Compensation of College Football's Head Coaches: A Case Study in Firm Size's Effects on Pay

By Byrd, W. Jennings; Mixon, Phillip A. et al. | International Journal of Sport Finance, August 2013 | Go to article overview

Compensation of College Football's Head Coaches: A Case Study in Firm Size's Effects on Pay


Byrd, W. Jennings, Mixon, Phillip A., Wright, Alan, International Journal of Sport Finance


Abstract

Top management pay and firm size has been well documented. We explore a variation of this relationship by extending it to college sports. College football is big business, and many college football programs operate as large corporations with the head coach acting as a member of top management-similar to the COO-of the football program. Using data from 2006-2012, we examine the causal relationship between a head coach's school pay, past performance, and football program size. Our results indicate the most important determinant of a head coach's pay is the total revenue generated by the football program.

Keywords:firm size, compensation, head coach, football, college

(ProQuest: ... denotes formulae omitted.)

Introduction

Prior studies, both internal and external to business writings, have explored the relationship between the top manager and organizational success, yet fail to find consistent explanations because of a multiplicity of subjective factors that are resistant to quantification. Most of the studies are reflective or descriptive in nature, with very little predictive power. Labor economics uses market forces to focus on the links between the quantitative aspects of pay and productivity (Heyman, 2005). Although the market for executive talent may not be perfectly efficient, in a free market system it is reasonable to assume that better managers and leaders will have greater compensation than their less qualified counterparts (Hambrick and D'Aveni, 1992; Kaplan, 2008). It is the goal of this paper to move beyond performance and pay for top management in business and find the link in performance and pay for top management in college sports in the form of the head football coach.

Division I college football coaches have found a marked increase in base salary in recent years as TV contracts and media exposure have led to an exponential rise in college football popularity. The increased exposure has augmented revenue streams for athletic departments. As a result, successful coaches have also increased their pay. However, greater pay also leads to greater expectations. Failure to live up to expectations leads to large turnover rates in coaches with an average tenure of 4.5 years (Berkowitz & Upton, 2012).

Head football coaches have a distinct advantage over their business counterparts: Their "workers" are all short-term and equally "paid" based upon NCAA regulations. Each worker is recruited based upon talent and team need and may typically play four years. As opposed to having to pay workers different salaries for different positions, coaches are able to provide scholarships of equal value to all those who receive and use the offer. These conditions perhaps make the coach, the quality of "workers" the coach recruits, and the ability of the coach to make his players/team productive the most relevant factors for success. Just as a company competes against others to gain or maintain market share, so to do college football teams compete through persistent winning seasons. Moreover, if firms compensate top management for past performance then school boards and athletic departments analogously do the same for head football coaches by increasing their compensation from past success on the field.

With the increase in college football popularity, coaches have been commanding greater pay (Berkowitz & Upton 2012). Yet, at the same time school budgets have been shrinking. Coaches' base salaries (school pay) and athletic department budgets have come partly from university general funds that have left some to suggest that athletic programs become self-sustaining entities apart from the university (Sperber, 2001; Hinkle, 2011). The NCAA reports that only 12% of athletic programs have recently been profitable (Fulks, 2011) with two programs, football and men's basketball, among those driving profitability. Table 1 summarizes football revenues, salaries, and two performance measures for the top 10% and bottom 10% of football programs and coaches from 2006-2012. …

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