The Legalities of Paying Athletes to Stay in College [e164]

March 16, 2015

Nasir and Matt talk about the company that’s attempting to convince athletes to stay in college by raising money from fans.

Full Podcast Transcript

NASIR: Welcome to our podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha.

MATT: And I’m Matt Staub.

NASIR: I was going to try to do the lead-in for this even though it’s another sports story and the only reason is because I was at Sports Clips this week getting my haircut done. Yeah, that’s right; I get my haircut done at Sports Clips. And so, I was sitting down in the waiting area and there was I think it was ESPN. There were two guys. It looked like they were doing a radio show but they were being filmed on TV which I thought was strange.

MATT: Mike and Mike probably.

NASIR: Yeah, I think that sounds right. They were talking about this exact story and I’m like, “That’s pretty much Matt and I.” We might as well be on ESPN.

MATT: Yeah, maybe. Actually, this is good timing. This episode will come out on Monday and this is right after Selection Sunday.

NASIR: Oh, yeah.

MATT: Which you actually like. I mean, Dayton will be back. You had your big Dayton thing last year. They’ll be in the tournament.

NASIR: Will San Diego State make it this year? I don’t think so, right?

MATT: They’ll definitely be in it as well. I’m projecting they’ll probably be a seven. I mean, it’s still hard to say because they still have a couple of games possibly at this point, but they’ll probably be around a seven. They’ll definitely be in.

NASIR: Well, I was looking at their rankings and I was confused because there’s 36 teams that are selected, right?

MATT: 68.

NASIR: Oh, okay, then that makes sense because I thought they were outside that 30-some. So, okay. Phew! Very close.

MATT: Now, they’ll definitely be in because they won their conference and it’s not a problem for them.

NASIR: Yeah, I was thinking, like, they won their conference, they should be able to. Okay. Well, yeah, so Dayton and San Diego State, they’re going to be in the finals probably.

MATT: Bold prediction. They’ll probably play each other first game.

NASIR: Not to get distracted on our topic but you heard the billion dollar bet or billion dollar perfect bracket is no longer on the table this year because there was just too much legal dispute as to who came up with the idea and then people were upset because one of the participants went to the insurance company to insure the billion dollar bet but, by doing that, it made everything public and kind of let the cat out of the bag, so to speak, before they wanted to and it became a whole legal hoopla.

MATT: I didn’t see that. That’s not surprising, I guess.

NASIR: We’ll cover that next year – a little too late.

MATT: Let’s get to your story that you already saw earlier in the week which is I’ve a very strong – well, not strong opinion – I think I have a correct opinion on this.

NASIR: Okay.

MATT: But this guy in – I believe – Chicago came up with this new idea. Actually, if we go really far back, I think this is one of the first things we ever talked about with the investment into a player. Do you remember that? That was a long time ago.

NASIR: Yeah.

MATT: Adrian Foster.

NASIR: Adrian Foster, the Houston Texans, but that was for the NFL professionals, obviously – a little bit different.

MATT: Well, it does mention professional possibly in here, but basically what this company is, this idea, this concept is, if you don’t follow sports, basically, you have four years you can play in college and then you have to leave. But some guys that are really good, especially in basketball and in football too, you have to play a couple of years, but you can play and then go to the pros and, you know, then your college team’s worse than it was presumably when their good players leave. So, this guy’s idea was, “Hey, I will just come up with this thing where anyone can donate money,” and a certain percent – it says 80 percent but then, when you look into it, it’s a little bit different because he takes a pretty good chunk out of it himself.

NASIR: He had 9 percent.

MATT: Yeah, 80 percent of it will go to the player, 10 percent to his teammates, and 10 percent to a charity/scholarship. So, hopefully, this money will convince this person to stay. All right. Well, first things first, this isn’t going to work. I can see players that aren’t that good doing it as, like, a way to try to possibly get money. But, to me, there’s a lot of issues with this. One, it’s definitely not going to work. Like, if people donate money to this, it’s kind of stupid in my opinion. Two, I feel like this is infringing. I mean, the big thing with college sports is they have to be an amateur. Once they’ve crossed that line, they’re not an amateur anymore, they can’t play college sports anymore. So, you know, really blurring the lines here of accepting money to stay in college. You can’t even do sponsorships sometimes, things like that. So, this seems like a pretty big issue that will definitely not work for multiple reasons.

NASIR: Well, what’s interesting is that, I mean, they obviously know about these NCAA rules and all that stuff. Keep in mind that these are all just made-up rules. It’s not like it’s a law that’s been passed. This is a private organization.

MATT: Right.

NASIR: By the way, on the radio show the other day, they were saying the creator, the founder of the site, he actually met with NCAA executives. He wouldn’t name specifically who and he also didn’t say that he was given any kind of green light with them but they had a so-called “dialogue” and he seemed to be very positive from it but who knows actually what was said in that meeting. But he does specify that there’s no acceptance on the athlete’s part and there’s no promotion of any specific athlete. It’s just a whole roster that anyone can present and the money’s not given to the athlete until after college. So, in theory, it’s like, “Okay. Even though this money’s accruing, he doesn’t get it in till after college. So, where is the issue here?” That’s, of course, their perspective on it.

MATT: If they’re not getting it till after college, why would they? I mean, the whole point is they stick around because the thing is you go to the pros and you make millions of dollars so they’re going to stick around and not get the money.

