Academic journal article Boston College Law Review

From Student-Athletes to Employee-Athletes: Why a “Pay for Play” Model of College Sports Would Not Necessarily Make Educational Scholarships Taxable

Academic journal article Boston College Law Review

From Student-Athletes to Employee-Athletes: Why a “Pay for Play” Model of College Sports Would Not Necessarily Make Educational Scholarships Taxable

Article excerpt


In recent years, numerous commentators have called for the National Collegiate Athletic Association ("NCAA") to relax its rules prohibiting ath lete pay.1 This movement to allow athletes to share in the revenues of college sports arises from the belief that college athletes sacrifice too much time,2 personal autonomy,3 and physical health to justify their lack of pay.4 It further criticizes the NCAA's "no pay" rules for keeping the revenues derived from college sports "in the hands of a select few administrators, athletic directors, and coaches."5

Nevertheless, opponents of "pay for play" cite to numerous problems that they believe will emerge from lifting the NCAA's "no pay" rules.6 Among these problems, opponents argue, is that granting college athletes the legal status of "employees" would convert the athletes' tax-exempt scholarships into taxable income-a result that may offset any economic benefits of "pay for play."7

This article explains why a "pay for play" model of college sports would not necessarily require college athletes to pay taxes on their educational scholarships. Part I of this article discusses the economic and legal landscape of big-time college sports, and introduces the fallacious legal argument that "pay for play" would saddle college athletes with substantial tax liability related to their educational scholarships.8 Part II provides a brief primer on the U.S. tax code-exploring sections of the code that may allow for paid college athletes to enjoy a tax-free education.9 Finally, Part III explores how, with proper tax planning, colleges may provide their athletes with bona fide employment contracts that are unlikely to risk the taxexempt status of the athletes' college scholarships.10

I. The Changing Economic Landscape of Big-Time College Sports

A. Historic Treatment of U.S. College Athletes

The college sports industry represents a more than eleven billion dollar U.S. enterprise.11 At present, over fifty U.S. colleges generate upwards of seventy million dollars per year in athletic revenues.12 Meanwhile, twentyeight colleges generate annual athletic revenues that exceed $100 million.13 Most colleges with big-time sports programs focus their efforts on generating revenues in two sports: football and men's basketball.14 In these sports, the star athletes devote upwards of forty hours per week to team travel, play, and practice.15

If U.S. colleges were for-profit entities, the most successful football and men's basketball programs would produce high shareholder distributions.16 Because the NCAA consists of exclusively non-profit colleges, however, the collegiate sports enterprise operates subject to a "non-distribution constraint."17 This means that colleges with big-time football and men's basketball programs either reinvest their revenues into other college programs, or they allocate their revenues as windfall payments to quasi-shareholders such as school administrators, athletic directors, and coaches.18

Given the revenues brought in by these programs, one might expect colleges to allocate some of their athletic revenues to the athletes.19 Nevertheless, the NCAA Principle of Amateurism disallows colleges from paying athletes and threatens to ban any NCAA member college that engages in "pay for play."20 Thus, pursuant to the NCAA's bylaws, no NCAA member college would dare publicly offer any financial benefits to its athletes beyond a tax-exempt scholarship to cover the costs of tuition, books, and room and board.21

B. Three Approaches to Reforming College Sports

Based on the colossal disparity between the revenues derived from college sports and the college athletes' compensation, there is an emerging movement to reform the financial aspects of collegiate sports.22 Some advocates of reform have called for the NCAA to make voluntary changes to its Principle of Amateurism.23 Others have explored the potential for players to unionize under federal labor laws. …

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