The Value of a College Football Coach

College football coaches salaries have climbed to absurd heights in recent years, and there appears to be no delay or regression in this trend. Big names like Nick Saban, Charlie Strong and Kevin Sumlin all earn in excess of $5 million per year with bonuses. Of course, the value of a football team is more than just the dollars it makes vs the dollars it spends, but are these exorbitant salaries worth it?

The median athletic budget for FBS programs is approximately $40 million a year, but there exists a wide gap between the spending of the lower-tier schools who fill out the range from $10 million to $25 million and the highest-level power conference schools, some of which spend in excess of $100 million on athletics annually. Football coaches’ salaries and benefits accounted for an average of 32 percent of FBS athletic programs' total athletic budgets — about $12.8 million per school, according to the NCAA's most recent revenues and expense report.

Common sense might suggest coaches are paid these exorbitant amounts because football brings in more money than any other sport. Football is the most popular sport at most schools, seats the most fans within its stadiums, has the biggest TV contracts, sells the most merchandise, and therefore generates the largest gross revenues. According to that NCAA survey, common sense is correct. Football accounted for an average of 74.1% of athletic revenues at FBS schools. So a coach who can sustain success on the field and generate perennial fan interest should be worth his weight in gold.

However, a widely-discussed report published by the NCAA in 2012 revealed that on average, schools spend 6% more money on football than football brings in; most schools in the FBS actually take a loss from their football programs. The greatest expenditure, of course, is coaching, with scholarships a distant second.

This might lead one to wonder how schools justify these salaries, especially with the "pay to play" debate about whether or not college football players should be compensated for their time heating up of late.

The findings from the above report might not represent the realities of the profitability of college football though, where a disparity exists between actual revenue and revenue potential. The largest athletic budget in the FBS is nearly four times the median — a massive imbalance. While Nick Saban makes more than $7 million annually with bonuses, the average FBS head coach makes only $275,000 — 25 times less.

In the NCAA report, the University of Texas, where football is religion, reported estimated revenue of more than $160 million over the previous year. Ten other schools also had revenue of more than $100,000,000. So the average school takes a hit, but the college football revenue average certainly does not. A good football team can make a school quite rich.

Source Data: USA Today

We looked at a list of FBS schools ranked by athletic department revenue from the most recent year in which data was available (2008), grabbed every twelfth school, and listed the single-year revenue of each school alongside their football team's all-time winning percentage. A Pearson's correlation test demonstrated a strong positive relationship (0.7901) between revenue and win percentage, with less than a 5% chance these results are due to chance. While not every school appears to get the same amount of bang for its football buck, it's clear that a successful football program is strongly linked to financial viability.

Another potential for profit derived from football is an increase in tuition revenue as a result of increased brand-awareness. For example, new-student applications at the University of Alabama has increased from 12,513 in 2006 (the year before Nick Saban was hired) to 19,518 in 2009, the last year for which data was available (UPDATE: 36,203 this year according to collegedata.com).

In a 2013 paper, associate professor in the Harvard Business School David J Chung calls this the Flutie Effect. 

Named for Boston College quarterback Doug Flutie and his 48-yard Hail Mary to win a 1984 game against Miami as time expired, the Flutie Effect describes the increase in brand awareness, interest, and ultimately, applicants a school can expect to experience after a huge sporting achievement. As a result of Flutie's Hail Mary, watched by millions of Americans the day after Thanksgiving in 1984, Boston College saw a 30% increase in applicants over the next two years.

Chung says schools who quickly rise from middling to elite, have a signature moment that garners national attention, or both, see a 17.7% increase in applications the following year. There are many examples of this in college football. TCU didn't start or finish a season ranked in the AP top 25 from 1954 to 1999, but consistent top 25 finishes and bowl appearances from 2000 to 2008 under Dennis Franchione and Gary Patterson saw application numbers increase by an absurd 105% during that time.

Boise State saw a huge increase in applications following their dramatic upset of Oklahoma in the 2009 Fiesta Bowl. The Flutie Effect in action.

This great chart is from an even better article about a similar topic by Boise State Public Radio.

