that being an employee comes with some costs.
A good example would be if you are an international athlete on a student visa. Well, if you're an employee, you can't be on a student visa anymore. Then you're a worker. The qualifications for getting like a genius visa or an international athlete visa are very different from a student visa. We've had immigration attorneys tell us that if you're like a college basketball player who's from, like, Belgium and you're playing for Central Arkansas or something, you're not getting a visa.
If you become an employee, they're deporting your ass, especially under this administration who's clearly very motivated to get rid of foreign students, particularly if you happen to be South American or East Asian.
So, you know, that would be a good reason.
The new financial peril at some four-year schools.
Nick: Shifting gears a little bit, the Trump Administration released another official plan that took aim at what it calls the failures of the “college for all” approach to getting people into jobs. A big thing this year among Republican political leaders has been the idea that too many people are going to college. You can see that in the student aid changes that were made a few weeks ago. I took a look at this and I gathered that some smaller four-year schools in particular may end up just being completely doomed.
I think that there are still a lot of people I talk to who tend to think that schools just make a ton of profit off of sport—I can see you smiling at that. How could [college athletics] changes impact schools’ ability to survive in light of these other changes that are happening because of the administration?
Matt: It's important for everybody to understand that American higher education is not a monolith. I personally think that's actually like a blessing and one of the real strengths of this system. We have hundreds and hundreds of universities that are extremely different and serve different kinds of institutions but they make money in different ways. The changes happening on the athletic side are actually pretty significant to the operating budget for many universities.
I think there are really two kinds of schools that are kind of under the gun at the moment. One [type] are what we would define as tuition-dependent smaller institutions, generally regional public schools in the Great Lakes or New England, or very small liberal arts colleges that are not academically elite. These institutions were struggling in many ways prior to Trump for things that had nothing to do with the federal government.
It was because of the demographic change as a country. We don't make as many college-bound high school graduates anymore. It's called the “demographic cliff,” and that demographic cliff does not affect the country as a whole the same way. Population is shifting away from the Great Lakes and New England broadly speaking into the South and into the Mountain West. So if you are an expensive liberal arts college in Cleveland or Western Massachusetts or Central Pennsylvania, in the 1970s, you might have had 6,000 students. Now you might have 2,000 and you really need bodies in the door to keep the lights on.
A major way that many of those schools—mostly at the Division II and III level, but somewhat at the smaller end of Division I—is through sports. They might sponsor 32 sports teams, and the thinking is, “No one's going to buy a ticket to watch our swim team, but enough people want to swim in college that they might entertain attending my university that they wouldn't go to otherwise if we can give them a chance to swim intercollegiately.” Because there are not a whole lot of [our] Pell Grant brothers and sisters who are in college swimming, chances are that guy is going to be able to pay [closer] to sticker-price tuition.
It might make a swim team or a lacrosse team or gymnastics program actually very profitable to a college even if it's not profitable in the way that Michigan or Ohio State football is. Changes in the House settlement make that less profitable.
Then you have cost pressures that might take away tuition dollars or other grants coming from the federal government. We also have schools that are rich, that normally would never have to worry about any of these kind of things, now suddenly looking at significant cuts. In my backyard a school like Northwestern—huge endowment, academically selective, normally not worried about budgets—you're looking at maybe having $700 million clawed back in research grants and then maybe pressure to sign some kind of punitive settlement with the Administration, based on what happened with Columbia, what may be happening with UCLA and Harvard and other places. Even Northwestern's not that liquid. They're going to have make cuts.
Nick: That's something that I know my readers in or around higher education have been concerned [about] from two fronts. One you've already touched on, which is the idea that money is there's going to be less money both because of this sort of tempest of different demands and changes that are all happening at once. Money may be shifted away from their programs or they just might be not be able to tap into federal funds.
But I also think they’re little concerned about affordability too because a big chunk of people just can't go to college without support that's going to be much harder to get. Most likely, chances are these changes and the changes coming from House or even this Trump [college sports] order could impact affordability because of things like student fees [to cover the cost of athletics] and things like that, right?
Matt: I wrote about this on Extra Points a couple of days ago. We published a long presentation from Virginia Tech athletic director Whit Babcock to the Virginia Board of Visitors, one that that calls for an increase in student fees, not just at Virginia Tech, but potentially other Virginia institutions to offset some of these other unexpected costs. Some from the White House, some from state governments that have been cutting ed higher education funding for a while, both Democrats and Republicans, and some because of House.
Nick: Yeah. And just to put together the math here: if you have all these increases in student fees and you have less student aid to go around, that means you're also going to be hit from the fact that there maybe even fewer students who are able to go to school.
Matt: That's exactly it. And then how do you redesign your business model to be a school that serves 3,000 people when you were used to being, you know, 4,500 or 5,000 people?
Why is the Labor Department involved in college sports now?
Nick: Switching gears again, [Sen. Tommy Tuberville], the likely future governor of my home state of Alabama, made things a little awkward when he was part of the confirmation process for the current Labor Secretary, Lori Chavez-DeRemer. He seemed to surprise her a little bit during that confirmation hearing by indicating that she would soon be in charge of college sports.
Since then, this Trump [“Saving college sports”] order came out and brings the Labor Department into this conversation about student athletes and their employee status. I had been under the impression—and particularly as someone who was a Department of Labor employee for a long time—that this was mainly something that had been in the bailiwick of the National Labor Relations Board. Before this year, has there ever been any sort of conversation about DOL or the Labor Secretary taking a bigger role in college athletics?
Matt Brown: Not off the top of my head. I know that that under the Biden Administration [Jennifer Abruzzo, the former NLRB general counsel] was certainly pushing a more activist role in college athletics and were encouraging people to file NLRB complaints and and signaling from the very early days of the Biden administration that like her view was that athletes should be employees.
One of the challenges about regulation of college athletics generally, and not to be partisan, I think it's probably more complicated than the Trump Administration, is that it isn't clear who's responsible for what. The ultimate conservative project is probably in three years to not have an NLRB—we have cases that may reach the Supreme Court, not in this year but in a year or two, that challenge the constitutionality of that board. We already know that the conservative project would like to eventually get rid of the Department of Education.
Do I view potentially moving some of this into Labor as part of a deep-seated administrative policy desire? Or is it more likely to be something of convenience to accomplish this particular goal, which is Trump wants to be seen as “The Sports President”? Trump wants to be seen as granting order to a chaotic space. I think it's probably more the latter, but this is a challenge.
Whether it's going to be Labor, whether it's going to be [Department of Justice], whether it's going to be what's left of [Education], whether it's just going to be executive order and hope that Congress follows along—I don't know.
Or I don't know if everyone forgets about this in four months.
Card subject to change.
Thanks to Matt for sitting down with me. I hope you enjoyed this interview—and I’m looking forward to doing more soon.
Tomorrow, I’ll be back with a piece breaking down what might be the core problem in the new Trump blueprint on workforce.
Friday, I’ll be back to break down the week in workforce funding, including the mixed messages the Trump Administration is sending right now on paying for transportation and other costs that are key to getting people to training so they can, you know, be trained.
Next Tuesday, we’re off to Utah, a state with workforce successes I have heard cited for the Trump blob grant plan—and boy is that the wrong lesson to take.