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Friday, April 11, 2014

NLRB Ruling: Blessing or Curse?

Players of the world unite!

That is the chorus that rang out from the halls of the Chicago office of the National Labor Relations Board last month.  On March 26, 2014, the Chicago district of the NLRB granted a petition seeking to grant football players at Northwestern the right to form a labor union.

The media unanimously rejoiced.  Anyone who failed to join in the celebration was considered to fall somewhere between a slave master and a robber baron on the social morality scale.  And thus, any real discussion on the logistics and realities created by the ruling was hushed.

However, I personally believe that this ruling by the NLRB falls squarely under the caption: Be careful what you wish for because you just might get it.  In granting the collegiate players the right to unionize, the NLRB declared that student-athletes are actually employees of their universities.

Before anyone gets too angry with me, I want to make a few things clear.  First of all, I do not believe that college sports are just perfect now.  One of the longest pieces I have ever written for this blog was a proposal for how to change big time college athletics.  So, I'm not in the camp of people saying that an education should be enough and wanting anything more is just greedy.  What I am saying is that this ruling by the NLRB could have tremendous unintended consequences for thousands of collegiate athletes at multiple levels of NCAA competition.

At this stage, the National College Players Association and the College Athletes Players Association are not seeking pay for play.  The stated goals are related to health care and the ability to finish a degree after eligibility expires.  Those are laudable goals.

However, in the process of seeking those goals, the collegiate athletes were declared "employees" of their university.  As part of this ruling, the scholarships that players currently earn were deemed compensation by an entity of the federal government.  Compensation is a synonym for income, and income is taxed.

According to the NLRB's ruling, a Northwestern football player receives grant-in-aid that amounts to $61,000 per year.  In that income bracket, an employee of Northwestern University would owe $11,185 in federal taxes alone.  That does not include Illinois state taxes or FICA.  The fact that the compensation does not come in the form of a paycheck does not make a difference when the tax man comes knocking.  Just ask anyone who inherited a house or won a car on Wheel of Fortune.

In the normal course of employment, federal taxes are withheld from an employee.  An employee whose salary is $61,000 per year would have $11,000 of that salary sent directly to the federal government before the employee sees a penny.  However, that withholding system does not work for non-cash income.  When a non-cash windfall comes along, the recipient often has to liquidate the asset in order to pay the taxes.  Unlike grandma's inherited ranch house or a Chevy Malibu, a scholarship at Northwestern cannot be liquidated.  It cannot be sold to cover the tax bill.

There are a lot of young men who have the athletic talent and academic acumen to attend Northwestern but do not have that kind of cash on hand.  An inner city kid from Chicago who earned a full scholarship to play free safety at Northwestern would now have to figure out a way to come up with more than $11,000 in cash each year to pay the government for their compensation.  Instead of graduating debt-free with a business degree from Northwestern, that young man may now have to find a way to come up with more than $44,000 over four years for Uncle Sam.

Although the unionization movement was started from a revenue generating sport with players dreaming of lucrative professional careers, the "employee" designation does not actually end there.  Nothing in the NLRB ruling restricts this designation to students who are currently earning money for their school.  After all, employees at businesses that lose money are still liable for their tax bills.  And, the ruling certainly does not restrict the "employee" designation to students who may one day earn millions of dollars playing their sport professionally.  So, if you were a top-notch lacrosse player who was happy with your scholarship and debt-free diploma, the this union movement may have inadvertently ruined things for you.

The Northwestern football team is scheduled to formally vote on April 25, 2014 on whether or not they will actually unionize.  It is by no means a foregone conclusion that the final vote will be pro-unionization.  The quarterback and several other Wildcat players have publicly stated that they will vote against unionization.  The irony is that regardless of the players' vote, the cat may already be out of the bag when it comes to the income and taxation issue.

The take home point here is not that college football players are greedy.  There are plenty of reforms that can be made to college sports.  Unionization, in and of itself, is not necessarily a bad thing, either.  The pros and cons of that decision is worthy of a an article of its own.  The point of this piece is solely to issue a word of warning.  I do not have all the answers, but I do have some of the questions.  Questions that may be too late to answer.


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