Why College Jocks and Uber Drivers Are on the Same Team
A recent Labor
Department ruling regarding gig workers may also bounce into college football,
where players are getting money from "collectives." For businesses
and colleges, the definition of "employee" could be a game
changer.
EXPERT OPINION BY HOWARD
TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH
INVESTORS@HOWARDTULLMAN1
Last week, the
Department of Labor issued a final rule, sure to be challenged by multiple
parties, that revisits the employee versus independent contractor
classification. Battles over this issue have raged for years, since
having “employees” can cost a business 20%-to-30% more than using freelancers.
This is a serious and often existential concern for start-ups, small
businesses, and millions of workers in a variety of industries.
Most of the world is
already familiar with this debate because Uber and Lyft, along with the very
vocal mayors of some major cities, have made such a big deal out of the issue.
There are also thousands of new and smaller “gig” businesses that would also be
adversely impacted. To me, it looks like another case of the feds trying to
“save” a lot of folks (management and labor) from themselves. We’re seeing more
and more of these kinds of regulatory intrusions.
In typical federal
legalese, the new rule requires workers to be treated as employees if they are
“economically dependent” on a company. No one really knows what that means, but
there’s a handy list of equally obtuse factors provided by the Labor Dept. that
will be considered by the regulators in arriving at their “gotcha” conclusions.
None of these metrics is clear or obvious, so it’s going to be a guessing game
for the next year or two. It’s like Conan the Librarian -- lots of arbitrary rules and
utterly no mercy.00:0001:23
This feels to me
like another case of rampant, manufactured confusion, where the government will
be trying to “help” a bunch of people who are perfectly happy with the status
quo, especially because their workers will tell anyone who asks that being
independent provides them with degrees of freedom, choice, and flexibility that
are increasingly valued in the post-pandemic world. Management obviously likes
the cost savings, but what it values even more is certainty and stability. And
when the government keeps changing the ground rules, that’s very hard to come
by.
Another group that would
greatly appreciate the government and particularly the IRS butting out of their
business is the newly wealthy college athletes, mainly football and basketball
players, as well as their schools, who are the latest beneficiaries of the new
“collectives” scam created by tax lawyers and state legislators. Belatedly and
grudgingly aided and abetted by the NCAA, and lovingly adopted by more than 150
of the colluding schools, these collectives are funded by donors and sponsors
who are always looking for crooked ways to pay under-the-table bucks to
recruit, retain, and compensate the best players for dear alma mater’s teams.
The advent of the
NIL system (name, image and likeness) approved by the NCAA in July, 2021 after
losing a number of court cases filed by student athletes, opened the door to
this mischief. It created from whole cloth the concept that each player had a
virtual series of personal and salable assets that could be monetized and
exploited by, or on behalf of, the player by sponsors and other interested
parties. The almost instantaneous creation of the new college collectives
brought the donor and alumni class to the party. Donors dump millions into
these new college collectives and the collectives pay salaries, bonuses, and
other “fees” directly to the recruits, transferees, and rostered players,
payments that were long barred by the NCAA because the jocks were
considered amateur student athletes. This modest NIL gesture also headed off
increasingly aggressive demands by the athletes to participate financially in
the huge broadcast and streaming rights payments being shared by the schools.
The value of these rights are expected to explode as the big tech companies
like Amazon also began bidding on them.
Much like the scummy
Super PACs in politics, which are allegedly required to operate entirely
independently of any given candidate but rarely do, the schools are supposed to
have nothing to do with the choices, plans, and payments being made to key
players, prospects, and transfer portal targets and, more recently, or with the
latest programs, which guarantee salaries to entire football teams. That’s in
addition to any scholarships as long as the student athletes are still in
school and, of course, on the right team.
Somehow, the
management of these collectives mystically divines exactly what amounts the
athletic directors and coaches have to pay which players to make sure that each
season dear old Faber College has the best possible football team that money can
buy. In the early days, a few of the older and less astute donors didn’t get
the memo and admitted that the schools absolutely worked hand-in-hand with
these new entities. But those guys were quickly told to sit down and shut up
and changed their stories accordingly.
Another verboten topic
is that fact that most of the other teams and sports at any given school are
completely out of luck and out of the money. It’s a man’s world and, with the
exception of a very few female basketball players who have developed NIL
values, it’s likely to set back most of the recent Title VII and Title IX
progress made at schools across the country. All the talk about the government
and the schools acting to benefit all their student athletes reminds me of the
main difference between golf and government. In government, as Trump constantly
shows us, you can always change your lie.
This whole sick
and destructive system is guaranteed to kill any remaining vestige of amateur
college athletics and calculated to ensure that the richest schools will
buy their way to the top while hundreds of others will no longer be remotely
competitive. The kicker atop this pile of funny money is that the greedy tax
guys really overshot the mark. Many of the new collectives were created
as tax-exempt 501(c)(3) charitable organizations. This means that all the
donations are tax deductible regardless of how the funds are then used and
utterly without regard to whether there is any public value or benefit. Donors
get all the strokes and good times, and a tax break as well.
But just when it looked
like things couldn’t get rosier, along comes the IRS and-- no surprise
here--reversed its initial approval of these scams. IRS is now telling the
collectives that since their basic model has little or nothing to do with
charity and everything to do with paying players to pump up the home team,
there’s no real reason or justification for any tax exemption. Even more
importantly, given the new DOL employee rule, there are discussions beginning
about whether student athletes might fall under some of the same definitions
and regulations.
Truthfully, in addition
to being a tax scam, the whole collectives structure is also a very clear way
to help the schools dodge the much bigger bullet of having the government
decide, once and for all, that if student athletes are being paid to play ball,
then they should be treated as employees with all the associated benefits. By
sticking the collectives in the middle of the process and tacking on the fig
leaf of charitable work, the schools are insulating themselves from these
exposures and from such realistic future prospects as player unionization and
major player demands for revenue and profit sharing.
As much as the players
think they’re getting a great deal, in reality they’re just getting crumbs from
the multi-billion-dollar business that college football represents for their
schools.