Creating Competitive Advantage or Raising the Cost Structure? NIL Laws and University Programs

Back in my airline industry days, there were two schools of thought about the frequent flyer programs. Camp 1 thought that the loyalty programs were the key to differentiating the brand and attracting customers. Camp 2 thought that the loyalty programs just raised the cost structure for everyone.

I lean towards Camp 2. I could argue that maybe loyalty programs create customer switching costs that dampen competition and reduce price sensitivity.

As the NIL movement gained steam, several states wrote laws to make their colleges more attractive to student-athletes. The state of Florida is just one example.

When Florida Gov. Ron DeSantis signed his state’s NIL bill in June 2020, he said, “Florida is leading on this, and if you’re a blue-chip high school recruit out there trying to figure out where to go I think any of our Florida schools is a great landing spot.”

Contrary to expectations, however, Sportico’s analysis finds no evidence that Florida’s schools had a better recruiting cycle than usual in the year following the state’s new legislation allowing college athletes to profit off their NIL.

The second paragraph is the key. Sportico found no evidence of a recruiting windfall.

There is no reason to expect a recruiting advantage at the state or school level. Everyone is moving in the same direction. Maybe, over time, some NIL programs prove more effective, and those schools build a sustainable advantage.

More likely, NIL just shuffles the deck a little bit and raises costs across the board.