College Coaches’ Salaries and Free(?) Markets

A common response from D-IA ADs about escalating coaches salaries is that they are simply “meeting the market.” John Genzale of the Sports Business Journal offers this gem full of uninformed claims and confused economics that takes this “meeting the market” argument to its illogical conclusion (I’m not picking just on the author because this type of stuff has appeared many times).

“College presidents are smart guys; they can do the math. They don’t pay players, so labor costs are relatively modest. They know that ratings, gate and bowl appearances can produce far more revenue than they pay in coaches’ salaries. And they know that athletic success is their best form of marketing… Coaches make big bucks because they’re worth it. They are the most recognizable figures on campus. The best of them improve the competitive fortunes of their programs while enriching the lives of their players. They promote the educational mission of their universities while enhancing its business prospects. So let’s quit whining and pay them what the market dictates.”

The author admits that “free-market” salaries can be unjust but are “an unavoidable byproduct of a free marketplace” and implores critics to “develop faith in the marketplace.”

The uninformed claims, easily found in other opinion columns, are many:

*College presidents, while typicall smart in my experience, aren’t always guys (and nobody has ever reviewed their math abilities).
*By the NCAA’s own Revenues and Expenses Reports, gate and bowl appearances may produce more revenue than coaches are paid, but it all stays in the athletic department (typically, D-IA departments barely break even without direct institutional support).
*Nowhere is there a shred of evidence that athletic success is the best form of marketing available to college presidents; success has spillover value from TV appearances but no university I know of would divert a single dollar of other marketing expenditure to the success of the athletic department expecting some sort of marketing return.
*Coaches come in all styles, just like the rest of us; some enrich the lives of their players and others don’t.
*I for one would just love to hear how it is that coaches enhance the educational missions of their universities.

But, turning to economics, let’s look at just what type of “free marketplace” we’re talking about here, and whether coaches really are worth it. Few college players receive in-kind payment close to their contribution to revenues because of NCAA amateur requirements and immobility rules. And here’s the kicker: players’ contributions to revenues, over and above the value of the in-kind payment they receive (their personal value of education and their valuation of training for a shot at the pros), goes into salaries and facilities (universities don’t expect a direct monetary payment from the athletic department). And the value of this contribution increases immensely over time. Coaches’ salaries would rise anyway, but they would be nowhere near their current levels without this kicker from players.

It’s a funny kind of “free market” where the rules only allow coaches to move at competitive wages, but not players.We’ve known since Ricardo that rents accrue to scarce factors. Markets are great at accomplishing this. But coaches are only artificially scarce; star players are paid less than their contribution to revenues and the balance goes to coaches, ADs, and athletic facilities, not the university.

There are good things about college sports; admirable things even. But let’s not misplace our faith by singing the praises of a completely contrived market where coaches simply enjoy the transfer of value from players that is created by NCAA rules.

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