The Daily - The Wild World of Money in College Football

Episode Date: January 8, 2024

Tonight, millions of Americans are expected to tune in to watch one of the biggest sports events of the year, college football’s national championship game. On the field, the game will be determined by the skill of the players and coaches, but behind the scenes, secretive groups of donors are wielding enormous influence over what fans will see.David A. Fahrenthold, an investigative reporter for The Times, discusses the shadowy industry upending college football, and how it has brought amateur athletics even closer to the world of professional sports.Guest: David A. Fahrenthold, an investigative reporter for The New York Times.Background reading: The best teams that money could buy.A shift that allows booster groups to employ student athletes has upended the economics of college football and other sports while giving many donors a tax break.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From The New York Times, this is The Daily. I'm Natalie Kittroweff, in for Sabrina Tavernisi. Tonight, millions of Americans will tune in to watch one of the biggest sports events of the year, college football's national championship game. the year, college football's national championship game. On the field, the game will be determined by the skill of the players and coaches, but behind the scenes, secretive groups of donors are wielding enormous influence over what fans will see. Today, my colleague David Farenthold on the shadowy industry upending college football and how it's brought amateur athletics even closer to the world of professional sports. It's Monday, January 8th. David, hi.

Hi, Natalie. It's nice to be here. So, you're an investigative reporter at the New York Times, and recently you've been looking into the world of college sports. Tell me why. Well, college sports is, to me, a fascinating subject because there's so much money involved here. I think people have this sense that college sports is amateur athletics, but the amounts of money brought in to these college football programs, particularly, are in the billions of dollars. I'm an investigative reporter covering nonprofits. Obviously, colleges are nonprofits, so it's one of the biggest businesses that nonprofits carry out. And there's also a personal connection for me.

I'm a huge college sports fan, and the team I follow is the University of Texas Longhorns. I've been a fan of UT since I was a little kid. So the way I got into this story was late 2021, I saw a press release from a group at University of Texas supporting Longhorns. And it was a charity. It was a nonprofit, the topic that I had just gotten interested in writing about. And this charity was doing something really odd, something I'd never seen before.

They were saying the reason our charity exists is to pay offensive linemen at the University of Texas, to pay football players. Particularly, they were saying, we're going to pay every offensive lineman on the University of Texas team $50,000 a year. And all you have to do to get the money is to be on the team, to be academically eligible to play.

Now, that struck me, I mean, as a UT fan, great. I'm glad whatever it takes to get better offensive linemen. But as a nonprofit reporter, that struck me really strangely because, you know, that's not what charities do. Charities don't pay offensive linemen. And I was struggling to figure out how they're squaring their mission of helping the public good with their apparent goal of helping the University of Texas win football games. So I started looking into this, and what I found was that this University of Texas group was one of more than 100 groups that were doing similar things at schools all around the country, using cash from donors to pay athletes

and to attract athletes to their school, to keep them when they were already there. And what I also found was that those payments were kind of, in a way that may not be obvious to the average fan, and definitely not obvious to the casual fan, were reshaping the power dynamics, the rules, the very sort of essence of big-time college football. How so? Tell me more about that.

Well, we all know that college sports is an amateur game. You can't be paid for playing the game. That was the hallmark of college sports for decades. And it was strictly policed by the NCAA, the organization that sort of oversees big-time college sports. The consequences for paying players under the table could be very high. Southern Methodist University famously got what they called the death penalty. Their football team was shut down for a year

because their boosters were paying players back in the 80s, and it took them 30 years to recover. So officially, even though many of these schools were benefiting financially from college sports, there was this red line that none of that money was supposed to go to student athletes. That's right. Hundreds of millions of dollars, billions of dollars flowing into these schools collectively from TV deals, from ticket sales, and it fines all these other channels. Coaches get paid tens of millions of dollars a year, and the money would get filtered to players in a way, and that they would get scholarships, and they would get a nice dorm to live in, very nice athletic facilities, but the players did not get paid. And that was both the

rule and also sort of the moral heart of college sports for so long was this is an amateur game. But then in 2021, it's being called a game changer for college athletes. That system changed drastically. You're going to have quarterbacks and point guards and pitchers making thousands, if not hundreds of thousands, if not millions of dollars. Now, this was a change that the NCAA didn't want. It was forced on the NCAA, in part by state legislatures. Student athletes in Missouri are one signature away from making a profit off their name and likeness.

