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Draft Insurance for College Hoopsters:

My colleagues Tom Hazlett and Josh Wright have a proposal for responding to the incentives for college basketball players to leave college early and to to turn pro--draft insurance for college underclassmen paid for by the university. They admit that for athletes from financially poor backgrounds this won't provide much of an incentive to stay, but for others it might. The premise is that there are some athletes who would like to stay, but simply can't afford it. For many top basketball players (such as Kevin Love), the marginal benefit of staying is relatively small in the sense that he may work up a few slots in the draft order but the marginal cost is quite high in the sense that a poor season could reduce his draft stock substantially. Right now the NCAA allows players to buy insurance for major career-ending injuries but not for minor injuries or performance declines that reduce draft position. Current rules also prohibit the insitution from paying for the insurance.

Here's Tom and Josh's wrap up:

Second, we posit that there are two reasons that freshman stars are so likely to leave college early. One is that NBA salaries are high, and that each year a player waits to cash in is one very rich year they lose. Until the NCAA cartel is smashed, that problem is beyond our solution. But the second motive is to mitigate risk. One clumsy leap and a $7.6 million guaranteed contract—the expected price tag for this year's 12th NBA pick—goes poof! And, as financial economists will tell you, that first $7.6 million is probably more important to you than the next.

So the answer, given that universities cannot pay athletes market wages, is to at least insure them. Were underclassmen to be appraised, via draft rankings, and then offered compensation in the event—post-graduation—they slipped by some increment, they could hedge this very considerable exposure. The NCAA allows players to insure, but the player pays even though it is largely the university (and its fans) that benefits. Moreover, policies can only insure against career-ending injuries, leaving the more common outcomes—less serious injuries and performance-related changes in draft status—terrifying prospects.

The schools should extend broader coverage. The contracts we propose do not fully compensate college athletes for their valuable service, and would thus retain only some of the talent now jumping early to the pros. Yet, the approach would preserve the NCAA's "amateur" wink, while allowing student-athletes to play college ball until their 21st birthday without risking the family jewels. A slam dunk, really.

ChrisIowa (mail):
If they want an education, they should stay in school. Or finance it later from the proceeds of their pro career.

Most of us made career decisions before we were 21 and while we were in school. I see no reason to insulate someone from the results of their career decisions, just because they are an athlete.
5.10.2008 10:13am
jvarisco (mail) (www):
Why exactly is this necessary? They aren't in college to get into the NBA, they are there to get an education. Considering the amount of time they spend on school proportional to sports, it's probably better for them not to be there.
5.10.2008 10:17am
alan:
"They aren't in college to get into the NBA, they are there to get an education."

What planet do you live on? A lot of these kids wouldn't be in college at all and jump straight to the NBA if not for teh collusion between the league and the NCAA. Remember, we're talking about the very best of the very best, maybe the top 20 players in the country.
5.10.2008 11:24am
ChrisIowa (mail):

A lot of these kids wouldn't be in college at all and jump straight to the NBA if not for teh collusion between the league and the NCAA.


If they don't want to be in college for the education, they won't get an education while they're in college. Let them go pro, whether it's the NBA or some European league.
5.10.2008 11:40am
p. rich (mail) (www):
Blacks. Nanny state thinking. Victims of their own decisions. Can't have that.
5.10.2008 11:44am
Soronel Haetir (mail):
I always thought that part of the reason for the NCAA's insane rules was the desire to keep smaller schools in the game. Even if this were allowed, would non-career ending injury insurance be within the reach of those very schools?

This seems like one more bandaid trying to stop up the oozing chest wound that is the NCAA.
5.10.2008 12:26pm
Tony Tutins (mail):
Right now college basketball brings in a fortune for the NCAA while the NBA uses the NCAA as a cost-free minor league. The only people who get screwed are the players. The NBA could go to a baseball minor league model and freeze out the NCAA. Few athletes go to college for the education -- the one I remember best was MLB player Gail Hopkins, MD PhD.
5.10.2008 12:44pm
The River Temoc (mail):
If you're good enough to make the NBA, why *should* you postpone going to pro to finish college? Not only is it more lucrative, but why not go when you know you're at the top of the game, rather than risking a career-ending injury during the upperclass years?

