Rents Accrue; Rents Get Collected

College athletes, themselves, are prohibited from collecting their value. But that value accrues, nonetheless. Most would agree that the excess of a college player’s marginal revenue product over actual in-kind payment stays in the athletic department. But “talent collectors” also receive some of that value. In an issue I first saw raised by Peter Golenbock in Personal Fouls (NY: Carroll and Graf, 1989), resurrected yesterday by Eric Prisball at the Washington Post, AAU tournament team coaches have pushed the tax laws to their advantage in collecting part of the rent.

These AAU teams are the real source of nearly all top-level potential college basketball talent. They play in summer exhibition leagues and tournaments, attended by all major college coaches. The most recognized is the “McDonald’s All-America” tournament, typically held in Las Vegas or Southern California.

Many of the AAU coaches have structured their teams as not-for-profits so they can accept donations. Typically, these donations are from shoe/apparel companies for advertising during the dozen or so tournaments played by this cream of the crop of potential college athletes. But now it appears that donations from college boosters are a popular way for particular college coaches to gain access to the best talent collected by these AAU “coaches.” The booster makes a donation (it’s illegal for college athletic departments to make this type of donation), the college coach gets recognized by the AAU coach, and the AAU coach is free to use the money as he sees fit (including paying himself). Mr. Prisball finds that these donations have been in the $20,000 to $50,000 range. But that’s just among the AAU coaches who will admit to the practice (anonymously). From Prisball’s article:

“Everyone is doing it,” one prominent AAU coach said. “But if there is a seller, there is a buyer, too, and it involves everyone from agents, runners, college coaches and boosters. AAU coaches say, ‘This is a better, easier way.’ It may seem right, but ethically it is laundering money. While it is different from handing someone a bag full of cash, the intent is the same.”

Famed original summer league entrepreneur, Sonny Vaccaro (now employed by Reebok) is quoted as follows:

“Why would you remember someone who did not help you, as opposed to someone who did help you?” Vaccaro said. “The person who gave the money would not give the money unless they thought it helped them. There is no benevolence on this level for saving mankind.”

Now it is true that these “coaches” perform a service. But it is equally true that the players see none of this money that they generate in the first place. Regardless of one’s opinion about the ethics, economically, this is an interesting other signal about just how much college athletes are worth versus how much they actually receive in compensation. And it also is interesting evidence supporting the economic prediction that changing the rules about who gets the money doesn’t change anything about whether or not it gets collected by somebody. I always find it interesting that people supporting the NCAA amateur requirement would rather see the money go to recipients like these “talent collectors.” But that’s just me.

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