Which had started to pass laws saying that athletes in their state should be able to make endorsements to get paid. Today, the Supreme Court will hear arguments on whether the NCAA has the authority... There was also a Supreme Court case... The schools are conspiring to pay no salaries to the workers who are making the schools billions of dollars. ...in which the justices ruled unanimously against the NCAA, against its ability to control what athletes receive as compensation.

Name, image, and likeness. It's revolutionizing college sports. The result was something called the NIL, name, image, and likeness rules, which the NCAA put in place, again, under duress in the summer of 2021. Right, this was a huge deal at the time. And if I remember correctly, the expectation was that the players, the students, would be able to make money from brand sponsorships and things like that, capitalize on their fame. But they couldn't be treated like employees who were making a salary.

That's right. That was very, very important to the NCAA, both because the schools don't want to part with any of the huge amount of money they were making off college sports, but also because if you treat them as employees, there's a whole bunch of other things that cascade from that. The control that universities have over players in this current system, where they're just student athletes and not employees, would be eroded if they were basically professional athletes. Think how much more rights and power a professional football player has than a college football player has. The NCAA did not want to usher in that system. So, David, were there rules around this sponsorship money? Yes. Most importantly, there was a rule that said nothing about the payments anybody makes to players can be conditioned on them playing at all or on them playing well.

And the second thing was you can't use these payments, these NIL payments, to recruit players, either to recruit high schoolers or to recruit people from other schools to your school. Those were the guidelines the NCAA set. But almost immediately after these rules come into effect, wealthy boosters, rich folks who support these teams, see a loophole. They see an opening for themselves. They start these things called collectives, which are groups that are not legally affiliated with the schools they support, but they exist to support a specific school's athletic programs. And what they do is pool money from rich donors, and it can be millions of dollars. And they pay athletes for the rights to their name, in some cases for the athletes to do

charity work, make an appearance at the Boys and Girls Club, to appear at another charity's gala, to post about charity on social media. But often these charities pay way more than an actual charity would pay for this. I talked to somebody who was at Michigan State, and he paid somebody $750,000 a year, a football player. And the charity work that person did in return was to make one social media post a month. Well, they're paying athletes often who don't have much of an endorsement value, people who are really valuable to their own team, like an offensive lineman or a fullback, they're paying that person according to their value to the team, not according to their endorsement value.

So this is not a person you would ever buy Gatorade from. You'd have never heard this person's name, but, you know, the team needs them. And a lot of these groups organize themselves as tax-exempt charities. They get approval from the IRS. So that means that their donations from donors are tax-deductible. It's a double benefit. You can get the linebacker you want, and you get a tax deduction.

Wow. So you have these collectives, these outside groups that are theoretically not attached to the universities, and they are ostensibly paying for charitable work, but really this is all just a cover for recruitment for these teams. That's the weird thing about this system is that, yes, the things that they are specifically prohibited from doing, paying players to play, coordinating with schools to make sure they get the players the schools want, and recruiting players with money, those three things which you're not allowed to do, those are the reasons you have a collective. Those are the things the collective is built to do. Those are the functions of a collective, truly. So all the things that they're doing, that they're designed to do,

that they're gathering money from donors to do, are the things that theoretically they're not allowed to do. And so you have this weird flowering of a system with a gigantic wink and a nod that is doing for every school what the NCAA says shouldn't happen in any school. Can you give me an example of how this actually works? Well, a great example is that University of Texas collective I was talking about, Horns with Heart. People who are not University of Texas fans like me may not know, but 2021 was a bad year for the Texas Longhorns. They are a proud program. They've had some great national championships, but they were at a low ebb at that point. They had a losing season, which, you know, was rare for them. They lost six games in a row at one point for the first time since

the 50s. The season has ended. They're not going to a bowl game. Everybody in Austin is depressed. Things were bad. And the coach has an answer. He says, we need linemen. We need the big blockers up front who will give the quarterback time to throw, who will give the running back room to run. We need bigger humans. And so that's when this collective comes in with its promise to pay $50,000 to any lineman who plays at the University of Texas. And it works. I talked recently to a number of linemen who are at the University of Texas now. One example, this guy Cameron Williams. So he is a six foot five, 370 pounds, huge prospect coming out of high school in Dallas. He had committed already to a different school. He committed to Oregon to play for the Oregon Ducks. This promise comes out.

