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What Golf Can Teach the Rest of Us (Part One)

By Jeffrey Standen

Golf is a great sport for many reasons, just one of which is the fascinating counterpoint it provides to the other professional sports, and perhaps even to much of life. For golf is unique, even among the individual sports. Professional golf is pure, unalloyed competition. It has no unions, no leagues, no guaranteed contracts, no appearance fees, no parity rules, no striving for competitive balance, and no games determined by dubious referee calls. Its only rules are those essential for staging tournaments and playing the game. It is about as close to the economist's imagined "free market" model as we're likely to see in this age of the modern administrative state where people are defined in substantial part in terms of their group affiliations, workplace status, ethnic identity, and legally validated relationships. Golf is wide open, unadulterated, unvarnished competition. It shows the virtues (and limitations) of a radical free market approach to sports.

Above all, golf is instructive. It provides a serious argument against the top-heavy, rule-bound structure of other American professional sports. Have a serious problem? Look to golf for an answer, at least the answer a free market might provide.

Don't believe me? Here are three serious problems in contemporary American sports. Watch how golf supplies a creative solution. Due to fears of overwhelming the internet, I'll break this discussion into three separate posts, one for each problem.

How to Finance Beginners

The other night I was having dinner with three amicable law students. One of the topics of discussion was the significant financial debt with which law students, like most college and graduate students, enter the work place. Of course for most of these students the debt repayments are subsidized by the federal government: free money. Nonetheless, the weight of the impending debt repayments poses significant problems for these young people, and come at a time in the young lawyer's life when earnings will be at their lowest. Added to the mix is the reality that other, non-tuition debt obligations have often piled up after three years (mostly) out of the work force. This overwhelming debt undoubtedly influences career and life decisions, forcing these young people to seek the highest wage possible, postpone child-bearing, and avoid any pleasurable or socially beneficial pursuits that might interfere with their earnings. Debt matters. Debt hurts.

I recently had occasion to have lunch with a young man (a son of a friend) who shall in a couple of years try his fortune as a professional golfer. (Yes, I eat often, every day in fact.) Just like the young lawyers, this person plans to spend three or four expensive years learning his trade, in his case taking his game on the road to play in various minor-level pro tournaments in the hope of playing his way up to the lucrative PGA Tour. Would this young golfer, like our young lawyers, turn to debt (albeit without the nice government subsidy) to fund his education? In small part, yes, he will borrow a little money. But the amount of money he'll need to fund three years of full-time golf approximates the funds the student needs to complete law school, something approaching $100,000. With no government handout available and with no bank willing to lend on such an endeavor, where will this talented young golfer get that kind of money?

The answer: he plans to sell himself. Or more specifically, he'll sell shares of his future earnings in exchange for cash up front. His investors will give him thousands of dollars each in exchange for a small percentage of his future winnings over a specific period of time. (Indeed, I'll invest some; this kid can really play.) He's just a businessman raising venture capital, only this investment is directed into human capital, not into some business plan. This method of financing is common among fledgling golfers.

What perplexes me is why don't law students (or other higher education students) do the same thing? Why don't they raise funds like any other new business, on the venture capital market? Don't they watch golf? (Indeed, why don't colleges and universities make this market? Just give away their education in exchange for an equity position in the graduate's future. You mean to tell me a school couldn't make money from this? And eradicate the onerous distortions of debt?) A law student could raise his tuition by selling a small percentage of his future wages. The student could graduate debt free but have to pay 3% of his income to his investors for the next twenty years, or something like that. Indeed, given the fact that so many graduates do so well financially (at least in the law profession), I wonder sometimes why schools basically demand that students incur debt. If I ran a university (for some reason, no one's asked me yet), I'd take an equity position in my graduates, some of whom are sure to hit the jackpot. Moreover, I'd be doing my students a favor, helping them avoid the distorting influences of debt on their career and personal choices. What student wouldn't take "free tuition" in exchange for a tiny percentage of their post-graduate salary spread over several decades?

Golf's approach to funding its young players could also help solve some of the problems surrounding college athletic scholarships. Universities who admit students for their athletic prowess could, instead of supplying a grant-in-aid, be required to purchase (perhaps with the proceeds held in trust during the amateur career) an equity stake in the student's future earnings, whether the student makes it as a pro or not. What better way to put the university on the athlete's side? The school will do everything it can to further the player's career chances, helping him leave school early if his pro prospects are bright, or to work further on his game if they're not. And what about the washout? No longer will the student whose athletic light has dimmed be cast aside, later to be sent home uneducated and un-graduated at the conclusion of his college eligibility. The school will do everything it can to re-train this young person and place him in a productive career.

Golf's historic practice of investors sponsoring a young player puts everyone on the same team. The golfer and his investors all want the same success. With the debt financing that is common in higher education and the scholarship that is the means to employ labor for college sports teams, the various relationships are at bottom antagonistic. The student incurs debt and demands a product from his supplier (the educational institution) that will suffice to pay that debt back; today's student-athlete is given a payment (the scholarship) and now has to work it off each season, much like an employee. None of these relationships are optimal.

Equity puts everyone on the same side.

Full post as published by The Sports Law Professor on October 28, 2008 (boomark / email).