The NCAA and Its Money-Hungry Wall Street Attitude

I originally wrote this piece before the recent events came about at Ohio State (Jim Tressel’s resignation as well as the Terrelle Pryor investigation which has led him to leave Ohio State) and at USC (Reggie Bush’s ineligibility ruling that strips the program of their 2004 National Championship).  I will give credit where credit is due, the NCAA has done a very good job investigating the Ohio State case as of late, however, since the information has become more public it appears that most of the problems at Ohio State could have been easily found and fixed long before this season.  The fact remains, the NCAA still has major underlying issues with the structure of its compliance department, and the environment it has created within college sports.  With that being said, I hope you enjoy the post. – Andrew

If you pay attention to collegiate sports these days, one glaringly obvious shift has begun to occur: The NCAA has become the Wall Street of the sporting world.  It is not a claim that is made lightly,  not after the irreparable harm that Wall Street has caused our economy, our country and its citizens over the last several years.  As a former NCAA Div. I basketball player, I got to see the way NCAA compliance really works.  Ever since then, I have watched closely as the inconsistencies and hypocrisy grew with every infraction the NCAA ruled upon. The parallels to Wall Street are becoming eerily familiar… here is how.

Administrations and coaches are putting their self-interests (money and power) above their student-athletes interests almost every day at every program.  It’s a classic example of how the actions of a governing body (the NCAA) has set an example for its institutions to follow that is unethical and often times illegal.  Only in the NCAA’s case, they are the “be all, end all”.  The NCAA has the resources and power to act in any way they seem fit.  They are constantly sweeping corrupt and unethical behavior under the rug (ultimately encouraging it by turning a blind eye) without any controls in place to stop them from doing so.  How are they able to do this?  The NCAA is run and regulated by the same people who are allowing the unethical behavior to exist in the first place.  The people who make the rules, are the people who are breaking the rules (or are allowing rules to be broken underneath them).

The similarities between the NCAA and Wall Street are staggering.  Wall Street was able to run free for years and years because the people who were supposed to be regulating and enforcing compliance were the same people who previously had been a part of Wall Street.  The SEC and the U.S. Government, meanwhile, encouraged the behavior to happen by deregulating and turning a blind eye (mostly because their own pockets were getting fatter as they did so).  It’s no different with the NCAA.  The President’s of the institutions are the ones who run it and make the rules.  The compliance committee is made up of people who inherently are going to be self-serving when it comes to punishing the same institutions that they run.  There are simply no checks and balances to the system, and it skews the compliance efforts to protect institutions and punish (unfairly) the student-athletes in which they are supposed to be looking out for.  

The NCAA Infractions Committee is made up of 7 Institution member, and 3 from the general public.  According to the NCAA, this is meant to keep the committee balanced and fair.  Shouldn’t it be a 50/50 split then? Doesn’t the 7-3 majority strongly favor the institutions? Of course it does.  Even more so, the committee is skewed towards the larger institutions in the larger conferences.  The only smaller conference represented is the MEAC (Dennis E. Thomas, Conference Commissioner).  The point is, there is no one looking out for the interests of the players, and there won’t be as long the NCAA regulates itself.  

When it comes to players and their rights in the system that the NCAA has set up, the players have almost no standing, and they certainly do not have any advocates.  All the rules, which are supposed to define and defend amateurism, are really just oppressive measures to keep the power in the hands of the institutions which use the players for generating revenue.  I don’t know any exact statistics, but I would guarantee the average amount of money that a player in Division I basketball brings in to its programs institution (I’m talking all revenue, not just ticket sales) far outpaces the amount it costs the NCAA to operate and provide scholarships to those players.  The basic argument is that the NCAA uses its student-athletes to generate profit, stacks the deck against them purposefully (in terms of compliance, governance, and fair opportunity), and then continuously abuses the system that they created and control in order to keep the upper hand against the student-athletes at all times.

