As I mentioned in my “Show Me the Money!” blog last week, back in March of 2014 the Chicago District (Region 13) of the National Labor Relations Board (NLRB) held that Northwestern University football players qualified as employees and could unionize and bargain collectively. Although this decision was later overturned, the national level NLRB’s final holding specifically targeted unionization efforts at private schools – leaving the door wide open to revisit this issue at some point with respect to public universities.
Although the Regional decision was reversed, I was interested in Peter Sung Ohr’s (Director of Region 13) analysis, especially with respect to athletic scholarships. He noted that although student-athletes don’t officially receive paychecks from universities, they do receive “a substantial economic benefit for playing football” in the form of scholarships. He also focused on the extent of control exerted by coaches on players (something that has been touched on quite a bit in academic literature) and the amount of time players spend on football related activities, ultimately concluding that receiving scholarships in exchange for playing football amounts to a contract-for-hire between employer and employee.
I was inspired to write my 3rd sports/ tax paper, Northwestern, O’Bannon And the Future: Cultivating a New Era For Taxing Qualified Scholarships based on Ohr’s analysis in conjunction with the similarly-timed O’Bannon v. NCAA case where D-I athletes settled a $40 million lawsuit for the improper use of their likenesses. In this paper my colleague Adam Epstein and I analyzed whether these cases, combined with other recent efforts by student-athletes to unionize and mobilize, could redefine the principal that select student-athletes aren’t really unpaid amateurs, but instead employees who earn scholarships in exchange for services rendered. We also considered whether the IRS can realistically treat scholarships received by student-athletes as excludable from gross income if they are one day characterized as employees of their universities, specifically focusing on relevant historical cases and the direct language of the Internal Revenue Code.
Ultimately, we concluded that if select student-athletes are characterized as employees of their institutions at some point in the future, the IRS may be hard pressed to reevaluate whether their scholarship amounts are part of a greater overall compensation package that is subject to taxation. I should note that this particular paper doesn’t focus on the tax effects of the hypothetical prototype of the pay-for-play model (where student-athletes would receive cash in exchange for playing sports) but instead concentrates on the evolving relationship between institution and student-athlete, and the effect that characterizing student-athletes as employees could have on the taxability of their athletic scholarships in the future.