He decommits from Oregon and commits to University of Texas a week later. And what he told me was, look, I come from a family without much money. You know, this was a chance for me to get $50,000 and help my family right away. I don't have to wait four years and hope I make the NFL draft.

I can help my family right now. So why wouldn't I do it? So that off season, Texas had wanted five good offensive linemen. They got seven with the help of this collective, with the help of this offer, $50,000. And it starts a rebuilding program that takes Texas from that really low ebb

to where they were this year, which is they had a spot in the college football semifinals. They were one of the last four teams standing. Now they lost to Washington at the very end of the great game. But that collective, the promise they made, the linemen they brought in, took them from a pretty low ebb back to almost the top of college football. So, that's a sign of the potential these collectives have for even well-established programs like Texas.

It's kind of amazing, David, in this example you're giving. You see in real time how this money affects the makeup of college sports. You have a kid openly, you know, switching schools because of the offer. I mean, you see these collectives at work recruiting players that teams are specifically saying they need to win. That's right. Now, I don't want to be naive. Obviously, in the past, there were times when boosters would pay off players maybe to switch schools or maybe to come to their school. But there's a difference here. It's in a press release. This is above the board. And so the potential number of people who could be swayed by this is so much bigger. And so what Texas does sets a model that other people immediately

start to follow. They look around and say, hey, you know, we need linemen and we got rich donors. Let's put those two together. So you start to see this proliferation of collectives all over the country. We've now counted more than 140 at all kinds of different schools that start following Texas's model and that they're raising tons of money and offering it to players. Many of them also copying Texas's model and that they're doing it of money and offering it to players, many of them also copying Texas's model and that they're doing it through a tax-exempt charity. And you start to see that bulwark of college sports, amateurism, the idea that players do it because they love to play or they do it because of the academics, not because they're getting paid, that starts to crumble almost immediately after the NIL system came into place. How is all of this affecting the players?

I mean, they must be pretty happy about all this. Extremely. Us having NIL now is such a great thing. I mean, it just benefits guys, especially guys that might not do as well on the next level or, you know, have, like, career injuries. Because this game, you could be hurt. Your career could be over at any given time, you know, have, like, career injuries. Because this game, you could be hurt. Your career could be over at any given time, you know,

so it's a blessing for all of us to be in this time where we're able to get paid. When we've talked to players, they're very happy to get, you know, a little tiny piece, and let's face it, it is still a little tiny piece of the huge amount of money that their labor generates. NIL's really helped me, you know, put me in a position to where I can take care of my family and where I can help out and stretch my hand out when I'm able to.

When we talked to players, we were asking them in the lead up to the semifinal games last week, you know, what did you use this money for? And the answers we heard were often... Take care of my daughter, pay for daycare every week, be able to buy her the nice things for Christmas, be able to help out when she needs a flight to come see me. You know, I paid for my family to come up and see a game. I paid my family's bills. Me growing up, I really didn't have money. So, like, the $50,000, it was just, like, amazing.

It just, like, shocked me. Cameron Williams, University of Texas lineman that came to Texas after seeing that offer of $50,000, she says... Sent my mom some money whenever she needs it. Really? Feel good. Wish I got her, bought her a cell phone.