Meanwhile, coaches and the administrations that hire them are not held to the same standard.  There are no penalties against coaches when they take another job (transfer), there are no limits to the amount of money they can make, and there are very few controls on their actions. Why is a player not allowed to transfer without sitting out a year? (Or two years if they transfer within their conference.)  Coaches leave their jobs every season to take better positions and more money.  Moreover, when coaches are found to be in violation of the rules, they may get punished, but their punishment falls hardest on the players within their programs.  Why should the players get punished and banned from postseason play because of a coach’s actions? Why does Jim Calhoun get a free pass for making 1400 illegal phone calls and 1100 illegal texts, when Perry Jones gets suspended for the NCAA tournament because his mother (unknowingly to Jones) took and paid back lawfully a couple loans when he was a 16 year old?  Its absurd to even calculate the hypocrisy.  

Calhoun has routinely side-stepped penalties for infractions

The same thing goes for institutions that are allowed to switch conferences, make TV deals worth millions, build stadiums with public money, and reap all the benefits from ticket sales, jersey and apparel sales, NCAA tournament appearances, etc.  It puts in perspective the anger felt by Enes Kanter, who at age 14 was given a place to live and food to eat in exchange for playing club basketball in Istanbul. What did the NCAA do? They found this to be an infraction and wouldn’t allow him to play basketball this season.

When it comes to student-athlete rights within the NCAA, the only right they really have is to choose the program they want to go to, and once they are a part of that program all rights are waived.  Even the most basic of player protections, like limits on off-season training and in-season hourly constraints, are pretty much up to the institution (who remember IS the NCAA and regulates itself) to enforce.  These protections, by the way, as any student-athlete will attest to, are broken nearly every single week, by every single program.  The 20-hour rule? Yeah, right.  Its broken by the 3rd or 4th day of the week (optional work-outs are not optional if you want to play).  Ask the University of Iowa football players who nearly died how they feel about this rule? Ask them if they were protected by their institution and if the rules were enforced? Has anyone in the Iowa football program been actually punished properly? No.  Will they? No.  I’m sure Kirk Ferentz sleeps well at night when he sees his paycheck ($3.65 million if your wondering).  I bet anything his former players who now have severe organ damage are, indeed, having trouble sleeping; their careers could be over.

In now way am I saying that every program is unethical or immoral.  There are plenty of great examples of well run programs, but if you look across the landscape of NCAA sports, especially revenue generating sports,  you can pretty easily find the misgivings and maltreatment.  The bottom line is that student-athletes are facing an increasingly tough battle against the NCAA.  Something needs to be done, but it won’t come from the student-athletes. They know how tough their battle is, the NCAA makes that pretty evident to them (unless they put THEIR careers at stake and refuse to play, that will get the NCAA’s attention).  It needs to come from within the institutions that govern the NCAA.  Its hard to make that happen when it will undoubtedly hurt institutions where it hurts the most, their wallets.

Wall Street had its day in the sun, until the giant shadow which was the 2008 economic collapse cast its presence upon their operations.  Still, it has taken nearly 3 years to convict someone of insider trading, and not a single institution has been properly punished for their hand in the economic meltdown (pretty unimaginable all in itself).  Goldman Sachs continues to thrive, as does Citi and AIG.  The Obama administration has tried tirelessly to regulate the industry, to protect consumers and our fragile economy, yet is still coming up short.  It doesn’t look good for student-athletes in this respect, if the President of the United States can’t regulate an industry within his grasp, its hard to imagine anything stopping the NCAA and its broken system of governance.  I just hope that collegiate athletics and the student-athletes that make them possible don’t suffer the same consequences that the American people have because of the NCAA and its money-hungry Wall Street attitude.    

