Will proposed California law require Cal pay athletes?

A deep dive into massively consequential proposed state legislation

Will Gavin Newsom shake the foundations of NCAA sports one more time?

NEW LEGISLATION ALERT! On June 1, Assembly Bill 252, The College Athlete Protection Act, passed in the state assembly by a vote of 42 to 15 (with 23 abstentions) and was thus sent to the senate.

That’s still a long way from being passed into law, as the California senate may amend and the governor may not sign the bill . . . but based on the vote in the assembly and based on how gung-ho Gavin Newsom took to the Fair Pay to Play Act in 2021, I’d say there’s a solid chance this law is enacted in one form or another.

And, well, this is kinda a big deal for Cal and other California D1 institutions, because it puts in place a ton of rules, most prominently direct revenue sharing with certain college athletes. The whole thing is fascinating and worth a section-by-section deep dive of the full bill text.

Note #1: All quoted language is from the current text of the bill as of June 12, 2023 but is partially quoted for brevity/emphasis and not quoted in full.

Note #2: I am neither a lawyer nor an accountant, so apologies in advance for any misinterpretations of the text of this bill, or math errors made in attempting to analyze the impacts of this bill.

The bill begins with a summary, then a bunch of definitions and statements of purpose. Most of it can be skipped, but this piece of the summary is critical:

The Student Athlete Bill of Rights requires intercollegiate athletic programs at 4-year private universities or campuses of the University of California or the California State University that receive, as an average, $10,000,000 or more in annual income derived from media rights for intercollegiate athletics to comply with prescribed requirements relating to student athlete rights.

For all of Cal’s budgetary problems, this law very much applies.

We’ll start with Section 67463, which is the heart of the bill:

An institution of higher education shall establish a degree completion fund for its college athletes who receive athletic grants but do not receive fair market value compensation in an academic year.

College athletes on the same intercollegiate athletics team at an institution of higher education during the same academic year shall be designated an equal payment from that institution’s degree completion fund for that academic year.

OK, but what is fair market value? The bill defines it as:

“Fair market value compensation” means an amount of compensation for each college athlete who receives an athletic grant that is determined annually by subtracting the intercollegiate athletic team’s aggregate athletic grants from one-half of the intercollegiate athletic team’s revenue and dividing that difference by the number of athletic grants provided to college athletes on that team. This fair market value compensation calculation does not include revenue that is not allocated by sport.

You can see the math logic here. Most pro sports bargaining contracts roughly split revenue 50/50 between ownership and players. This math is similar - divide revenue in half, and if scholarships aren’t paying for that value themselves, then you’ve gotta pay everybody to make up the difference.

Let’s math this out for Cal football specifically. In 2022, per financial disclosure, Cal football spent $4,035,299 in financial aid*, but made $44,991,975 in total revenue. (note: receiving more than 10x as much revenue as you pay in compensation is how we got to the point where everybody was so mad about this business model.)

($44,991,976 in revenue/2) minus $4,035,299 in grants = 18,460,689. If you divide that by the 85 scholarship players on Cal’s football roster, that gives you $217,184/scholarship player/year. That’s . . . a decent chunk of change, and obviously a huge chunk of Cal’s revenue.

*I am assuming that this bill does not count other ‘benefits’ provided to athletes like travel, food, equipment, etc. as compensation since the bill only refers to athletic grants, i.e. cash money from scholarships. If I’m wrong, then my math is also all wrong.

Any strings attached?

All degree completion fund payments above [$25,000/year] designated for a college athlete shall be forfeited if the college athlete does not complete a baccalaureate degree program within six years of full-time college enrollment or submit proof, as determined by the CAP Panel, of having a severe medical condition that prevents the college athlete from completing a baccalaureate degree program.

This strikes me as the California legislature trying to find a balance between professionalization and amateurism. Is it bad that college athletes are making money for their institutions and getting no money back in return? Yes. Is it also bad that players are dis-incentivized from actually, ya know, graduating? Also yes. So if you’re a Cal football player, you get $25,000/year for every year on scholarship at Cal, and then the rest of your fair market value upon graduation, whether at Cal or elsewhere. Which could be somewhere around $1,000,000 depending on how long you stick around. Not a bad graduation gift!