NASIR: Yeah, that’s a good point. Well, I think once it’s donated, it’s a prospect. What if someone gets injured or whatever? It may not get picked up in the draft or it doesn’t do that well after college. They at least get those funds. But that’s a good point. Also, if the student doesn’t finish college, I don’t know the exact terms but somehow the money’s returned. Matt already broke it down – 80 percent to the athlete, 10 percent to the teammates, and 10 percent to charity and scholarship funds which, even that breakdown itself, you know they’re trying to appeal to the PR aspect of all this because it’s a little touchy of a subject. But they also mention that 9 percent of it gets taken out to the house and, obviously, that adds up to I think 109 percent.

MATT: Yeah.

NASIR: So, I would assume 9 percent is taken off the top or something.

MATT: I would assume so. It could just be a poorly-worded sentence by the person who wrote the article, too. I hope the guy that created this isn’t stating these numbers.

NASIR: What do you think about giving 10 percent to his teammates?

MATT: I don’t really understand that part of it. First of all, if it’s a football player, you can have a lot of teammates. That’s a weird part for me. I don’t know if you heard why, he explained why that was.

NASIR: You know what it is? It’s because they’re looking at these players as professionals even though they’re amateurs. Like you said, they’re in college, they’re students. But, if one teammate or one particular player is successful, it has something to do with his teammates. He doesn’t do it alone and this person, I guess this company’s attributing that 10 percent to that success. I do find that interesting. By the way, I don’t know, we keep saying “he” and “football players” but I don’t know if this is just specific to football. I would assume that this would apply to any sport.

MATT: I mean, realistically, it’s going to be football and then men’s basketball because the thing is even the WNBA, they don’t make that much money. I don’t know if anyone’s even left women’s college basketball to go to the WNBA. And then, I mean, all the other sports, I guess baseball is a different story but, for the most part, no one’s going to leave field hockey to go play in the professional league if that’s a thing.

NASIR: I could see, you know, really passionate alumni that want to support their school in a much different way, I suppose, to encourage, you know, someone who announces, “Look, all the athletes that go to my school, I’m going to donate some money to them.” That may be enough to garner support. Who knows? If it’s legal, I have no idea. I mean, like you said, this whole thing, NCAA is not going to be happy about it.

MATT: Yeah, and kind of what NCAA said a few months ago, because they issued this guidance on these crowdfunding sites.

NASIR: Yeah.

MATT: Basically, it said that college athletes’ names could not be used to promote such sites. It would compromise an athlete’s eligibility. Accepting money that is put in escrow still counts as accepting money at the time the athlete accepts it. Basically, this is what you said before, the guy’s saying, “Well, they’re not accepting it and we’re not promoting any athletes,” which I don’t understand because it is going to be specific people that are going to be leaving. It just doesn’t really make any sense. Who’s going to donate money to this?

NASIR: Yeah, I think that’s the harder part. Let’s assume that everyone buys into it as far as everyone being the fans. It is kind of a very disruptive concept because it’s kind of like, you know, when you’re in school and there’s a test. It’s like, “Well, what if we all just walk out or not take the test? What are they going to do? Fail us all or expel everyone?” Of course, that never works but, in the sense that all it takes is a couple of weeks of publicity – and even this week maybe – and all of a sudden people start buying into it and giving money, what are they going to do? Are they going to make all those particular athletes ineligible then all of a sudden you have a group of 50 athletes across the country that no longer can play football? That doesn’t seem like it would be the result, right?

MATT: How the NCAA works is it rarely punishes the big players because it wants to make sure those players are playing because it generates more money. So, the players that are going to be leaving that people actually care about and want them to really stay, they’re going to make so much money in the pros. It just wouldn’t make sense for them to stick around another year. The people that want to stick around are going to.

NASIR: Yeah, but it’s not guaranteed they’re going to make money in the pros. In fact, probability-wise, that’s very low, right?

MATT: The good players are.

NASIR: Yeah, the good players are, exactly.

MATT: You take out insurance policies too in case you get hurt.

NASIR: Yeah, that’s true. I think that, if this company survives – I don’t know – all it takes is a year or one season. If it survives a season and gets any kind of traction, it’ll be disruptive in general, but I think it could be a catalyst to real big changes in the NCAA. That’s my prediction. That and San Diego State and Dayton in the finals.

MATT: I wonder, how much money would the fans of the Kentucky basketball team have to pay? I mean, those players are already making probably millions of dollars a year to come to Kentucky and on top of that too, it’s a lot of money they probably have to donate. That’s my prediction. Well, I guess we can still do our best that we did last year which you said you were going to get or there was going to be one perfect bracket. I forget exactly what you predicted but you predicted…

NASIR: Oh, yeah.

MATT: Actually, you predicted multiple perfect brackets, I think.

NASIR: That would be before I had any knowledge of statistical probability for that.

MATT: There was, like, one person that survived day one and then you were out, like, immediately day two or something. You lost essentially right away.

NASIR: I would guess that there’s only going to be three perfect brackets this year. I’m going to lower it down a little bit.

MATT: Yeah, I’ll definitely take you up on that one.

NASIR: A billion dollars?

MATT: Yeah, our own private billion dollar bet.

NASIR: All right. Well, thank you everyone for joining us this day of podcasting. Thank you.

MATT: Keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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