New CA bill (SB-1401) could transform economics of college sports

New CA bill (SB-1401) could transform economics of college sports

A bill churning through the California legislature would make recent changes to college sports seem like amateur hour.

Senate Bill 1401, the “College Athlete Race and Gender Equity Act,” passed the Judiciary committee on Tuesday and is headed to Appropriations. As law, it would create a revenue-sharing arrangement between athletic departments at California universities and the athletes in their money-making sports.

Football and men’s basketball players, in particular, would receive tens of thousands of dollars — if not millions of thousands — directly from athletic department coffers via what the bill calls “degree completion funds.”

If SB-1401 becomes law, which seemingly could happen as soon as 2023, the requirements could place the California schools in the Pac-12 and Mountain West conferences at a significant financial disadvantage, create massive Title IX complications and threaten the long-term viability of Olympic sports, from softball to swimming to tennis.

Other than that, how was the play, Billie Jean?

Unlike name, image and likeness (NIL), which permits all college athletes to receive compensation for endorsement opportunities in the private sector, and unlike the Alston ruling by the Supreme Court last summer, which permits all college athletes to receive education-related cash payments from the schools, the provisions in SB-1401 directly target athletic department finances — the very budgets that support coaching salaries, support services, recruiting and daily operations.

And SB-1401 limits access to the cash to athletes in sports that generate revenue.

The bill is sponsored by State Sen. Steven Bradford, who represents the 35th District (Carson, Inglewood, Long Beach, etc.) and helped create California’s groundbreaking NIL law, which was signed by Gov. Gavin Newsom in 2019 and sparked an economic revolution in college sports.

But the energy behind the bill comes from a familiar entity: the National College Players Association, an athlete-advocacy group founded by former UCLA linebacker Ramogi Huma and supported by the US Steelworkers. (The NCPA was involved in the ill-fated #WeAreUnited movement in the Pac-12 two years ago.)

At its heart, SB-1401 states, “Excessive athletic program expenditures on salaries, administration, and facilities are not necessary to field intercollegiate athletics and should be partially redirected to address racial and gender-based inequities endured by college athletes.”

SB-1401 passed the Judiciary Committee on Tuesday by a 9-1 vote. However, the tenor of the discussion indicated the bill could face resistance in Appropriations or on the Assembly floor. Bradford offered only vague responses to concerns raised about the bill’s potential impact on women’s sports and, in the process, showed a deep misunderstanding of the realities of college sports’ unique financial model, wherein two profitable entities (football and men’s basketball) generate the revenue that supports more than a dozen money-losing ventures (the Olympic sports).

What’s more, SB-1401 either ignores or leaves undefined several key pieces to the calculation.

The bill would force the athletic departments at Cal, Stanford, USC and UCLA, along with San Jose State, San Diego State and Fresno State — plus those in the Big West and WCC — to create “degree completion funds” for athletes in sports that generate a profit (as defined by the bill).

Let’s use Cal’s football program as an example, because the Bears publish an annual statement of revenues and expenses on their athletics website.

In the 2020 fiscal year, when football was unaffected by the pandemic, the Bears generated $39.1 million in football revenue.

The provisions in SB-1401 would require Cal to set aside half that total for the players, then subtract the amount spent on scholarships ($3.7 million).

What remains ($15.9 million) would be placed in the degree completion fund, to be split equally among the players.

Assume 85 are on scholarship, and the result would be $186,500 set aside in the fund for each player.

The athletes could access a maximum of $25,000 each year, with the remainder available upon completion of their undergraduate degree — so long as it comes within six years of enrollment. (Players would lose access to the fund if they transfer to a junior college or a four-year school outside California.)

The bill forces universities to have “a fiduciary duty” to the athletes. And crucially, it states that any transfer of funds from the schools to the players “shall not constitute a payment for purposes of establishing an employment relationship.”

In other words, players would receive direct compensation without being subject to rules governing employment — they couldn’t be fired (cut from the team).

Essentially, SB-1401 wants the best of both worlds: The players would get paid for their work on behalf of the schools and have the security that comes from being a student on scholarship. (In theory, the payments would be taxable, but the specifics are not addressed.)

The prohibition on any form of employer/employee relationship is one of many components seemingly in need of clarity and resolution as the bill moves through the California legislature.

Other issues include:

— There is no mention of Title IX, the 1972 Federal law that requires equal and fair treatment for women’s sports and has stood at the heart of the Pac-12 ethos for decades.

When asked directly about the Title IX implications during the Judiciary Committee hearing, Bradford declared that women’s sports would be unaffected.

“The one thing this bill would not do is hurt Title IX,” he said.

That’s highly unlikely given that revenue from football and men’s basketball pays the bills for all other sports. (Women’s basketball teams generate revenue but are not profitable.) Without the millions of dollars in football revenue that would be redirected to the players under SB-1401, athletic departments could become more reliant on institutional support to fund their Olympic sports. That would undoubtedly raise alarms with the faculty.

The Judiciary Committee analysis of the bill states:

“The formula proposed by this bill will almost certainly benefit male student athletes more than it will female athletes. These disparate impacts mean that the bill might force California institutions of higher learning to violate their Title IX obligations not to discriminate on the basis of sex in any education program or activity receiving Federal financial assistance.”

— The bill doesn’t define what makes an “athlete.”

Would walk-ons be included? Could a third-string walk-on who doesn’t set foot on the field for five years be entitled to millions of thousands in compensation?

— Also unaccounted for in SB-1401: How revenue is calculated.

Would a school’s football and basketball revenue be limited to ticket sales, donations, concessions and parking, TV contracts and postseason income?

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