In football the measure of success is the number of wins in a season. The economic strategy that athletic departments apparently take is that the more money spent on coaches, the more wins they will have. This has lead to significant inflation of university coaches salaries- as evidence by the multimillion dollar coaching salaries throughout the power 5 conferences. In fact the average head coach salary for a power 5 exceeds four million dollars.
The concept that paying coaches leads to more wins is dependent on other teams not paying their coaches more. This is similar to the example given by Tullock where the value of a lock is dependent on the investment the thief makes towards their lock picking. All else equal, School A increasing a coach’s salary increases the average cost of a win in the market since the number of overall wins is static. If no other school follows suit, School A will win X more games while all other schools will collectively lose X more games. Conversely, if all other schools increase coach’s salaries the same amount, School A will not win more games since all schools are now simply paying more to maintain the current number of wins.
Regardless of how “other” schools respond, School A increasing the coach’s salary can be seen as a misallocation of resources because the sole final result is an increase of the cost of the win. Bottom line, there is incremental cost yet it creates no value (once again, because the number of wins in the total market remains the same). The win is more expensive, yet it is not more valuable. It is also a “never ending cycle” since all schools want to increase the number of wins, which is not possible.
1 comment:
I am not thoroughly convinced that the metric that athletic departments are trying to maximize is wins rather than profit. I would argue that athletic departments are not trying to increase their share of a static amount of wins but are instead trying to increase their share of a dynamic amount of football fans. There are two main revenue streams that athletic departments would have to consider when maximizing profit, and those are local revenues from hosting a game and revenues from broadcasting a game on television. The case of NCAA vs The Board of Regents for the University of Oklahoma in 1984 made it legal for colleges to sell their television rights and these revenues have made up a majority of funding for college football programs (source: https://news.utexas.edu/2016/09/26/television-is-the-funding-source-of-college-football/).
Although it might seem intuitive that viewers have a higher demand for teams that win more, so colleges would try to maximize wins to maximize profits, I don't necessarily think that this is what colleges are trying to do. Conferences often sign multi-year deals with broadcasting companies to establish broadcasting rights. Considering the dynamic nature of the makeup of football teams over time, it can be hard for conferences or broadcasting companies to gather accurate information on how likely a team is to have a winning season. However, a coach's salary might signal the pertinent information to the broadcasting companies or conferences. A coach's salary can signal the amount of money available to a football program which is reflective of the amount and quality of training the players receive. It can also act as a signal of the demand the fans have for a certain coach coaching a team. If a coach remains at a school for a long period of time or becomes popular amongst fans, people might watch a team play regardless of the makeup of that team simply because of the person coaching. This would mean that an increase in the amount of a coach's salary would not be for the purpose of securing more wins but for keeping the coach at the school and for securing an indeterminate amount of people's attention. Therefore, School A increasing their coach's salary might not necessarily decrease the benefit for School B in increasing their coach's salary. This would incentivize schools to increase their coach's salary to maximize his celebrity status to help the school's bargaining power when selling their broadcasting rights. Even though schools are increasing the cost of hiring a coach, this decision may actually lead to a larger benefit for the university when they sell their broadcasting rights therefore increasing overall value of the football program for the school.
Post a Comment