Those who see an opportunity should go for it. Would society really be better off if, say, Bill Gates had passed on Microsoft to finish his degree at Harvard.

College will still be waiting after these athletes' pro careers, or perhaps even part-time, in the off-season. Even very elite colleges are open to this arrangement -- I even remember that the Olympic skater Paul Wylie took eight years to graduate from Harvard.
5.10.2008 1:20pm
The American Dream:
I don't see how insurance against "performance declines" will work. There's lots of guys that are over-hyped before the season whose draft value plummets throughout the season. If you get insured before your senior year for "performance declines", can you just get fat and lazy your senior year, go undrafted, and pocket the dough? I'm sure taxpayers would appreciate that.
5.10.2008 2:15pm
The American Dream:
Also, the premiums for something as vague as "performance declines" are going to be through the roof I imagine.
5.10.2008 2:24pm
byomtov (mail):
This just looks like a complicated way to pay the college players. If you think they should be paid, say so.

The insurance may or may not be a good idea. The only way to tell is to make it legal, and I see no reason for not allowing it. But I also see no reason why the school ought to pay the premium.
5.10.2008 2:51pm
JoelP (mail):
They make crazy money, and work long hours. They might be better served by hiring private tutors than by attending university.
5.10.2008 2:57pm
ithaqua (mail):
"Blacks. Nanny state thinking. Victims of their own decisions. Can't have that."

Not everything, believe it or not, is about the liberals. :) This particular decision is all about the $$$. Tony Tutins is right: "Right now college basketball brings in a fortune for the NCAA while the NBA uses the NCAA as a cost-free minor league. The only people who get screwed are the players."

Not everyone needs a college degree. Any player good enough to go pro directly from college especially doesn't need one; - Michael Jordan majored in 'cultural geography'. How often do you think he uses his degree? "The premise is that there are some athletes who would like to stay, but simply can't afford it." Rubbish. The handful of athletes who fit that description might benefit, but the point of this proposal is to keep basketball players paying their University for the privilege of making their University millions of dollars, instead of working for themselves during the best years of their athletic lives.
5.10.2008 3:48pm
markm (mail):
How much would such an insurance policy cost? I think that one with a 7 million payoff would have to cost several million up front - because the percentage of college stars that just don't come up to initial expectations has to be pretty high.
5.10.2008 9:00pm
Elliot123 (mail):
"They aren't in college to get into the NBA, they are there to get an education."

Of course they are in college to get into the NBA. That's how it's done. It makes lots more sense to take the seven million than to stay in school and become a lawyer. What law school grad gets a 7 million dollar contract?
5.10.2008 9:32pm
ReaderY:
What if the freshman player simply declines in later years but claims it was due to some minor injury?
5.10.2008 11:46pm
ReaderY:
Everybody would be better off -- Universities would be able to focus on education, athletes would get better training, earlier decisions, and stop having to pretend to study, and major league teams and fans would get better players and more games, if football and basketball joined baseball in using their farm team system and universities stopped functioning as farm teams for major league athletics. Alumni would still donate even if the really good players went to the farm system.
5.10.2008 11:51pm
~aardvark (mail):
This a stupid idea on many levels. Consider a few points.

1) Many colleges--including some with marginal academic programs--invest substantial amounts in major sports programs with hopes of windfall profits (for the college, of course) should the program succeed. Although some of the money goes out to support minor sports, most is reinvested back in the program. But very little of that expense goes specifically to a star player. There is no tangible loss of verifiable income from a star player turning pro. Sure, there is loss of potential economic benefits--greater exposure, ticket sales and other marketable perks, share of prize pots, etc. But all of that is hypothetical. The expenses for one player are generally the same irrespectively of his star status. So there is no justification for NCAA to relent on allowing colleges to protect and pamper their prize recruits.

