The price of glory

By Joe Nocera

Wednesday, Sept. 10, 2014 | 2:01 a.m.

“Are Football Coaches Overpaid?” asks a new paper by two Vanderbilt University professors, Randall Thomas of the law school and R. Lawrence Van Horn of the school of management. It’s amazing the topics academics can find worthy of study, isn’t it?

My answer is: Of course they are. At a time when state legislatures are cutting back their support for public universities, when most big athletic programs lose money, when tuition has never been higher, there is something terribly askew about the skyrocketing compensation of college football (and men’s basketball) coaches.

At the University of Alabama, Nick Saban makes a reported $6.9 million a year, more than most professional football coaches. At Ohio State, Urban Meyer makes $4.6 million. At the University of Texas, Mack Brown made more than $5 million before he resigned in December. Navy’s football coach, Ken Niumatalolo, makes more than $1.5 million. Navy, no less!

But as my colleague Steve Eder reported in The New York Times, the Thomas and Van Horn paper comes to a different conclusion. According to the paper, football coaches are not overpaid. Why not? Because their jobs — and their employment contracts — are similar to those of chief executives.

“While university presidents are nominally the CEO of the university,” they write, “there are many commentators, including some presidents, who believe that the football coach retains the role as the most powerful decision maker. Football coaches have many of the same job characteristics as CEOs of public companies — they run large organizations with many employees that generate hundreds of millions of dollars in revenues.”

The idea that football coaches, who run programs made up of maybe 200 people and generating at most $100 million (and that’s at the top) are comparable to public university presidents with budgets of $2 billion is just silly. But there is something apt about comparing them to chief executives. After all, in the land of the overpaid, chief executives are at the top of the heap.

The justification for outlandish executive compensation is that chief executives are being rewarded for performance. But it doesn’t always work that way. In truth, far too many corporate chieftains take home millions of dollars each year whether their companies perform well or not. It’s a rigged game: The board that sets chief executive pay is often made up of other CEOs, who are deeply sympathetic to the man whose pay they are setting. Performance measures can be changed to make the chief executive look good. And so on.

Thomas and Van Horn make the point it is much easier to measure the performance of a college football coach — he either wins games or he doesn’t. The average tenure of a Division I football coach, they report, is just three years, so the coach has every incentive to maximize his earnings. That may indeed explain why football coaches seek bigger salaries, but it doesn’t explain why they are getting them.

There are really two reasons, one of which Thomas and Van Horn mention and the other of which they don’t. The one they mention is television money, which has flooded into college sports in recent years. They point out that after the Pac-12 Conference negotiated an expansive TV deal in 2011 — nearly quadrupling television revenue for some teams in the conference — Washington State was able to pay its new football coach $2.25 million, up from $600,000. “A windfall,” one athletic director calls it.

What they don’t mention is other than facilities, travel costs and coaches’ salaries, there aren’t many other places to spend the money. The players don’t get paid, but the money has to go somewhere. So the coaches grab the lion’s share. Economists call this rent-seeking behavior.

In the recent O’Bannon decision, a federal judge ruled universities would have to increase the value of their athletic scholarships to cover the full cost of attendance. In most cases, that means an increase of between $1,000 and $3,000 per scholarship.

Not long ago, the News & Observer of Raleigh, N.C., interviewed Bubba Cunningham, the athletic director at the University of North Carolina, about his concerns in the wake of the O’Bannon decision. Cunningham estimated adding on the full cost of attendance would cost his university $1.8 million. At UNC, football coach Larry Fedora, makes around $1.7 million. The basketball coach, Roy Williams, makes a little more than $1.8 million.

“We don’t have $1.8 million discretionary,” Cunningham said, referring to the full cost of attendance. “That’s going to create challenges.” He suggested certain minor sports might be “at risk.” But he also said certain other options “aren’t realistic.”

“Like what?” asked the interviewer.

“Slowing down facility expansion, or salaries,” he replied.

Which is the final way CEO compensation resembles the pay of college football coaches: It never goes down.

Joe Nocera is a columnist for The New York Times.