Andrew D. Henke

 

An Idea For Fixing Corporate Tax Subsidies

The number and extent of corporate tax incentives and exemptions in America is mind boggling. To even attempt to go into an in-depth discussion revolving around the topic would be comparable to a dog marking his territory whilst trying to chase his tail simultaneously. You get the idea. The top-level facts themselves paint a Rembrandt-esque portrait of how massive the corporate tax exemption program is in America, and how unmanageable and ineffective it has become. Here are the facts: The Treasury Department estimated in 2008 that the amount of corporate tax relief for American companies over the next 10 years would total more than $1.2 Trillion (2008-2017). Meanwhile, the estimated total tax revenue over the same period was projected to reach just $3.4 Trillion. It is important to keep in mind that this estimate took into account the Bush Tax cuts expiring last December as well (which they did not) Even so that means over 35 percent of corporate tax revenues are returned to companies across the nation.

The idea behind most corporate tax breaks is actually a very good one. The government, with its massive amount of funding available, takes that funding (and the leverage that comes with it) and reinvests it into companies in order to pull innovation and progress along. It is a classic example of a “pull market” and its power. As America has progressed and grown into the most powerful economy in the world (in part because this idea has worked tremendously), the implementation of the tax break system has taken a turn for the worse. Our government now finds itself funding developed industries and plateauing markets, with little innovation and progress actually taking hold. Remember, the idea is to PROMOTE innovation and progress.  America is increasingly relying on large bureaucratic organizations to provide that innovation, yet it isn’t happening at the rate it should be.

Take the Oil and Gas Industry (and the Big 5 Oil Companies that occupy it) compared to the Technology industry. The Oil and Gas industry receives more federal tax relief than any industry in America, and the technology sector is close behind. Now lets think about how that money was spent on both sides. First, we will look at the products both industries produce. The technology sector produces many different products, but most revolve around the computer and computer systems. The average cost of a home computer just 5 years ago was $450 according to Yahoo. Today, the number has remained essentially the same. However, the size, computing power, and quality of those computers has taken a dramatic step forward (see: iPhone 4). Not only that, but computers, as a product, generate wealth. A computer is an investment, and a damn good one.

The oil and gas industry, on the other hand, produces just that: oil and gas. The average price of a gallon of gas 5 years ago was $2.61, while today that number sits right around $4. The problem lies in that the product hasn’t changed. The technology to produce the product (oil) has changed and innovation in extraction techniques has as too, but it hasn’t effected the market for its product, which means its really money wasted. A lot of money wasted when you take into account the money Americans have wasted on that 150 percent increase in the average gallon of gas. Its an example of an industry receiving large amounts of funding to produce products that do not return the investment. Yet today, policy makers on Capitol Hill decided that this was still a viable investment.  It brings to question what the money is being spent on if the prices at the pump won’t be effected?

The facts are, that the $20 Billion dollars that will be sent to these companies could be spent more effectively in other areas of our economy. Instead of padding the wallets of the oil and gas companies, lets pad the amount of investment capital available to start-ups and technology ventures which create more wealth and innovation. Lets give agile and innovative small businesses even MORE resources to do what they do best… grow and create jobs. We know that sort of system can work, take the Defense Advanced Research Projects Agency for example. It takes a relatively small amount of money (by percentage of the budget) and turns it into amazing things like, you know, the INTERNET.  Or drone planes which have proven to be our most effective weapons in the war on terror. DARPA takes a strategy of creative and critical thinking, innovation and design, and creates technologies and industries which can stand alone and advance our society.

Not that the current system doesn’t still produce results. Statistically, the system still looks from the outside like it is working. The industries and companies that benefit the most from the tax-relief continue to do amazing things and continue to add jobs and revenue to our economy. General Electric and the “Big 5” oil companies are great examples. Their revenues are through the roof, and their ability to innovate and produce is unmatched on a large industrialscale. But just like the example above, the return on that investment by our Government is turning out to be less than zero.  Measuring success by these standards, to any investment minded person, would be flat out insane. The numbers produced to show that the system is successful are all smoke and mirrors. In order for investment information to be relevant, it has to be measured not just against a zero-baseline, but against the margin as well. An investor whose average annualized returns are 3% is making money, but if the S&P 500 pegged 8% in that same period, than the investor actually was losing out on that 5%. Compared to the margin, that 3% is actually a losing number.