2) The high-school rankings of top players are notoriously bad predictors of draft positions. To rely on these rankings for insurance purposes would be unconscionable--sure, insurance companies might bite, but it would result in substantial expenses for colleges that hardly offset the potential benefits, except in a few cases of Michael Jordan caliber.

3) Current insurance schemes actually cost players nothing until they get that major league contract. The way that major-injury insurance is structured, the players pay only if they make it to the bigs AND if they do not suffer a major injury. If they are injured, the premiums are deducted from the payoff. If they are not injured by don't get a contract, the insurance company just writes it off--no risk, no premium. In the end, only the top-line prospects opt for such insurance.

4) Predicting draft position is really not an exact science. Even on draft day many predictions are wrong. Sometimes a player that is predicted to slide because of off-the-field concerns ends up being taken high simply because a team can afford to take a risk. At other times, supposedly can't-miss players slide into oblivion. So this is not even limited to high-school rankings. How is one going to determine if a player--particularly in basketball where the draft pool is very small--is worthy of a particular draft placement?

5) Any system that insures players against draft-sliding is bound to benefit the slouches and hurt the players who work their butts off and into the draft. It would create a class division in college sports--those with insurance and those without. An insane idea, really.
5.11.2008 9:53pm
FoolsMate:
In response to aardvark's 5 items:
(1) Universities have multiple reasons for investing in sports programs and you've identified only one. Prestige is another, and much more valuable (to a university), which is why many programs continue even while losing money. No justification? Do not the NCAA and universities have an interest in keeping star players in the NCAA system?

(2)+(3)+(4) Despite the difficulties, if a player, university and insurance company agree to negotiated terms, why stand in the way?

(5) How does this hurt the "overachievers" (your players who work their butts off), exactly? If insured players slouch off and play below their level, they will get drafted lower than they otherwise would have. This can only create more opportunities for overachievers, whose comparative value will rise.
5.12.2008 12:24am
Larry Fafarman (mail) (www):
Todd Zywicki said (original post_ --
Right now the NCAA allows players to buy insurance for major career-ending injuries but not for minor injuries or performance declines that reduce draft position.

What is the guarantee that the players won't have serious injuries or performance declines while in the pros? Aren't the pro teams taking big risks by giving those enormous multi-year contracts?

In building the Home Depot Center at Cal. State Univ. - Dominguez Hills, Home Depot was at first reluctant to spend $15 million on a replacement for the Olympic Velodrome, then gave a $25 million contract to soccer star David Beckham. Go figure.

There was that top USC quarterback who decided to stay for his senior year rather than enter the pros. Playing for his school was worth more to him than any amount of money.
5.12.2008 3:36am
Andy Freeman (mail):
> But I also see no reason why the school ought to pay the premium.

Shouldn't the school get to make that choice? Some schools will do it while others won't. The ones that make the correct choice will succeed and the others will fail until they change their ways. Why isn't that the right approach?
5.12.2008 10:29am
George Smith (mail):
Nothing points up the absurdity and hypocrisy of the current system better than some major school's announcement of a prize recruit, and the expressed hope that he will stay for his sophomore season. These elite palyers should not be in college in the first place. They are there only for the exposure to NBA scouts and the money they will generate for the college athletic programs. NCAA basketball will be just fine without them. Let them take their lack of fundamentals and defensive skills straight to the CBA or the NBA, where they can contribute to the further decline of that game.
5.12.2008 12:23pm
FoolsMate:
Larry Fafarman said:


What is the guarantee that the players won't have serious injuries or performance declines while in the pros? Aren't the pro teams taking big risks by giving those enormous multi-year contracts?


NBA franchises are in the business of taking those risks and are free to mitigate them if they can find a willing insurer and agree terms. The point is that NBA-bound star NCAA players are not free to do so.
5.12.2008 3:08pm