Saturday, December 15, 2012

Fixing a Broken Clock in College Football

One of the common arguments made by those supporting the idea that college athletes should be paid beyond scholarships are the exorbitant salaries of college coaches. For example 42 head football coaches make at least $1 million dollars per year with the salary average for all coaches around $1.64 million.1 The problem with this argument is it ignores all of the problems associated with paying college athletes and how those problems make such a desire nearly impossible; these problems were discussed in a previous blog post here. However, by itself the argument that college football coaches are paid too much money is a valid one. With more and more college students swimming in greater amounts of debt due to tuition increases, scholarship/grant decreases and worsening high-salaried job prospects it is difficult for defenders of these salaries to continue to hide behind ‘don’t hate the coach, hate the market’ type arguments.

The failure of the market argument is that the market has been inflated and effectively destroyed because it is awash with television money. There is no correction factor because there is no incentive construct. For example a head football coach of university A in a BCS automatic qualifying conference can go 4-8, but because of the revenue sharing in the conference from television deals, especially those conferences with their own television networks, the $1 million dollars paid to that coach is not viewed as a significant loss even if gate receipts drop because of poor play. In fact some may view the search process involved in finding a new coach more costly over absorbing the costs associated with a mediocre coach producing mediocre results, especially for a university that does not have a history of success in football.

When identifying an object or system as broken the natural reaction is to begin processing solutions to fix the problem(s) to repair the system. Unfortunately this reaction has skipped the high value college athletic environment. Such a reality is sad because the fix is rather simple. Instead of providing large base salaries for coaches, universities should arrange all contracts to operate on commission with incentives and a small base salary. An example of such an arrangement is shown below.

Instead of paying a coach $3.6 million dollars a year like the University of South Carolina pays Steve Spurrier, payment over a given year could be as followed:

Base Salary = $40,000
Salary increase per win over unranked team = $5,000
Salary increase per win over ranked team* = $10,000
Salary increase per win over the historical rival university = $15,000
Salary increase upon going to a non-BCS bowl game = $15,000
Salary increase upon winning a conference championship = $25,000
Salary increase upon going to a BCS bowl game = $50,000
Salary increase upon winning a national championship = $250,000

* = the increase is only valid for victories over teams ranked at the end of the year not when they were played.

Under such a contract if coach A lead a team to a 10-3 record with 3 ranked victories, the rival victory and a non-BCS bowl game appearance he would be paid $135,000. Some might argue that such a salary is not fair, but anyone who makes such an argument has a distorted sense of importance. In the above scenario coach A makes $135,000, a salary that is more than a large number of other occupations that are more important to the infrastructure of society including public school teacher, police officer, fire fighter, farmer, lab technician, most engineers, some general practitioners, etc. Therefore, how is awarding coach A such a salary unfair? Especially when the workload of a college football coach is less than the workload of all of the above mentioned professions.

Some could argue that such a system depends too much on luck, not skill because what happens if a team in a given year is devastated by injuries resulting in numerous losses? While such an argument is a definite possibility its influence is insignificant. One could argue that a chief aspect of being a coach for a given sport is the ability to design strategies that enhance the strengths of the players while concealing their weaknesses, thus a rash of injuries should not affect a good coach as much as a bad coach. Also good coaches are able to improve the abilities of weaker players reducing the reliance on their recruitment and maintenance of four and five star prep talent. Therefore, a commission system actually differentiates between a good coach and a bad coach and how they should be financially rewarded for their job performance, exactly how capital markets should function.

If such a commission system is created it is important that the conferences themselves or even the NCAA design a strong system of regulations to avoid inflation. For example a commission system does little to restore market functionality and legitimacy when a coach at university A is awarded $80,000 per win. One possible regulation would be a maximum salary, as a combination of incentives and base, is defined by a NCAA defined percentage of total shared conference revenue and university specific ticket gate. Basically suppose university A was awarded $13 million dollars in revenue sharing from conference television deals, etc and made $8 million dollar in ticket revenue. If the NCAA defined a 1% salary limit then the maximum potential salary of the coach at university A would be $210,000. With the ticket gate inclusion in the above example clearly larger universities are going to have an advantage in coach recruiting because of the ability to offer higher salaries, but it is difficult to eliminate this advantage in a general market operating system. However, good coaches at smaller universities can increase their salaries by raising the profile of the football program and increasing ticket gates and interest.

Overall fixing the salary system in popular college athletics should free up a lot of wasted money that can be diverted to supporting other male and female sports beyond football or basketball as well as provide additional funds for other scholarships encompassing either sports, academic or special needs. People frequently speak of allowing the market to determine the value of something, but do individuals have the will and/or intelligence to recognize when the market is broken and work to fix it accordingly?



No comments:

Post a Comment