Question

College athletic departments are rarely self-sufficient, yet coaches’ salaries increase year-after-year. Explain why

    this is the case.

Answer 1

Let's look at two concepts of economics to understand the situation better:

1. The concept of Opportunity Costs:  Accounting perspective would tell us that the athletic department coaches are being paid for whatever contribution they make. Accounting does not take into consideration the opportunity costs.

Opportunity cost is nothing but the cost of the next best alternative that is foregone when one takes a decision. Looking at this situation, the opportunity cost for the coaches can be very high. If coaches were not coaching at the department, they could have trained someone else - a national team, a regional team, an individual athlete, etc. From an economic perspective, the salary of coaches must increase year over year as their opportunity cost of coaching at college is also going up year over year.

2. Concept of positive externalities: Coaching often leads to positive spillovers for the society and economy as a whole. Players who are trained in college can later represent the college, region, or even at a national team. The contribution of coaches often creates positive externalities for the society which are often not monetized. They can

be paid for their positive externalities by increasing their salaries each year - irrespective of the fact that their department might not be self-sufficient.