Paying NCAA Athletes: What Does That Mean?

By Joe Messinger, CFP®

March 19, 2020

3 min READ

College sports is big business. The NCAA earns billions of dollars every year, and colleges are tax-exempt so their earnings are tax-free. Only a few sports make money–mainly football and basketball–and often some of the revenue from those two sports go towards paying for all the other sports offered by that college, but paying NCAA athletes is forbidden.

Many argue these athletes are full-time employees. Their colleges are making money off their names and images, but college athletes have no ability to receive compensation themselves. Most college athletes do not go on to professional careers so their grueling schedule and potential physical injury will not result any monetary reward. Meanwhile, coaches are making millions of dollars. A new California law wants to change this practice and allow companies to start paying NCAA athletes. Now, the NCAA will need to respond.

What does the new California law provide?

The Fair Pay to Play Act would allow college athletes at California colleges and universities to hire agents and to accept endorsements and sponsorships and still maintain their athletic eligibility and scholarships. They can be paid for use of their name, image, or likeness. This legislation is not due to take effect until January 1, 2023.

The college themselves would not be paying NCAA athletes. However, athletes could get paid by outside companies to use their likenesses in video games, or they could get endorsement deals from apparel, sports equipment, or a variety of other businesses who would like an athlete’s name as part of their marketing. That endorsement deal cannot conflict with any existing contract the college is in. For example, an athlete cannot be sponsored by Nike if the college is sponsored by Under Armour.

What does the NCAA have to say about this?

The NCAA, National Collegiate Athletic Association, was created shortly after President Teddy Roosevelt brought together the Harvard, Yale, and Princeton presidents to hash out some rules for college football to prevent cheating. The NCAA maintains a list of rules created to maintain the amateur status of college athletes. They argue these athletes are students first and foremost.

The California law includes wording that says an athletic conference, like the NCAA, shall not prevent a college from participating in sports or punish that school as a result of having students who are compensated. So what can the NCAA do? After all, a law trumps the rules of a mere “organization” like the NCAA. The big question is will California schools still be part of the NCAA if they are forced to follow the law and by so doing break the rules of the NCAA and end their membership in that group.

Currently, the NCAA is studying the measure. If students are allowed to be paid, does that money get held in a trust until the student graduates? However, the NCAA is a conservative group and highly unlikely to institute sweeping change.

This story continues to evolve.

Other states like New York and South Carolina have introduced similar legislation–even a federal law is possible. What happens if the California law takes effect and colleges outside the state refuse to play against them? After all, California will have a huge advantage in recruiting. What player wouldn’t like the chance to get paid?

In the end, can we really say that college sports with their professional coaching staffs, amazing stadiums and facilities, and huge media contracts are really amateur endeavors? How will the NCAA go forward? Will they change the rules for all, allow California colleges to change and remain in the NCAA, or expel California schools from the NCAA? It really is kind of a mess, but with since the law doesn’t take effect until 2023, we will have awhile to wait to see what happens.