But will this massive windfall actually happen? NOT SO FAST MY FRIENDS! There’s also this alternative payment option:

In making annual degree completion fund payment designations pursuant to this section, an institution of higher education may opt to only use all revenue reported for an academic year that exceeds all revenue reported for the 2021–22 academic year. As used in this subdivision, “all revenue” includes revenue that is not allocated by sport pursuant to federal Equity in Athletics Disclosure Act reporting standards.

I presume that this is designed as a clause to prevent a system shock - the legislature understands that suddenly imposing a MASSIVE change to an institution’s budget can be problematic, so this would phase in slowly, in theory.

I don’t know enough about the individual finances of every institution to know how this would play out, but it kinda strikes me as bad news for UCLA and USC - those are the schools that are expecting a MASSIVE revenue uptick after leaving the Pac-12 for the Big-10. And I wonder if Cal could avoid paying ANY compensation to athletes for some period of time if they see a decrease in revenue following the renegotiation of Pac media rights.

Boy, few things more fun that budgeting and math, huh folks?

What else does this law include?

Degree completion fund payment designations or payments shall not serve as evidence of an employment relationship.

This is a fascinating provision. The entire basis of this bill is an attempt to address the fact that D1 athletes are functionally employees, earning their employers revenue, and denied from directly receiving that revenue. Of course, if college athletes were officially designated as employees, then they would be subject to all of the rules and regulations that come along with that formal designation - minimum wage, healthcare, payroll taxes, FMLA, etc . . . and might lead many/most/all D1 colleges to just drop athletics. So we play this weird dance where we don’t say that college athletes are employees, while considering legislation that functionally pays them a salary in everything but name.

There are a few other sections in this law of interest:

Section 67464 details notification requirements that Cal would have to meet so that athletes are aware of the provision of this law.

Section 67467 outlines escalating healthcare provisions provided to athletes based on how much revenue an athletic department takes in . . . and I’ll be honest, I don’t know what level of medical care Cal currently provides athletes, so I don’t know to what extent this law would change what Cal is expected to provide. I did find these two provisions interesting:

An institution of higher education shall pay for a college athlete to obtain an independent second opinion on an athletic program-related injury or medical condition endured by the college athlete.

No later than three days after the end of a college athlete’s team’s season in the final year of the college athlete’s intercollegiate athletics eligibility . . . an institution of higher education shall provide the college athlete notice of, and an opportunity to undergo, a physical examination within or independent of the institution for the purpose of diagnosing an athletic program-related injury or medical condition

College athletes would not be beholden to the opinion and guidance of on-staff medical, who are nominally independent but often in practice influenced by the goals and preferences of a head coach.

Section 67465 creates a College Athlete Protection panel that manages oversight and enforcement of this new law, and also for ongoing protection of athlete safety. Among other powers, this panel has the ability to:

Develop health and safety standards to prevent serious sports-related injuries, abuse, health conditions, and death, including, but not limited to, those related to traumatic brain injury, sexual harassment and abuse, athlete mistreatment, interpersonal violence, mental health, heat illnesses, sickle cell trait, rhabdomyolysis, asthma, cardiac health, weight management, and pain management.

And if an institution does any of the following:

Caused a life-threatening medical condition, sexual abuse, or death due to noncompliance with a health and safety standard adopted pursuant to this section.

Caused a life-threatening medical condition, sexual abuse, or death by failing to address noncompliance with a health and safety standard adopted pursuant to this section.

Threatened or retaliated against a college athlete or any individual or entity that reported noncompliance with a standard adopted pursuant to this section that caused a life-threatening medical condition, sexual abuse, or death.

Obstructed or knowingly provided false information related to an investigation of noncompliance with a health and safety standard adopted pursuant to this section that caused a life-threatening medical condition, sexual abuse, or death.

Then:

An individual shall be banned for life from being involved in intercollegiate athletics at any institution of higher education.

