Are College Presidents Like Football Coaches? Evidence From Their Employment Contracts

Abstract

College presidents and football coaches are frequently criticized by the media over their compensation. In this paper, we argue that these criticisms are unmerited as the markets for both college president and football coaches exhibit properties consistent with a competitive labor market. Both parties’ compensation varies in sensible ways related to size of the programs as well as potential for value creation. Successful college presidents and football coaches can greatly increase the value of their schools well beyond the amount they receive in compensation. For example, a football coach that improves a football program’s win-loss record, will generate significant revenues and a greater numbers of students for the college. We assert that, so long as these higher education executives’ compensation is the result of a competitive labor market, and they do not capture compensation in excess of the incremental value they create, the overall welfare of their universities is increased. To shed light on these issues, we engage in a comprehensive examination and comparison of college president and football coach compensation levels and employment contracts across FBS Division I universities. We find a number of noteworthy results. First, we see large differences in job tenure of these two groups: university presidents stay in their jobs significantly longer than football coaches. Second, we observe that football coaches are paid significantly more and their pay is rising at a much faster rate than college presidents. Third, larger schools pay these top executives much more than their smaller counterparts, especially for football coaches. Finally, top 5 power conference schools pay their coaches far more than the other football conferences. Furthermore, we note significant differences in the structure of the college presidents’ employment contracts compared to football coaches. For example, football coach employment contracts are much more likely to include a fixed term of years than college presidents’ contracts. While the length of the term included in a football coach contract is longer than presidents, their effective job tenure is shorter on average. College presidents are much less likely to have strong language in their contracts that gives their employer the right to terminate them for cause if they engage in serious misconduct. Finally, our analysis shows that college football coaches receive greater severance payments than college presidents if they are terminated without cause. For each of these major findings, we provide a detailed analysis of why they exist and how they can be explained with economic theory.