What’s Going on with College Coaching Salaries?!
In 1982, Texas A & M signed Jackie Sherrill to a contract as head football coach and athletics director that reportedly was worth $280,000 annually (salary plus other benefits). The deal sent shock waves through higher education; Sherrill reportedly became the highest-paid university employee in the country, and the university president threatened to resign over the size of the contract. Asked about the record-setting compensation for a fellow coach, retired Texas Longhorns legend Darrell Royal said, “You keep the coach’s salary in line with the deans at the university…that just puts Jackie in a bad spot with the faculty.” Oh my, how times have changed!
Today, the highest paid public employee in 39 states is either a football or men’s basketball coach. ESPN observed that the combined
salaries of three head coaches in the Final Four this year surpassed the combined salaries of all 50 state governors. With tuition rates rising across the country and almost every state cutting its education budget, it is fair to question how college athletics got to this point and whether it is out of control. In order to answer those questions, it is important to understand several factors that have combined over the past 35 years to create the current bull market for coaches.
TV Revenue
In 1981, revenue from broadcasting rights for the NCAA men’s basketball tournament reached $10 million for the first time. Over the past 35 years, that revenue stream has skyrocketed to the point that in 2016, the NCAA’s contract with CBS and Turner Sports was extended at an average annual value of about $1.1 billion.
As TV revenue from college basketball began its sharp ascent in the early 1980s, TV revenue from college football followed a similar path. In 1981, the NCAA signed a then lucrative deal with ABC and CBS for the rights to televise college football at an average annual value of about $65 million. Three years later, football-playing schools won a landmark U.S. Supreme Court case against the NCAA that resulted in a wide-open marketplace for schools and conferences to sell football games to television networks without NCAA restrictions (NCAA v. Board of Regents of Univ. of Oklahoma). In the 30 years since that decision, a college football playoff has been created that is responsible for about $470 million of annual TV revenue, and individual schools and conferences now generate hundreds of millions of dollars in annual revenue attributable to football broadcasting.
The most powerful five conferences in the NCAA combined bring in well over $1 billion annually from various TV contracts, and most of those conferences are now broadcasters themselves as conference networks became the latest trend in the past decade. College athletics has been drowning in TV money for 35 years, and as that revenue stream has risen, so have the salaries of the coaches who are held most responsible for putting the product on the field or court that keeps the TV networks satisfied.
Diminishing State Support for Higher Education
Since the early 1980s, the public higher education financial model has been gradually changing. As one study noted, in 2011 only two states had managed to maintain their 1980 level of investment in higher education, while all other states had reduced their support during that 31-year period by anywhere from 14.8 percent to 69.4 percent. With states spending less on higher education, universities must take more responsibility for funding themselves. Most schools raise tuition to help offset the loss of state support, but successful athletics programs have also proven to be effective at helping schools maintain enrollment levels in this new “public-private” education era. A Harvard Business School professor studied this phenomenon, commonly referred to as the “Flutie effect” in reference to a nationally-televised 1984 football game involving Boston College that ended on a dramatic “Hail Mary” pass by Doug Flutie and is credited with a subsequent double-digit percentage spike in applications to Boston College. Some of his findings included:
When a school’s football program rises from mediocre to great, applications increase by 18.7 percent. The study also determined that to achieve a comparable spike in applications, schools could lower tuition by 3.8 percent or recruit higher-quality faculty, which requires spending more on faculty compensation.
Students with lower-than-average SAT scores had a stronger preference for schools known for athletic success, while students with higher SAT scores preferred institutions with greater academic quality. Nevertheless, the students with higher SAT scores were also significantly affected by a school’s athletics success.
In the same way that schools are building state-of-the-art campus recreation facilities and new dormitories loaded with amenities to help attract incoming students, schools are investing in football and men’s basketball programs to stay competitive in the new higher education business model that has become increasingly reliant on tuition dollars rather than state funding to maintain operations. Recruiting or retaining a high-priced coach can be viewed as the equivalent of a school investing in a lavish new performing arts center or other contemporary campus building that will be used as a showpiece for prospective students and their families.
Not Paying Players
A final key factor to consider in an evaluation of rising college coaching salaries is the NCAA rulebook. Athletics departments may compensate student-athletes with scholarships that cover the cost of tuition, housing, meals, books, and stipends, but NCAA rules prohibit schools from paying their student-athletes actual salaries. Scholarship expenses continue to rise with tuition rates, but those expenses do not lead to the same sort of competitive bidding that occurs in the coaching marketplace. One can imagine the money that schools would spend if the nation’s top football and men’s basketball recruits were able to negotiate salaries untethered by NCAA amateurism rules. The result for athletes would probably be something similar to what the industry has seen in the coaching market since the early 1980s.
With the cost of athletes fixed by the NCAA rules, schools have more financial freedom to seek a competitive advantage by outspending their peers to recruit or retain coaches.
Final Thoughts
Will coaching salaries ever fall back in line with the rest of the university? In my opinion, coaching salaries will reset only if broadcasting revenues decline without expectation of a rebound or there are changes to NCAA rules that allow student-athletes to negotiate employment contracts with schools. Even if either or both of those things occur, the first response by most schools would probably be to eliminate unprofitable athletics teams so more money could be directed to the salaries of football and men’s basketball coaches. There will never be a salary cap on coaches; the NCAA experimented with a form of salary cap through the “restricted earnings” assistant coach position in the 1990s, and coaches sued the NCAA for antitrust law violations. The NCAA ended up settling that case and eliminating the cap on earnings.
In the meantime, expect college coaching salaries to continue reaching new highs, as they did last season when Jim Harbaugh received about $9 million in compensation as head football coach at the University of Michigan. At the current rate, NFL coaches might even join college administrators and faculty in their objections to such salaries on campuses – Harbaugh’s compensation at Michigan would have made him the highest-paid NFL coach last year. Oh my, how times have changed!