Posted by Todd Zywicki:
Draft Insurance for College Hoopsters:
http://volokh.com/archives/archive_2008_05_04-2008_05_10.shtml#1210419165
My colleagues [1]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.
References
1.
http://www.chicagotribune.com/news/opinion/chi-oped0508athletesmay08,0,4421094.story
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