Non-Profit Paradox Explains Dramatic Rise in College Coaches Salaries

JohnWallStreet

Clemson head football coach Dabo Swinney made more than $9.3 million this season. His counterpart in tonight’s CFP National Championship Game, Ed Orgeron, earned $4 million. It’s not just the head coaches that are being paid handsomely, though; combined Clemson and LSU paid out more than $27 million in salaries to football coaches in 2019. California Governor Gavin Newsom expressed his concerns about coaching compensation on a September conference call related to the state's new 'Fair Pay to Play' Act, but UC Davis athletic director Kevin Blue says that the dramatic increase in salaries over the last 10-15 years (in ’06 Bob Stoops was the only coach making $3 million/year salary, now +/- 25% of D-1 coaches take home at least that much) is a byproduct of the real problem facing college athletics; an economic model that systematically encourages acceleration in athletic department spending.

Howie Long-Short: It’s critical to understand just how unique the NCAA’s economic model is. Blue explained, “in no other aspect of the U.S. economy do non-profit organizations, who by their very nature spend every dollar of revenue on their missions, compete in a fierce zero sum game where there is a strong incentive to maximize revenues and to utilize those resources to optimize the competitive outcome.” Remember, unlike in pro sports (or within any for profit business), the non-profit dynamic within college sports eliminates an athletic department's financial incentive to manage spending or to create profitable operating margins. As a result, as revenues have steadily climbed over the last two decades, so too have expenditures. Blue explained that’s a “completely predictable and rational consequence of the system” and without an artificial restriction on spending, athletic departments will continue to burn through cash as fast as they bring it in.

To halt the excessive spending, Blue says “there’s going to have to be some sort of systemic intervention because there is no natural way for [the schools] to control themselves [the way college sports is currently structured].” Intervention could come in the form of NCAA rule changes or a federally imposed limit on spending. The latter may be a necessity as there would seemingly be anti-trust considerations (think: restrictions on trade/salaries) to address.

The perceived excess spending across college athletics has many feeling it's time for the players to be paid. Blue says, “one could argue that student-athletes in high revenue sports are deserving of additional compensation, but curbing [salaries and the construction of new athletic facilities] would be beneficial to college sports regardless of whether or not [any portion of] the funding was reallocated to the players.” In addition to controlling the absolute amount spent on competition - which would be beneficial from an optics standpoint (particularly, when one considers the academic funding needs at any given university) - there are several indirect benefits to capping spending. "The marginal dollar of revenue loses its utility once a school reaches the spending limit, so the tradeoffs currently being made to maximize revenues - some of which are harmful to the greater college athletics ecosystem - can be mitigated with the very existence of a limit.” Blue mentioned late kickoffs, done to accommodate the needs of television partners, as an example of how schools currently chase revenues to the detriment of fan development and player welfare. If institutions could only spend 75% of the broadcast revenues currently received, it reasons to believe they would leave money on the table to recoup some of that scheduling flexibility in the next round of media rights negotiations.

One could also argue that a cap promotes competitive balance and would thus be beneficial to college athletics’ long-term commercial value. Blue cited professional sports as proof of concept. To be clear, this wasn’t a self-serving argument; the UCD A.D. is referring to limits within the various competitive levels of college sports. 

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Comments (1)
No. 1-1
RecruitFocus
RecruitFocus

Very interesting. How do you think compensating athletes will impact coaching salaries?


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