I asked a D1 AD why he wants the federal government to regulate coaching salaries

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It isn’t too hard to find critics of escalating coaching salaries, or other college football expenses. Lord knows I’ve sent those snarky tweets after some middling assistant suddenly signs a new million dollar contract. Next season, somebody is going to make over $4 million dollars to finish last in the SEC West. We could all play with the USA TODAY coaching salary database, find somebody whose salary jumped a cool half million over the last few years for seemingly reasons unknown.

But what if this explosion of salaries wasn’t because of administrator incompetence, or some unholy and unethical alliance between ADs, boosters, and agents? What if this was all actually…rational?

This is what UC-Davis AD Dr.Kevin Blue argues, in a piece titled “Rising Expenses In College Athletics And The Non-Profit Paradox”, and again, in a story I referenced recently, “Why Congress Should Regulate Salaries and Spending in College Athletics”.

I want to be judicious in block-quoting these, because I think both articles are well worth the read, so feel free to fire up a second tab and give them a look. I promise, these arguments are accessible, even if you’re like me and haven’t cracked open an econ textbook in over a decade.

To very briefly paraphrase, I understand Dr.Blue to argue here that the current status quo in college athletics is unlike any other sector in the economy. You have a bunch of non-profit entities competing against each other in a zero-sum manner…somebody has to win, somebody has to lose, and the biggest “gains” (money, exposure, prestige, etc), go to the winners. You’re also in a system where revenues are mostly rising very quickly, thanks to TV money. So the schools are heavily incentivized to spend to find competitive advantages, and there’s no profit-seeking incentive to check that spending (or requirement to, you know, directly compensate the labor)…so new revenue goes directly into new spending. Costs continue to rise.

I think I always understood this, but never thought about college football in explicitly those terms. Dr.Blue’s proposed remedy for this inefficient marketplace? Federal regulation. If the government imposed some sort of salary cap, Dr.Blue argues, schools wouldn’t need to squeeze every last dollar of revenue, since they wouldn’t be able to use it, leading to better fan experiences. If you’re not beholden to ESPN, you might not have to play on Wednesday night, or do #Pac12AfterDark. Dr.Blue also argues this would have an improved competitive balance effect.

Again, paraphrasing here.

This is not an argument I’m used to seeing. So I called him up and asked to talk with him about it a little more. Our conversation here has been edited for length and clarity. There are a few times when I’ve added some editorial notes to the reader that were not part of our conversation. Those are noted in {brackets}.

Matt Brown: Do you think that there's an appetite among other athletic directors or other universities to really pursue third party cost control regulations?Dr.Blue: The responses that I've gotten to the article indicate that there are plenty of athletic directors, several commissioners, and many others involved in the industry who also believe that spending limits and outside assistance might be a productive path to curtail spending.

MB: Just theoretically here, is there any other kind of outside assistance outside of the federal government that could potentially work? This certainly doesn't seem like something that can be handled internally within the NCAA.DB: It is a fair question. My suggestion about Congress is not necessarily to imply that Congress is the best path. But to limit spending effectively, there would need to be some third-party involvement in structuring regulations.

Whether that comes from Congress, the NCAA, or from some other third party, I think intervention from outside of the schools is the only effective way to solve the problem. If there were an alternative {to congress}, then maybe that would be preferable in the eyes of some people.But when you're talking about spending limitations, of course, there's consideration of spending limits that would apply to salaries, and that treads into antitrust territory. As a result, a federal antitrust exemption, or something of that nature, is probably warranted and necessary.

{A quick aside here, Dr.Blue is right. The NCAA actually tried salary limits before. In Law v. NCAA, the Tenth Circuit ruled that those limits ran afoul of the Sherman Antitrust Act. The only way to enact this type of regulation without the courts ruling it illegal would be for the NCAA to get a federal antitrust exemption. Former Big Ten commissioner Jim Delany, in a recent interview with CBS, said that such an exemption ‘had to be discussed’}

MB: I know Rep.Donna Shalala recently flat out said we should pursue an antitrust exemption in order to force cost controls for NCAA schools. I've heard a couple of other college administrators openly wonder, you know, maybe this is a trading chip that we offer or try to pursue while negotiating NIL legislation. Do you know why the NCAA or why athletic directors or stakeholders haven't pursued this earlier?

DB: A: Well, there was a case in the 90s where the NCAA tried to restrict the earnings of the third assistant basketball coach. The case was Law v. NCAA decided in 1998, and the NCAA was not successful. I think that history may cause some hesitation about solutions that directly or indirectly involve regulating salaries.I understand that hesitation. But I think people are increasingly coming to the conclusion that, as I mentioned before, spending inflation in college sports is a systemic feature of its unique economic structure. The issue should be viewed as a systemic market inefficiency that needs corrective intervention.

Nowhere else in the American economy do we have non-profit organizations fiercely competing in a zero-sum game. Schools are fully incentivized to spend all of the revenue that they generate in order to compete. Accordingly, when revenue grows in this system – as it has significantly over the past decade – it is inevitable that spending will grow commensurately.

I’m hopeful this point isn’t mistaken as casting blame on people who are earning high salaries. Nor is it the fault of people who are authorizing high salaries, or making decisions to spend on facilities. Any rational person operating in the existing economic system would behave in precisely the same way. So, when people criticize from outside, I would argue that, in fact, the incentives in our economic system would cause them to behave in the exact same way if they were part of it.