She must have been, like, so, I mean... Yeah. Her first iPhone. Really? Yeah. Wow. So these players were often thrilled to be able to provide something for their families

that they wouldn't have unless they'd gone pro. And, you know, for a lot of these guys, even the good ones, that's still an if and not a when. So it sounds like the schools are obviously benefiting from this system. The donors are also benefiting because they can take credit for rebuilding their team of choice. And the players are too. Everyone is kind of winning. Yeah, on the surface, it does sound like a lot of people are benefiting. But you have to remember what we're talking about here is basically an unregulated

black market for labor. And there's a lot of downsides that come with that, including that this system may be unsustainable and parts of it may be illegal. including that this system may be unsustainable and parts of it may be illegal. We'll be right back. David, you've walked us through how these collectives have sort of supercharged paying players in college sports. But even though players are getting windfalls of in some cases life-changing amounts of money, there are also downsides. Tell me about them.

Yeah, the players are just really exposed because as I said, they're basically in an unregulated black market. They're getting paid by people who are not really their employers for doing a job. It's not really the job they're doing. There's not that many protections. If they get injured, the collective could stop paying them. In some cases, collectives have made promises to players, signed contracts, and then not fulfilled them. There's a famous example of a player from high

school committed to the University of Florida after its collective promised to pay him more than $10 million. Then the collective didn't have the money, shut down, and he didn't get paid at all. He transferred to another school. So there's no recourse to rely on if these collectives leave you high and dry. So players are really exposed in that way. The second way is that there's just no transparency here. There's no way for players to gather the information

they need to know how much they should expect to be paid and how much they're worth. Think about professional leagues, right? We know how much a good second baseman in Major League Baseball ought to get. We know how much a good quarterback in the National Football League ought to get because there are unions, there's a minimum contract, but there's also a lot of transparency about what other players at those skill levels and those positions are paid. There's none of that here. It's all sort of rumors and misinformation. So if you're a player or a player and his family trying to navigate this market and find out really what you're worth, it's almost impossible. And the secrecy goes so far that even within

teams, we talked to a collective at SMU, Southern Methodist, who said, we tell our players, don't ask each other what we're paying you because, you know, we don't want you to find out that the guy next to you is getting paid more. And when I say there's no transparency, I've tried that. I sent public records requests to more than 40 public universities about what their NIL collectives are paying their students. And almost all of them said either that they didn't know or they wouldn't tell us. In some cases, they wouldn't tell us because basically the logic was we want our football team to win. And if we tell you what our players get paid, that might result in a collective disadvantage for us. And so we're just not going to tell you. That's how hard it is to figure out what the rules are and the standards

are in this market. Imagine trying to navigate that as an 18 or 19 year old. I mean, that is a truly extreme level of secrecy that these collectives are treating what are ostensibly charity payments in some cases as a trade secret. Right. And if you pull back, there's a really big equity problem. Now, college sports are subject to something called Title IX, which is federal legislation that mandates equal opportunity for female athletes and male athletes. Obviously, the decades that Title IX has been in place, it has caused a revolution in women's sports, not just in the college level, but the professional level. Collectives are, because they're third parties, they're not part of the university, they are not subject to Title IX, and they do not follow it, definitely. So I think the

average salary for men's basketball players from collectives is like $30,000 something. The average salary for women's basketball players is like $9,000. So there's a huge imbalance toward male athletes. And the collectives say, you know, that's what our donors want. Our donors are, you know, people who like to watch football. So, you know, there's no requirement that they share the wealth with, you know, the rest of the sports teams at the school the way there is for money that comes through the university. The other big downside is that a lot of what these groups are doing may be illegal. And that goes back to the fact that a lot of them, like the one at University of Texas, are operating as tax-exempt charities.

Explain that. We talked before about sort of the rules that tax-exempt charities have to follow. You know, money in a tax-exempt charity is supposed to be used for the public good, and it can't be used to benefit the private interests of a few people. Now, the IRS is effectively the regulator of nonprofits in the U.S., and it allowed a lot of these nonprofits in. It gave them tax-exempt status, these collectives. And then in May of this year, it seemed to reverse itself. But the IRS did put out a memo saying the way that a lot of these collectives operate shows that what they really care about is helping the athletes and helping

the team win, not helping the public good. And if that's the case, you can't really be a charity. You know, you're not really tax exempt if that's the case. So it was a warning to all the collectives out there. Look, you got to change in the future. You have to reorganize your operations so that you really are helping the public good first and paying the athletes second. So a lot of the collectives are sort of grappling with that. Do we just keep doing what we're doing until the IRS comes to us specifically and makes us stop? Or is that too much of a risk? Are we taking the risk that we're going to lose our tax exemption, have to pay penalty taxes? Should we make some change in the meantime? Are they making change in the meantime?

