The athletic director at UC Davis thinks it would be a swell idea if Congress, at the same time it looks into regulating the NIL rights of college athletes, would go ahead and tackle legislation that would limit “excessive spending on salaries and facilities”.
This is needed — I know you’ll be shocked, shocked to hear it — because college athletic directors are inept at negotiations.
Salary market inefficiency is especially apparent when athletics directors and presidents find themselves renegotiating contracts to retain successful coaches. The non-profit structure creates an odd principal-agent dilemma: It is almost always in the personal job-security interest of athletics directors to pay highly popular coaches whatever it takes to retain them, lest they be blamed by influential constituents for allowing a beloved coach to get away. Agents representing coaches understand this negotiating dynamic, and are thus able to extract exceptional value for their clients. Negotiating circumstances are different in professional sports, where management is closely supported by an owner with a personal incentive to optimize financial efficiency and maximize return on investment.
Apparently it’s impossible to say no to Charlie Weis.
But listen to the brave new world that would be ushered in if Congress gave those ADs a backbone!
… it suggests that limits on spending would increase competitive balance in college athletics, thereby protecting long-term fan interest and commercial value. Spending limits (structured appropriately for each level of DI competition) would be in the competitive interest of all schools except the small minority who currently generate the most revenue, and thus ought to be supported by a majority of institutions and their fan bases.
A small minority might object? Ya’ think?
I can’t come up with anything that would be guaranteed to blow up the current structure of college athletics than putting limits on what P5 schools could spend on staff and infrastructure.
The problem here is the underlying rationale.
The unique non-profit economic system of college sports creates an inefficient salary market, systematically inflating salaries beyond what would reasonably constitute market value in a for-profit environment.
The economic system of college athletics (which can be read about in more detail here) is unique because it consists of non-profit organizations that, unlike in any other American non-profit sector, compete fiercely in a zero-sum game. In other words, a college athletics program can only succeed at its competitive mission (win) if another fails (lose). Non-profit organizations in other sectors – for example, religious organizations, hospitals, and food banks – do not encounter a similar competitive dynamic. The zero-sum nature of competition in college athletics creates an enduring incentive for athletics departments to make investments that drive winning.
Accordingly, rather than seeking profitable operating margins, non-profit athletics departments reinvest all available revenue in priorities that maximize the chance of competitive success – such as attracting and retaining the best coaches. So, when athletics-related revenue grows significantly, as has been the case in major college sports over the past decade, the non-profit nature of its economic system drives corresponding growth in salaries and other competitive spending.
These aren’t non-profit organizations because theirs is a noble calling. They are the way they are because by being that way, they avoid the tax man.
If you want to remedy the dilemma you’ve constructed, it’s just as easy… hell, it’s easier just to do away with their non-profit status.
That’s not even the most detached from reality part of the piece. This is:
Nationally enforced limits on competitive spending could help to resolve some of these problems. They would reduce the urgency to generate maximum revenue, since income above the spending limit couldn’t be used for competitive purposes, and thus enable schools to cut back on the number of revenue-maximizing tradeoffs that impact student-athletes and local fans.
Tell you what — write that into your proposed legislation and we can talk. I won’t be holding my breath, though.
Help them help themselves, Congress. After all, it takes real courage to create a framework for schools to deny coaches what they’re worth on a free market.
(h/t)
