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Sweet Lew’s Sweet Compensation Package

2010 March 27
by Phil Miller

Major college athletic programs are run in ways that are very similar their professional brethren. They compete in markets for top talent (except that in college, the players can’t be paid). They practice price discrimination. For example, colleges routinely give ticket discounts to students, an example of what we economists call third-degree price discrimination. They use two-part tariffs to allocate tickets. In the pros, they use personal seat licenses. In college, they use donations. Both the pros and the colleges employ revenue sharing. The primary difference between the colleges and the pros is that the revenue programs in college, generally football and men’s basketball, generate revenue for cross-subsidization of non-revenue programs.

But Phil, you’ll say, colleges are non-profit while the professional team owners do what they do for profit. Fair enough, but I’d counter that being a non-profit in terms of tax status only restricts what you do with excess income. It does not restrict your underlying motive. Moreover, colleges try to generate as much revenue as possible. Further, since most of their costs are fixed costs, as in the pros, maximizing revenue is the same as maximizing profits (or minimizing losses).

So when I see, for example, coaching salaries in the academy that look similar to those in the pros, I usually don’t raise an eyebrow.

But this raised both of my eyebrows.

Lew Perkins, the University of Kansas athletic director, was the state’s highest-paid employee in 2007 at $646,281.

But that’s a paltry sum compared with what Perkins received in 2009 — $4.4 million.

Perkins’ pay is the equivalent of $85,000 a week — about 10 KU students’ average yearly tuition payments. What’s more, $4.4 million appears to place Perkins far beyond that of any athletic director in the nation.

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