As somebody who's talked to many, many of these groups, I will say no. Some of them have talked about making changes. The only groups we've found making a change are the ones that had not actually gotten the IRS approval before the IRS changed its mind. So there's one in the University of Michigan that was still in the queue for approval when the IRS changed its mind, and they had to massively overhaul their operations to get approval. So where a lot of collectives pay 100% of their money to athletes, they had to change so they paid 70% of their money to other charities and only 30% of their money to athletes. So imagine if you have to convert your collective to run on that model, 70% of your money doesn't go to the athletes. Try telling that to your donors.

And how much more money would you have to raise to have the same impact on your school? It certainly seems as though this system is flawed and it's drawing increasing criticism. There are questions about the legality of it. So how is the body that sets the rules for college sports, the NCAA, responding? So far, they've responded really weakly. In fact, the only case we know of where anyone's been punished for NIL being used in recruiting, which again is against the rules, is a case where at the University of Miami, a booster who was paying a lot of NIL money to players sort of took pictures of himself,

live tweeted himself, recruiting two players from another school to Miami. Wow. In that case, where the proof was on the internet, the NCAA punished the Miami basketball team lightly. Nobody else that we know of has been punished in that way. But the NCAA sees what's happening and I think realizes two things.

One, that it's encouraged huge, wide-scale disobedience of its rules, and also that it's allowed a shift of power from the schools themselves to these donor-run collectives that the conferences, the schools, and the NCAA are alarmed by. So what they've done is propose a pretty significant overhaul of the way these rules work. Okay, what is it? At the core of it, the idea is that schools would now be able to pay their own players directly. So the thing that collectives do now, paying the players through this NIL system, nominally paying them for their name, image, and likeness, but really just paying them to play,

that function would now be shifted to the schools themselves. So the school athletic department could pay one of its offensive linemen for his quote-unquote name, image, and likeness rights, and the collective wouldn't be necessary anymore. I think the floor would be $30,000 per player, and it could go up from there. How would that actually work in practice? Because I have to imagine that not every school can afford to pay all of their athletes at least $30,000. Yeah, that's right. Now, obviously, this is just a proposal. It's a long way from becoming a reality. But it's interesting to see how the NCAA imagines that

if it did become reality, the world would change. And what it imagines is basically a league of super teams. You're going to take the top 30 teams in college football, which are the ones that can afford to pay their players and be in this game, and you're going to cleave them off and make them into sort of like a miniature NFL. So that's bad for the people who are on the outside of that system looking in. You know, if you root for Washington State or Minnesota or Rice or Vanderbilt, one of these schools that probably isn't going to have the money to compete or want to compete, at least now you have the sense that like maybe if everything goes right you could be a cinderella team you know there's still theoretically a chance for you to be in the national championship now you know cinderella's at home with the mice there's no chance you're

like legally never going to compete for that championship and you're playing for a second class crown maybe people are okay with that but it changes what it means to be a fan of those schools crown. Maybe people are okay with that, but it changes what it means to be a fan of those schools. And under this proposal, in this theoretical super league, are the universities treating their players, the students, like employees? No. So the schools would take the function of paying the players from the collectives and take it for themselves, but they would still want to pursue this kind of like quirky logic to make sure that the students are not employees, because the NCAA still doesn't want to take on the employer-employee relationship with students and all the other rights to collective bargaining,

you know, employment law protections, workers' comp, all the things that would come with that relationship. This is an effort to keep that out whilst taking the function of paying the players in. Hearing this proposal, it seems like the NCAA is really walking this tightrope where it is proposing a change, but not fully embracing the idea that college athletes should be treated like professionals. There's financial reasons for that. You know, the schools want to keep as much of this huge amount of money for themselves and not share it with players. But there's also something that's really fundamental about college sports that I think they worry about being lost. And that is the magic of college sports is that it's not professional sports. You know, there's this idea that the players play for the fight song and the school spirit and the

