Exorbitant sports salaries - it's simply supply and demand

By DAVID MOON, Moon Capital Management
January 21, 2007

Mid-way through the 2005 season, Notre Dame head football coach Charlie Weiss was rewarded with a 10 year, multi-million dollar contract that made him the nations' highest paid college football coach. Less than two years later, new Alabama head coach Nick Saban has dethroned Weiss, and is the new King of the Football Finance Throne.

The real story here is about compensation. Relative compensation. What are these employees actually worth? Apparently, the University of Alabama trustees or president thinks Saban is worth $32 million.

Nick Saban will make more for each of the 12 or 13 games a year he coaches than a starting Birmingham schoolteacher makes in a year. The importance of the school teacher's job infinitely exceeds that of a football coach. Can society justify the relative compensation of the two professions?

Yes. It's easy.

The price (salary) of an employee depends on the same factors that drive the price of everything else: supply and demand. There are few people who successfully run $60 million football operations. When you're sitting in your recliner watching the game, whining about play calling, the job looks pretty easy. But there's a reason you're sitting in your easy chair and not roaming the sidelines. The pool of people who are qualified to do that job just isn't very large ' at least not compared to most jobs. And since the sports business is such a lucrative one, the salaries are insanely- but logically - huge.

If you are not satisfied with the pay of your current position, you ought to get a new job. If you don't like working at the Waffle House, you can go to Shoney's. Or you can go to medical school and become a doctor. But moving from the Waffle House to calling plays for the Vols just isn't a choice. There are about 120 Division 1A college football teams in the country. As long as anyone in this country is interested in watching college football on television or in person, those 120 guys will make much more money than a police officer - a person who risks his or her life each day for strangers.

This is not new. Since the days of gladiators, court jesters and outdoor thespians, society well compensates people with popular - and rare ' skills. The strong economy, increased television revenues and the trend toward public financing of sports facilities merely exacerbates the effect.

Both James Taylor and I play the guitar. His pay is hundreds of thousands of dollars an evening; I would have to pay my friends to listen to me. Taylor has a skill matched by few people on earth. Fortunately for him, people enjoy his skill and are willing to buy CDs and attend concerts. Is James Taylor performing a societal service as important as the emergency room nurse who saves lives every evening? No way. Our society produces many more professional nurses than professional guitarists, so the financial odds are stacked against the nurses.

It's simply supply and demand.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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