Another 4 C’s – College Coaches, CEO’s and Compensation

It has been noted in several different places that the increase in the income of people in the top 1% has outpaced the increases in income for the rest of the population over the last 20-30 years.  A recent article in out local paper noted that the pay of the University of Oklahoma head football coach has been raised to over $5 million.  That would put him well into the top 1%.  College football and basketball coaches, along with CEO’s of public corporations have been some of the most rapidly rising income jobs.  If one is concerned about the rise in the income levels of the top 1%, it might be useful to look at these two occupations and what has transpired.  Over the years, I have had some involvement with each of these type positions as the pay scales have resin.  The the size of the increases may have been over-done, but the reasons are not irrational nor totally driven by greed.  I’m not sure how to “fix the problem”.  But understanding how and why it happened may be the first step in finding a reasonable solution.  The Law of Unintended Consequences I believe plays a part in both situations. The best way to avoid more unintended consequences may be to understand how we got here.

While the specifics of the two types of positions may differ, there are similarities in how human beings react that have contributed to both.  Let’s start with college coaches.  For a long time in college athletics, the only two sports that have generated much revenue have been football and men’s basketball.  The amount of money these sports generate comes from ticket sales and increasingly from TV.  Because many, if not most, people believe that colleges main purpose is to provide education,  there is a reluctance to spend a lot of money on athletics at the expense of the academic programs.  So it’s not uncommon for Athletic Directors to be told that they should fund the sports programs with the revenue received. The cost of athletic programs is influenced by facility cost, travel cost, and staffing.  In many cases, the cost of the scholarships may be included.  But it’s hard to believe that even approximately 1000 students in a school with 20,000 total students would affect the number of classes or the size of classes enough to cause a significant change in the cost of the academic side academic side of the University.  The need to pay for facilities, coaches, and travel however, can be significant.

In considering the cost of athletics,  critical items include the number of different sports, the number of teams and the amount of travel.  All of those items have gone up in the last 30 years.  Today there are apparently very few schools that cover their athletic costs with the athletic revenue.  The number of teams, the number of different sports, and the size of staffs has been, at least in part, driven by Title IX consideration.  Title IX is a well intended piece of government legislation intended to increase to equal opportunity balance between men and women to be able to participate in sports and have their college education paid for by scholarships.  The result of this has been more teams and more different sports.  Each new team adds more staff in the form of coaches and travel.  Facilities cost may go up as well since men and women don’t always participate in the same sports.  Some of these different sports may require different facilities and some may not.  Volley ball, for example, may be played in the basketball arena, but softball requires a different field than baseball.   Men’s and women’s tennis may use the same courts, but having more players may affect the number required.  Travel costs are a function of the number of teams, the size of each, the amount of equipment required, and the distance.  In recent years, conferences have become spread out which necessarily increase travel costs.  One of the driving forces here seems to be the desire to increase TV revenue.

So what has all this got to do with coaches salaries?  College sports is a zero-sum environment.  For every winner there is a loser.  The Athletic Departments that generate the most revenue have in football and basketball teams that win.  Winning teams sell more tickets, play in post season terminates, and get more television time and revenue.  The added benefit that some college administrators also see, is that winning football and basketball get more publicity on a national basis which seems to help with student recruiting and even with contributions to the academic side of the school.  A good head coach is seen as the key to producing a winning team.  Most coaches started as assistant coaches, but good assistant coaches don’t always make good head coaches.  Most of us think we know a good head coach when we see one who has done it successfully, but its difficult to tell who might be good until they have done it.  So hiring an assistant coach to be a head coach is a risk.  The schools that want to be prestige schools and maintain  a winning tradition with the benefits that go with that are reluctant to take the risk of hiring an unproven head coach.  So most look for someone who has already succeeded as a head coach at the collegiate level.  Since he probably is already making a reasonably good salary, to get him to move requires an increase.  If he produces a winner, the fear becomes that someone may offer him more money to hire him away, so we give him a big raise to keep him.  Escalation continues upward the more this happens.

What probably helps this along is that salary levels – particularly at public universities – is common knowledge and is frequently reported in the press.  A former boss of mine liked to say, “money is n’t everything, but it’s how we keep score.”  This was confirmed a few years ago by a baseball free agent complained after he had been offered a big raise and a multi-million dollar contract.  When asked by a reporter if he “needed” more money, he said, “no” but if he were going to be considered the best player in the sport, he needed to be the highest paid. The contract he was offered was only the 2nd highest.  As a measure of how far this has gone, a recent article in the paper reported that in most states the college football coach is the highest paid state employee.  Most of these coaches may feel like Bob Stoops responded when asked if he felt any guilt about being paid so highly.  He responded that if they offered it to him and they could afford it, why should he turn it down?  He would obviously do the job for less, but OU doesn’t want to lose him to another school.

Title IX is, of course, not the only driving force to get us to this point, but it helped by having colleges add a significant number of non-revenue sports.  This put pressure on the football and men’s basketball programs to be more successful.  The increase in pay scales has apparently not trickled down to the other programs, only the ones that provide significant monetary support.  This was not the intent of Title IX, but it is an unintended consequence.

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About tjc13

BE - Chem Engineering, Vanderbilt Univ, MBA, University of Tulsa - Worked for an energy and chemical company for many years and then started a management consulting business working for both for-profit and not-for-profit organizations.
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