Like any business or organization, a school that receives more exposure gains more consumer interest. A successful football program is better advertising than a school could ever pay for. A winning team is on television more, sells more merchandise, and raises national awareness. National awareness equates to a premium brand, and a premium brand means premium perception, more applications, and a lower acceptance rate, which in turn makes the school more prestigious academically. Additionally, once students are accepted, schools can point to football as part of their package of student-life benefits, and can then more easily justify increases in tuition.

This is why head coaches are worth far more than they are paid, if they are successful. Schools that sustain winning programs and fan interest can easily justify the massive salaries paid to head coaches, because they're making much and more in return. Those that can’t yet sustain a winning team see the value in building one, which explains why a majority of schools take a loss on their football program — they're playing catch up. The greatest increase in expenditures listed in the NCAA report, aside from coaching, were football facility upgrades, rental and maintenance, illustrating the increasing focus on trying to strike gold with football. The potential to capitalize is too great to ignore within the FBS.

Interestingly, the FCS fares considerably better than the FBS in terms of balancing the budget. FCS schools reported approximately a 2% annual increase in total athletics revenues from 2011-12. A recent study by Winthrop Intelligence revealed the average FCS athletic program commits 22.2% of its total operating expenses toward head coaches across all sports and 15.3% of that total head coaching budget on the head football coach. Gross coaching salaries have gone up, but head coach salaries as a percentage of total expenditures have decreased. Schools can afford to pay their coaches a little more because they’re making a lot more.

The average budget allocated to football coaching staff in the FCS is about $500,000 a year – roughly 25 times less than the average coaching budget of an FBS school. While FCS schools don't have the same earning potential as FBS schools, they more effectively utilize their resources and minimize expenses to ensure financial success.

We also looked at what football-related factors might predict total revenue. Data was not readily available for FCS schools, so the table below offers a glimpse of five of the biggest athletic departments in the FBS. We included the data-points we felt might most directly impact a school's athletic revenues and subsequently, the true value of their head coach.

*Ohio State was ineligible for bowl play in 2012

Revenue = Total athletic department revenue per year
Win% = Winning percentage of the current head coach at his current school
BA% = Percentage of seasons the school has appeared in a bowl under the current head coach
B% = The school's bowl winning percentage with their current head coach

Interestingly, the results showed a coach's win percentage was only mildly correlated (.30) with revenue, while bowl appearance percentage showed a much stronger correlation (.88). Surprisingly, bowl winning percentage actually showed a negative correlation to revenue (-0.34). It’s certainly a small sample size, and not a perfect test, but this brief analysis provides a glimpse into how coaching performance might affect revenue. As we assumed, regular bowl attendance is critical to revenue, but how the team performs in the bowl isn’t as important. The big money comes from an extra month of fan-awareness — ticket sales, merchandise, branding, and free marketing — not a win in the game itself. The most important factor in determining the value of a head coach at the FBS level appears to be whether or not he can get his team into a bowl game.

Wins, bowl/playoff record, recruiting success, and a diverse range of additional metrics could be used to determine the worth of a head coach in either the FBS or FCS. These indicators of on-field success are one way to assess a coach's performance, but it’s also important to remember each coach has an actual dollar-amount value to their school. Coaches who can carry their team to the postseason consistently, regardless of winning percentage or bowl winning percentage, are worth their weight in gold. While the bottom line may exist at dramatically different levels for different schools and at different levels, football's earning potential makes it easy to justify increased expenditures on all aspects of the sport — especially coaching.

Sources

http://www.usatoday.com/sports/college/schools/finances/

http://espn.go.com/college-sports/story/_/id/9236478/ncaa-fbs-schools-spending-more-make

http://espn.go.com/ncaa/revenue/_/type/expenses

http://winthropintelligence.com/2013/12/30/coach-salaries-fcs-non-football/

http://www.ncaapublications.com/productdownloads/2010RevExp.pdf

http://www.hbs.edu/faculty/Publication%20Files/13-067_86a0b712-f29e-423f-b614-0165b770dd65.pdf