meaning of what it means to be a Texas Longhorn or, you know, A&M Aggie or whoever else. So when you cheer in the stands and they play in the field, you're all part of something that's bigger than just money. And if you make it money, if college sports becomes mercenaries going from place to place, you know, for salaries, I think they're worried that they'll lose the thing that has made college sports such a zillion-dollar industry, that it'll just become basically a minor league. And who cares about minor league sports? I have to ask, honestly, as a viewer of college sports, was there any of that amateurism really left in football, for example? I mean, so much of it already feels like a professional sport. The money that comes in, not to the players, but to the schools, the number of viewers, the stakes.

I mean, I'd imagine college football already has more viewers than the NHL, for example. I mean, in so many ways, this was already professionalized. The only thing that seemed different before was that the labor was free. I think of this as sort of like a Santa Claus problem, right? If you want to believe in Santa Claus, you go looking for reasons to believe that. And until you see the guy in the mall take off his beard and see that it's not Santa Claus, until you're forced to sort of see that the illusion is an illusion,

you know, you're looking for reasons to believe. And that's the case with football fans like me. The illusion that's being perpetrated here that we want to believe in is that those guys in the field are doing it for me. They're doing it because they love the school that I love. They're doing it because they believe in the fight song and the ethos and the lore of the school. They're out there playing hard because me in the stands and them on the field, we're all supporting the same institution.

So what these collectives have done, it's sort of ironic that they are such shadowy, secretive organizations. Their existence and the way that they have sort of brought the payment of players the payment of players, normalized it, brought it into the light, has sort of changed the illusions, made it impossible to see that that's, to believe that's Santa Claus, right? And I think that's going to change the way that the college sports goes on in the future. It's certainly a benefit for players.

The question is, what does it mean for fans? And, you know, if our illusion goes away, does that change the popularity of the sport? Does it change what draws people in? It's certainly going to be a big change that both players and fans have to reckon with. David, thank you so much. Thank you. We'll be right back.

Here's what else you need to know today. The Federal Aviation Administration ordered U.S. airlines to temporarily stop flying Boeing 737 MAX 9 planes after a harrowing episode on Friday in which an Alaska Airlines jet was forced to make an emergency landing. After taking off from Portland, Oregon, part of the body of the plane blew out midair, terrifying passengers and exposing them to howling winds 16,000 feet above ground. The plane landed safely and no one was seriously injured, but the incident prompted U.S. regulators to require immediate safety inspections of all similar planes, forcing Boeing to again confront concerns over the MAX, its best-selling and most scrutinized plane in history. its best-selling and most scrutinized plane in history. And on Sunday, Senate and House leaders announced they had struck a bipartisan agreement on 2024 government funding

in hopes of averting a looming government shutdown. The deal, which sets total spending at around $1.6 trillion, keeps in place a compromise measure struck last year by President Biden and former House Speaker Kevin McCarthy, but it stops short of steeper budget cuts proposed by far-right House Republicans. While calling it the best spending deal Republicans had secured in years, Speaker Mike Johnson acknowledged the difficulty ahead in passing the deal through the House. Ultra-conservatives in the House have steadfastly refused to support any spending deal

that does not also include new immigration restrictions to stem the flow of migrants to the United States. Lawmakers have less than two weeks to pass the measure and get it to President Biden's desk. Without a deal, funding for parts of the government will start to expire, setting off a partial government shutdown on January 19th. Today's episode was produced by Asta Chaturvedi and Will Reed, with help from Carlos Prieto, Rob Zipko, and Michael Simon Johnson. It was edited by Mark George with help from Lisa Chow. Contains original music by Chelsea Daniel, Pat McCusker, Dan Powell,

Marion Lozano, and Corey Schreppel, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsberg of Wonderly. That's it for The Daily. I'm Natalie Ketroweth. See you tomorrow.