When you combine the nonprofit incentive to spend every dollar of revenue that you make with fierce zero-sum competition and rising revenue, you get the systemic and inevitable result of spending inflation. I think that people in college athletics are increasingly cognizant of this reality and wondering what can be done about it.

MB: The cost inflation in college sports extends beyond just coaching salaries. Do you know if there are would be similar antitrust concerns if there was some sort of spending cap, rather than a specific salary gap on particular professions?DB: I've talked to a number of legal analysts, attorneys and legal scholars about this question. They generally think that there's more flexibility to restrict spending when salaries are not directly implicated. But I think the legal viability of broader spending limits would have to be tested as well, and might also require federal involvement to execute. Whether a broader spending limit is defined as restraining trade is really up to the courts.

Hopefully, the logic in the articles I’ve written presents the case for the existence of a market inefficiency that needs correcting. Systematically, we are going to continue to see elevated levels of spending when the revenue is available to spend, so long as there aren't any restrictions on spending. Spending to compete more effectively is a rational thing to do in the context of a zero-sum game, especially when you're a nonprofit organization and there aren’t equity holders demanding a profitable return on their investment.So as long as the athletic departments can afford to spend, they will end up spending.

Q: Among my peers, and among most commentators I regularly read, I usually find critiques of the current financial system. I'm trying to understand the counter argument here, to see what I'm missing. Have you heard anybody…maybe from another university…that has argued against what you're talking about here? Are there people in the industry that look at these spending trends and think "this is fine?"A: There is an ideological viewpoint that free markets in all circumstances are appropriate. I'm a free markets person as well. But in this case, I think there's evidence to suggest that the market is not functioning efficiently in needs corrective intervention. Nonetheless, there are those who hold the reasonable ideological perspective that intervention in markets, whether by the government or otherwise, is not the right way to operate. And I understand that point of view.

I also completely understand the point of view that some people in the coaching profession have about the increasingly “short leash” that some coaches are getting, and the relatively rapid turnover that we're seeing in some instances. With coaches being given less patience from some schools, I completely understand that coaches want to be in a position to maximize their income when they have that opportunity.

I would also add that spending restrictions, if they were applied to salaries, should also apply to athletic directors. The piece I wrote on this topic referred to this in a footnote, and I just want to make sure that is clear.

My view is that spending limits should be considered for all categories of expenses that are related to competition.

Q: Maybe this is unfair speculation, but do you think that the response to your arguments, either from outside the industry or from inside the industry, would be different if they were being very publicly made by somebody who was overseeing a $150 million athletic department instead of a $40, $45 million athletic department?A: Yes. The way that people evaluate any public position is they try to assess the credibility of the group or individual that's making those statements. I'm aware that at the FCS level, on this specific issue we aren’t the same as other people at the FBS or power five level, and that's okay. I do know that there are people at the FBS level and the power five level that share my perspective about the systemic challenges regarding spending. Whether those folks decide to express themselves is really up to them.

{If this helps you evaluate his argument here, UC-Davis made the FCS playoffs in 2018. You might remember their football coach. That’s former Boise State and Colorado head coach, Dan “GO PLAY INTRAMURALS BROTHER” Hawkins. They play in the Big Sky and per USA TODAY, spent about $36 million as an athletic department last year, which is more than some FBS schools, but, you know, not Ohio State}

Q: Q: Do you think, hypothetically it would be easier either to pass regulatory muster or to sell it within your peers, that if instead of a hard cap, there was something more akin to a luxury tax system, like in MLB?

{MB-another quick aside here, I actually floated a luxury tax type system in an earlier Extra Points, where any spending above X would require a dollar for dollar gift to the school’s general scholarship fund, rather than an out and out hard cap}A: People who believe that hard caps are too restrictive would likely be more favorable towards a less restrictive alternative like the luxury tax system that you're describing.

Of course, there are a number of nuances and complexities that would need to be worked out with any expense control system. For example, a system would have to account for variability in cost of living, tuition price differences that impact scholarship costs, the legitimate facility needs that universities may have, and a number of other complicating factors. But these nuances can be worked out, and are probably not more challenging than existing complex work in financial aid, eligibility, and NCAA compliance.

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I’m a pretty liberal guy, but even I understand the skepticism that the federal government could swoop in here and save the day, crafting a better set of regulations without unintended consequences. That’s generally not the institution you imagine saving the day.

But I think I also agree with the general thesis here that restraining spending is probably impossible without outside intervention. Costs aren’t ballooning just because of a lack of administrator will, or competence, or moral fiber…and I’m not even sure they wouldn’t be rising dramatically even if athletes were more robustly compensated than they are now. And those skyrocketing costs have negative impacts on the fan experience, and perhaps even the long-term health of college sports.

If the NCAA can’t do it, and nobody else can really compel change, then maybe the feds should do it. They’re already the people that are almost certainly going to hash out what the NIL marketplace looks like. Maybe Rep.Shalala is right, and now is the time for a more robust overhaul of college athletics, with the federal government playing an active role.

If they can find time, that is. I suspect most members of Congress are a teensy bit busy right now.

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