Fascinating Ruling by SCOTUS on Athletes vs the NCAA

Just handed down today.  Justice Gorsuch wrote the opinion with Kavanaugh concurring.  This opinion will have some far-reaching and unanticipated effects.  It opens up a lot of ways for athletes to monetize their skills.  It also will put a lot of undue pressure on kids in high school on down to grade school.  I suspect much of that pressure will come from parents seeking to mine gold off their kid’s athletic ability.

There are a lot of angles here.  One is the obvious one about athletes making money.  My gut tells me that athletes will create scalable startups that solve problems in this space because they are closest to the problem and feel the pain.  Already we are seeing some.  Brandon Wimbush has a platform. He played QB at Notre Dame.  But prior to him, Serra Ventures funded Opendorse in Champaign, IL.

However, I think the ruling creates a lot of uncertainty that will be fun to watch play out in the ensuing years.

In microeconomics, one of the interesting battles to watch is the contest between producer surplus and consumer surplus.  Who gets more?  The Supreme Court just opened up a huge battle for that surplus between the NCAA and the athletes.  There is also a surplus that each athlete will have to fight for.  The thing is in this case, it’s not a fixed pie.  I suspect the ruling will grow the market.

What happens to team dynamics?  The star will grab most of the money and in the case of really big stars like Trevor Lawrence will hire agents to represent them.  How about the All-State kid that is playing but barely gets a mention?  Will kids push to get more recognition and playing time?  Will transfers increase?  Will players be more incentivized to band together to create a superteam? There will be new and different pressures on college coaches but they are similar to the pressures pro coaches get.

How about conferences?  Why wouldn’t the top teams in football or basketball get together and create a Champions League-type format?

What about pro leagues?  As the opinion cited, it was said football player Hugh McElhenny took a pay cut to matriculate from the University of Washington to the NFL.  I know my friend I traded with had a father who was a number one pick in both the NFL and MLB but decided not to do it because he could make more money in the insurance business.   Will athletes stay in school longer if they are making money there?  Will the pro leagues have to pay them more to entice them to leave?

Conversely, if I am a university what am I going to provide for free to athletes and what am I going to charge for?

Reading the full opinion and the subsequent explanation is interesting too.  It’s complicated.  In 1852, Harvard and Yale had a boat race.  It wasn’t a wholesome amateur athletic endeavor. Today, the NCAA and member conferences make billions from basically two sports, Men’s D1 FBS football and Men’s D1 basketball.  I don’t want to hear how every athlete should get equal pay though no doubt that will happen. I am sorry, no one is paying big money to watch the other sports.  I am not going to my local watering hole to watch the woman’s soccer team.  I go to watch the Big 2.

However, as Wimbush’s platform postulates, athletes that aren’t the headliners in the top two sports will still be able to make some coin.  They could endorse local establishments.  They can now give lessons.  Why wouldn’t you take a tennis, golf, or other lessons from a D1 athlete?  Some of them go into coaching after college anyway.  Athletes in those lesser revenue sports might get hyper-creative and solve the problem themselves.

Crypto offers yet another opportunity for athletes to monetize.  NFT’s, tokenization of merchandise, and maybe even tickets. What about payment platforms?  Proof of work, stake as it relates to athletics?  We are only scratching the surface.

It’s easy to think linearly about how the issues will be solved but my guess is that a Pandora’s Box has just been opened.  Competition has been unleashed and when people and companies get competitive, innovation happens.

What’s this ruling mean for other industries that are monopsonies?  That could be huge as court cases get filed based on this precedent.

It’s pretty easy for anyone to look at this and opine that the big nationally known universities in particular sports will benefit. Traditional powers like Notre Dame, Alabama, USC, Clemson, Ohio, State, Texas, Michigan should reap the benefits in football.  Duke, Kansas, Kentucky, Indiana, UCLA, and other bluebloods of college basketball should benefit.

What will be really fascinating to watch is if someone from nowhere turns from nothing into a power.  For example, in the early days of college sports, the Ivies dominated.  They are an afterthought now.  But, they are consistently are rated the best academic schools.  Layer on that, many of the Ivies have very good entrepreneurial programs and great startup environments with great networks paired with them.  Could they rise and become national powerhouses again?

What about a school like the University of Chicago?  It was the powerhouse football school in 1900.  Chicago Booth is the best business school in the country, the law school is always in the Top 5, and the Polsky Center is the best university startup accelerator.  Could a school like Chicago rise from D3 to D1 and create a powerhouse with the new rules if they wanted to pursue it?  Soldier Field might be vacant soon if the Chicago Bears move to Arlington Heights….

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