Paul L. Caron

Saturday, October 4, 2014

Are College Football Coaches Overpaid?

Randall S. Thomas (Vanderbilt) & R. Lawrence Van Horn (Vanderbilt), Are Football Coaches Overpaid? Evidence from Their Employment Contracts:

SabanThe commentators and the media pay particular attention to the compensation of high profile individuals. Whether these are corporate CEOs, or college football coaches, many critics question whether their levels of remuneration are appropriate. In contrast, corporate governance scholarship has asserted that as long as the compensation is tied to shareholder interests, it is the employment contract and incentives therein which should be the source of scrutiny, not the absolute level of pay itself. We employ this logic to study the compensation contracts of Division I FBS college football coaches during the period 2005-2013. Our analysis finds many commonalities between the structure and incentives of the employment contracts of CEOs and these football coaches. These contracts’ features are consistent with what economic theory would predict. As such we find no evidence that the structure of college football coach contracts is misaligned, or that they are overpaid.

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If Paul Bryant, Jr., president of Alabama's trustees, believes that Saban is worth every penny the university pays him, then Saban is worth it.

Posted by: Woody | Oct 3, 2014 8:27:45 PM

This is a good example of "economics" trumping common sense. Football coaches earn ten times what professors earn at a time that the American educational system is, by most analyses, in decline. Anyone who doesn't see a link between those phenomena is engaging in self-denial or worse. That this piece was published in Forbes magazine, which is essentially an apologia for the business community, confirms this analysis

Posted by: mike livingston | Oct 4, 2014 4:58:30 AM

Underpaid professors is what at the root of the "decline" in the American educational system. Yep.

Posted by: MG | Oct 4, 2014 10:33:23 AM

Doesn't common sense expect an adequate return on investment? The money that coaches bring in to colleges, through revenues and alumni donations, far exceeds what they are paid and what typical professors generate.

In addition, college teams help fulfill a complete campus experience, for which lifetime contacts and learning are generated outside of the classrooms.

Paying college coaches less wouldn't improve education, but it might upset a lot of major donors when their teams get kicked around on the field -- and, donations help to pay professor salaries and construct classroom buildings.

At least bad coaches can be fired. Try that with bad professors.

Posted by: Woody | Oct 4, 2014 10:48:26 AM

A list of the top 25 Virginia state employees was published last week. On it were 2 ASSISTANT UVA football coaches making roughlty $450,000 each. The President of UVA made about $500,000.

A football program at a big name school will bring in the bug bucks even if they pay the coach $150,000.

Posted by: Hugh | Oct 4, 2014 7:06:00 PM

The purpose of universities is to produce educated students, not football players. It's sad to see people don't understand that--and, I must add, not terribly surprising that there is a jobs crisis if they don't.

Posted by: mike livingston | Oct 5, 2014 3:42:17 AM

Okay, Mike, to better educate students, get rid of all college sports (especially the Title IX ones.) Tell me how that works. ... It doesn't.

What about educating poor kids who use sports scholarships to get into colleges when they couldn't otherwise afford them? Are poor kids not worth educating or being given a chance? Cut 'em off?

Do you also get rid of other campus organizations unrelated to education? Fraternities and sororities? Left-wing student organizations? Those don't teach.

What about colleges that use their sports programs and all the fancy buildings sports finance to boost enrollment and further raise revenues for teachers? You think that Alabama hasn't been doing that for years? Kids from California are flocking to Alabama -- yes, really.

I'm afraid you're presenting a narrow view of colleges, and quite an unrealistic one when it presumes that colleges really care about educating students.

Frankly, although unofficially, universities exist to provide bloated jobs for overpaid adminstrators and political forums for elitist professors who can't be fired. Students get gouged on tuition and fees while actual education stagnates and the establishment postures.

Cutting salaries of coaches or athletic facilities would do nothing to help education, although it might make smug, self-righteous, envious professors happy. (I don't mean you personally, by any stretch.)

When professors are losers, at least ball games produce some fun and winners -- both on the field and financially for the students.