This feels particularly relevant for Cal, an institution that saw the death of Ted Agu due to dangerous training exercises and is currently trying to sort out a number of horribly handled abuse allegations against multiple head coaches.

Section 67469 is a bunch of language aimed at guaranteeing that a player put on scholarship remains on scholarship for up to 6 total years regardless of injury or poor on-field performance (the text allows cancellation of a scholarship for academic failure or lawbreaking). Cal, to my knowledge, would already be in compliance with this provision, but I did find this part interesting:

If the CAP Panel determines in an administrative hearing that an institution of higher education has reduced aggregate funds for a college athlete’s academic, medical, mental health, athletic training, or nutritional support, eliminated roster slots on an athletic program’s team, reduced aggregate athletic grant amounts, or eliminated an intercollegiate sport entirely, the athletic director or the representative of the institution of higher education who is primarily responsible for directing the athletic program shall be suspended from involvement in intercollegiate athletics at an institution of higher education for, at minimum, three academic years.

This . . . seems to make it illegal to eliminate a sport? Or, at least, means that any athletic director who does so is gonna have to get a new job? Not sure how this section would work in practice.

Section 67470 is fascinating because it applies to any college attempting to recruit California high school athletes:

An institution of higher education shall only use a document created by the CAP Recruiting Transparency Subpanel to offer an athletic grant or intercollegiate athletics participation opportunity to a prospective college athlete. An out-of-state college or university offering an intercollegiate athletics grant or intercollegiate athletics participation opportunity to a California resident shall only use a document created by the CAP Recruiting Transparency Subpanel to offer an intercollegiate athletics grant or intercollegiate athletics participation opportunity to a California resident.

The document in question would have to detail exactly what the scholarship offer provides, both in terms of scholarship money, medical care, transfer rules, disability coverage, and NIL provisions. The clear goal: let California high school athletes know that they get the best deal here in California, or force other states/institutions to step up and offer the same benefits, with the same guarantees.

Section 67471 is something the NCAA and/or conferences should’ve done: establish rules governing how “agent, marketing, and financial advising services to college athletes” conduct business. The NCAA created a wild west situation by putting their head in the sand until the courts blew up their system; now, the legislature is stepping in and trying to create order.

Section 67472 outlines how the CAP panel is funded:

[A]nnually . . . each institution of higher education that was a member of the NCAA . . . shall pay an annual fee to the Office of Planning and Research, in an amount determined by the CAP Panel . . . to cover the reasonable regulatory costs of the CAP Program. The annual fees collected pursuant to this section shall not exceed seven million dollars ($7,000,000) in aggregate per year.

How much is the fee? It scales up based on athletic revenue, all the way up to 1.3% of revenue. BET YOU DON’T WANT THAT B1G $$$ NOW, HUH UCLA AND USC?!

There are a few other sections outlining various other provisions, we’ve made it through the sections that are either critical or interesting.

TAKEAWAYS

Um, get back to me later if/when the final bill is passed and signed into law, and/or when we get the new Pac media contract, and/or when it’s clear how these rules will be implemented?

How will this revenue sharing work in practice? Cal will have to pick an option for calculating compensation to athletes across all sports, and one of those options is pretty opaque in how it would work.

How does this fit in with Title IX? The bill references Title IX, but based on my reading of the language, male athletes (primarily football and basketball) will be owed significantly more compensation that female athletes, as scholarships provided for female athletes generally exceed revenue.

Meanwhile, it’s not clear what rules and enforcement the yet-to-be built 21-member College Athlete Protection Panel will create. The law is smart enough to realize that one legislature writing one law can’t envision all of the protections athletes might need, but it will take years for the panel this law creates to build out a framework that California schools must operate under.

In theory, I can imagine that this could be a recruiting boon: Guaranteeing that a Cal football player would receive at least $25,000/season and in excess of $1 million in total compensation could be a big advantage - no relying on unstable booster collectives, no need to hustle for NIL money.

In theory, I can imagine this ruining an athletic department budget built upon the messed up idea that they don’t have to directly pay their revenue generating employees.

Either way, it’s a bill that requires your attention if you’re invested as a Cal fan.