College Athletes Becoming Employees Will Have Consequences

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College Athletes Becoming Employees Will Have Consequences

The College Football Playoff (CFP) agreed to a six-year broadcast rights extension with ESPN worth $1.3 billion annually. The new deal cannot be formally signed until the CFP finalizes the details of its expanded postseason format. 

That hasn’t stopped a growing cacophony of concerned onlookers from asking when the players would receive a share of the proceeds. There is seemingly a growing belief that steady threats to the amateurism model will eventually result in student-athletes being classified as employees. 

But the bulk of those pushing for change, including athletes at Dartmouth, Lafayette, and Villanova, are focused on what the players ‘deserve’. Few are considering –or understand– the net costs and consequences that will arise if/when student-athletes are afforded protection under the Fair Labor Standards Act (FLSA).

“That [ruling] can’t just be applied to select athletes at several dozen schools,” one power six athletic director said. “It would be for all [athletes at every] school.”

The problem with that is there is a fundamental difference in the value of an athlete participating in an enterprise generating north of $30 million a year in media rights revenue for a given school and those who aren’t; and in the institutions’ ability to pay said athletes.

“Very few [people] recognize there will be repercussions,” the AD said.

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Paying power five football players that collectively help to bring in billions of dollars in annual revenue makes sense.

“So, when people say, ‘student-athletes should be employees’, depending on who you are, it can sound fine,” the AD said.

However, that concept often fails to include context. 

The plaintiffs in the Johnson v. NCAA case argue they are de facto employees, according to NLRB’s definition, and thus should be covered under FLSA. 

Well, they are “basically [a collective of] FCS athletes that do not generate any kind of media rights revenue,” the AD said.

But if deemed employees, and many people believe the plaintiffs have a solid chance of prevailing in that case, all would be entitled to a minimum wage for their labor (which could include the time spent traveling to and from games, in film study, and in practice) and a host of other benefits.

Of course, all of that would be taxable.

The room and board currently received is taxable. However, few college athletes file a tax return, and the IRS rarely (if ever) pursues violators.

Presumably, that would change though if student-athletes were deemed to be employees. And there are other benefits that might get taxed too (think: merchandise allowances, travel costs).

“Right now, we’re able to pay for incidentals, like trips home during break,” the AD said. “But if [these individuals] are employees, that is probably [deemed to be] income from an IRS perspective.”

Depending on the value of a school’s scholarship, the bulk of a minimum wage income may end up just serving to pay off the student athlete’s tax bill.

“Basically, it will end up being a wash [at the player level],” the AD said.

But that won’t be the case at the school level. If athletes are deemed to be employees costs will go up.

How much? If one assumes a student-athlete works 20 hours/week and receives $15/hour, he/she would earn $15,600/year.

“Then there’s the benefits cost, social security, taxes, and FICA,” the AD said. “It will end up costing the university [an extra] $20,000 a year [per student-athlete].” 

A school with 450 student-athletes would have a new $9 million/year expense to cover.

Dartmouth, Villanova, “Lafayette, in the Patriot League, [are] not going to have the media rights revenue [to cover it],” the AD said. “Most Universities [won’t,] and there’s no place to carve that money out of.”

~75% of collegiate athletic programs are already taking millions of dollars in annual subsidies from central campus.

Of course, the source of that money is tuition (see: discount rate). In theory, a school –particularly one at a high power five level– could simply increase enrollment to cover the increased costs. 

But of the NCAA’s 1,100+ schools, ~75% are struggling to fill their beds each year. 

“The regional publics and small privates that are not elite, many of their application pools are shrinking,” the AD said.

And that’s before higher education falls off the ‘demographic cliff’ in ’26. 

So, lowering admission standards is likely not a solution for most.

It’s hard to know exactly what the repercussions will be should schools be forced to cover an additional seven-figure expense.

“People always say, ‘we’re not going to pay for that,’ and then when it comes down to decision making time they end up going along with it,” the AD said (see: college football coaches salaries). 

But logic suggests many schools will cease awarding athletic scholarships or reduce the amount in financial aid given out for select sports. Some schools will eliminate programs entirely.

“Ultimately, it’s [going to result in] a loss of opportunities,” the AD said.

That’s not good for the young college age demo. It’s also not good for the cities where these schools are located.

“If [a school] ends up reducing the number of teams it fields, that means less games, less hotel [rooms] and restaurant demand,” the AD said.

Private equity could, in theory, plug the budgetary hole. But institutional investors are looking for ROI and the schools capable of generating the greatest returns have lucrative media rights and licensing contracts; they’re not the ones outside the high power five that would be struggling to pay players.

“There’s nothing to monetize [there],” there AD said.

There is at least one scenario in which student athletes being deemed employees would help college sports. As employees, the athletes could unionize.

“Then the [schools] could [try to] set some kind of uniform standards and spending limits,” the AD said.

They could also negotiate to spin football off with an employment model, and keep non-football student-athletes as non-employee students. 

“But you likely couldn’t do that without some kind of special status declaration,” the AD said.

In the meantime, college athletics’ biggest fans will be asked to pay the players and help to keep their teams competitive.

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