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The Handwringing Has Begun

Recently I wrote:

As Skip notes, surely there will be much hand-wringing and tut-tutting about the size of the contract - messed up university priorities and whatnot. The priorities may be messed up at Alabama (I'm in no position to judge this), but it's rather doubtful that the next-best alternative to the boosters, ticket buyers, and sponsors of 'Bama football is the 'Bama student education.

Case in point:

If Ohio State coach Jim Tressel wins the BCS title game this upcoming Monday, his current contract has a provision which stipulates that it must be torn up, and that a new arrangement needs to be negotiated. If the Buckeyes do indeed defeat Florida on Jan. 8, you can bet that Tressel will receive money that's comparable to this Alabama deal. Much as Steve Spurrier pulled yearly coaching salaries up to the $2 million mark in the 1990s, this Nick Saban deal will pull coaching salaries still higher. This trend of rapid upward escalation in coaching salaries — while evidently necessary to land or keep big-name coaches, as this Alabama deal proves — is simply not a healthy development in American society. While loads of problems exist in the world of primary education, this country's secondary institutions are throwing around ungodly sums of cash so that King Football will succeed on Saturdays. One hastens to say that this is not Alabama's fault; the whole college football industry is collectively responsible. Nevertheless, a healthier society would be devoting a greater share of enormous financial resources to more noble goals and ends. That's the dreary socioeconomic undercurrent to Nick Saban's money grab in Tuscaloosa.

A few comments:

1. Saban's salary is going to be paid out of money generated by the football program (by boosters, ticket and souvenir sales, and the proceeds from the sale of media rights) and the reason why Saban's salary is so high is that the demand for 'Bama football is high. As I wrote yesterday, it is not clear whether the multitudes of people who spend money on the Alabama football would spend it on education if the football program didn't exist. Moreover, those choices are rational. Who are we to say that all those individuals have messed-up priorities because they don't have education as their number one priority?

2. The real losers in all this, as always, are the athletes who have a legitimate claim to some of the cash but, because of the sanctity of amateurism, don't get it. But since Saban can influence which athletes come and which don't, he gets part of the spoils that would go to players in a professional athletics free-agent market.

3. Is Saban worth it? The 'Bama folks certainly think so. He has a proven track record of winning in collegiate athletics and he seemed to have a decent gig in the NFL - at least it paid well. So he had good alternatives and, it seemed, a good share of the relative bargaining power in this negotiation.

One thing seems likely. Saban, as the author of the article notes, is becoming the Larry Brown of college football. Those he recruits against are going to use this against him: "So you wanna go play for 'Bama, eh? What makes you think Coach Saban is going to be there when you are an upperclassman?"

Saban's a proven winner in college. But his nomadic tendencies will be marginal factor he'll have to overcome.

4. Saban's high salary is *not* a sign of an unhealthy society. As I wrote in the earlier post, the diamond-water paradox applies. According to the paradox, water is necessary for life but diamonds are not, yet the price of diamonds is much higher than water. Understanding the solution to the paradox comes from understanding two things: 1. the value of any good is determined by the satisfaction consumers obtain from it at the margin; 2. the price of anything is determined by its relative scarcity. It's quite possible for there to be quite a gulf between the two (the so-called consumer surplus).

Diamonds are more pricey than water because they are relatively scarce while water is relatively abundant. The price that people pay for diamonds is much closer to the marginal satisfaction they obtain from them while the difference between the marginal satisfaction obtained from water and the price of water is much greater. The fact that water is necessary for life and we can get it for a cheap price is a cause for celebration, not general alarm.

The same thing can be said about a collegiate education and football. The talent that Saban, Tressel, and other coaches have is relatively scarce. The Sabans of the world are even more scarce. On the other hand, the talent it takes to teach effectively, for example, at the collegiate level is more abundant. So the price of coaching talent is much higher than the salary obtained by most professors. But people obtain a lot more satisfaction at the margin from education than they do from football.