In order to fix the problem of corporate tax relief, we need to start focusing on a real investment strategy which focuses on innnovation. We will never achieve the return on investment the American tax-payers deserve if we continue to stick our money in places that aren’t going to be worth our while. A venture capital firm would never invest in a mature market, or in a company that produces something which has no growth prospects, and our American Government shouldn’t either. The case is made especially strong when you take into account the size and wealth of the corporations saturating those mature markets with slow growth. The oil companies will still have enough money to invest in R&D and new technology without the tax relief. Ditto for General Electric and Boeing. We need to get back to our roots, and start creating a pull for innovation in markets which have growth prospects. We need to start comparing our investments through tax-relief against the margin instead of against zero. Most of all, we need to get back to our innovative roots. Its what our American economy was born out of, and that, above any Government fix to the system, is what will lead us into future stronger than ever.

Andrew D. Henke

Framing the “Sexuality in Sports” Discussion

The New York Times piece (link to article) on NBA Executive and Phoenix Suns President Rick Welts, and his struggles with being gay in an industry which considers such sexuality taboo, was well, underwhelming.  To most, the article and the topic it addresses will allow for what the media calls “a healthy conversation” on the industry of sports and the stigma of being gay within that industry.  To be fair, the subject is rarely discussed, and having a prominent figure like Rick Welts be the focal point should make the conversation interesting.  But isn’t it time we stop making this sort of story newsworthy? Not to make Rick and his struggles seem unimportant, they aren’t, but I think America has moved beyond the “coming out of the closet” story, or at least we should.

The discussion of gays in sports has always been centered around the premise that most athletes and coaches are not accepting of gays in their “world”.  This premise has largely gone untested, and has largely been framed as truth despite very few public endorsements of homophobia by industry insiders.  It brings to question whether there actually is a problem, or if it is just a another media generated topic to get people to watch and read the news.  David Stern, the Commissioner of the NBA, hit the nail right on the head in the article when he commented to the Times that he should have told Mr. Welts he thought “the world” would find the story “unremarkable”.  Although Mr. Sterns comment comes off as rather harsh (and to Mr. Welts and his family especially harsh), it shows that even after 33-plus years in the NBA (the last 27 as commissioner) Stern still has his thumb on the culture of America.  

It has been Mr. Stern and his associates (Mr. Welts especially) strongest asset in their years running the NBA.  His uncanny ability to understand the public, the perception they have about his league, and the shift in American culture that has taken place has ultimately led the NBA to its most successful and dramatic season in a decade.  Stern is not perfect, by any means, and that may come to fruition shortly (his handling of ownership issues surrounding the Oklahoma City Thunder, New Orleans Hornets, and Sacramento Kings is shady at best and on the verge of unethical).  The point is, Stern thinks the topic of gays in sports isn’t really the issue the sports media wants to make it.  

In 2007, former NBA player John Amaechi came out as being gay, mostly to the surprise of most of the NBA and sporting community.  As the Times stated in the article, there was backlash, especially from some former players.  What they didn’t reveal, was that the number of supporters in that case was largely overwhelming, and it proved then that our society today is willing to accept gays in all forms and in any industry.  For some reason, the homophobes are continuously the ones being heard in the conversation, which is why there is an issue in the first place.  The fact is, the world will never be cured from hatred and ignorance.  In the case of gays in sports, the majority is strongly on the side of accepting players, coaches, and fans.

The question now, needs to be how we move forward in the sports community knowing that gays are a part of it, and will continue to be?  The discussion needs to be framed in the future and I hope that ESPN and the other sports media outlets will do so.  If they fail to, the culture of sports in America will be hurt.  We need people like David Stern, who hold that influence in their hands, to continue to be supportive of people from all walks of life.  We need NBA analysts on ESPN and TNT to be proactive in letting the public know that the sporting community is no different than the rest of our society, and that gays should be welcome to participate in our sports craved society.  Anything different than that would continue a history of ignorance.

-Andrew D. Henke