Posted by: Woody | Oct 5, 2014 8:31:01 PM

Woody, I think you make some valuable points. Until I hear or see professors demanding more class time to teach students, instead of passing teaching off to the TA’s they should remain in their ivory tower echo chamber and keep their moaning about sports to themselves. As you stated, professors say they want to teach, yet when a school opens its doors through sports to those who may have never thought of college as a choice, they recoil from those students. I do find it odd that they are mostly concerned with the revenue generating athletes who tend to be poorer and darker than Johnny Lacrosse. Maybe what the professors are afraid of is that people will realize that if these “dumb” jocks can graduate college, maybe just maybe academia is not such an elite ivory tower. Michael Jordan is probably responsible for more application and royalty fees to my alma mater than everyone else combined. Also, my college friendships were sealed more from attendance to games and outside activities than during class time.

Posted by: Daniel | Oct 6, 2014 6:14:38 AM

To me what's odious is that the arguments are (legitimately) based on the prospects for a good coach to pull down more money, and coaches can play any side businesses they want, but The Spirit of Amateurism will be angered if a player has a Coke bought for him, because This is An Amateur Sport.

Posted by: Barry | Oct 6, 2014 7:42:49 AM

There should be a 150k/year cap on the total compensation that a college coach can receive in a year. NCAA would still get a ton of great coaches because it is the only platform to coaching in the NFL, and because they likely have no other professional talent to draw them in another direction.

College sports (football included) should be treated as an extra-curricular activity within the university. Instead, they have become bigger than the universities themselves.

Posted by: JM | Oct 6, 2014 9:38:24 AM

JM, if your premise is correct that great coaches would still be lining up for the job, then there would still exist the great football programs like Alabama. These great programs will still generate millions for the school and still be bigger than the school. The school would just keep a larger percentage of the money generated. Your solution does nothing to offset the demand college graduates have to see their school perform well on the sports field. Also, how could you limit their total compensation? Are you saying they cannot take endorsement deals, and if they can I believe you will then be bumping into the same problems the NCAA has with their "amateur" rules that Barry aptly points out.

I also do not understand the slam about no other professional talent. The top coaches are exceptionally smart and driven. Are you implying that they could not succeed at other professional settings? Let alone corporate America's love for individuals that operated in a team environment with great success. How many investment bankers were athletes in college?

Posted by: Daniel | Oct 6, 2014 10:38:15 AM

JM, your argument is ridiculous. If I made the same argument about professors not having any other professional talents to draw on as you make about coaches you would take umbrage. Your argument is sour grapes, plain and simple. If you want professors to be paid like college coaches, then maybe professors should be judged, and potentially fired, if a certain percentage of students who take their class don't find jobs that will support their loan payments. Maybe professors should have the same turnover as college coaches, where only the top 1% can count on having the same job for a period longer than 4 years. And what if there was the same push for diversity required for college professors as there is for coaching. Sure schools already do this for certain factors (i.e., race, gender, religion, etc.). But what if this was done for political ideology? Now even more professors were laid off because we need to up the number of Republican and Libertarian professors.

Be careful what you wish for. It might come true.

Posted by: SS | Oct 7, 2014 12:01:36 PM

JM, Thanks for the response and clarification. I wish I could explain the rise in popularity of sports in America. I attribute it to the same base desires that bring the Kardashians millions of dollars. Entities like ESPN have been excellent at selling us on our need to care what 18-22 year olds do, and that we should take pleasure in other people’s victories and shame in their losses. With that said, I am not sure merely adjusting the pay of coaches will turn back that tide, nor do I have an answer for what will. I believe as long as you have inter-collegiate competition and schools see it as a means to add revenue, we are stuck with this problem. Perhaps, as we move closer to paying the students for their work on the athletic field, some of the luster of college athletics will dim. I think paying players for their service will cause schools to re-evaluate their desire to participate at the highest levels as the cost-benefit will diminish greatly.

Posted by: Daniel | Oct 8, 2014 8:00:53 AM