College Football - Pay for Performance
More fixing
While I’m at it fixing college football including how much players should be paid, I might as well address pay for performance—the general details of compensation.
Early in my career I worked on compensation analysis including direct performance pay. While I cannot claim expertise, I can claim experience.
This is a known tricky issue not just in sports but all compensation realms. The key is to get the incentives properly aligned, and it is never a solved problem. As soon as you design a system, the participants will work to break it. Sometimes this is intentional especially in poorly designed schemes. But it happens inadvertently too—just another application of Goodhart’s Law.
So think of this as a work in process where this is a good first step. Included in this are the underlying incentive conflicts as well as guiding principles to help resolve them.
First, the incentive objectives:
Optimize for the Desired Outcome - This will be from the perspective of the labor demander, the hiring organization (the university in the case of college football). The organization determines the pay package offer, and it is the entity for which the labor cost is a means of achieving its ends. Therefore, it is the one for which we determine incentive alignment.
Determine the Desired Outcome - Notice that I used the phrase “desired outcome” and not “profit”. Profit maximization is the ultimate goal of any organization with profit widely defined. This is true even for nonprofits. All firms and organizations should seek to maximize profits (for their own sake and society’s). If they don’t, they will not continue in existence for long and from society’s perspective will not being using resources wisely. The widely-defined-profit framing above is doing a lot of work here, though. “Profit” for a for-profit business is straightforward. Profit for a non-profit entity is not. In the case of a university it could mean things like on net fostering a better environment for students, faculty, alumni, and society in general. This is where it gets fuzzy for nonprofits as they have to properly define and measure intangibles that a business doesn’t (or at least shouldn’t) be concerned with. Preach all you want about a corporation being a “good corporate citizen” blah, blah, blah. . . That is economically and socially meaningless at best and stupid at worse. A for-profit firm that loses money because of its charitable pursuits is bad for society FULL STOP. This is not necessarily true with nonprofits.
The Desired Outcome is . . . hard to say - Many would think I should have skipped the first two points jumping to this one and saying “win football games” as the desired outcome. Not so fast, my friends. That is assuming too much. Playing championship-level football might be more accurate for some while a goal of simply having a more competitive football program that is enjoyed by the university’s constituents even though it might be middling at best is more appropriate for others. The devil is in the details here, and one size does not fit all. That said . . .
Improve the Team’s Winning Chances - This is a fairly good generalization of what the desired outcome likely should be. The only pushback would be not everyone (maybe no one) should desire a win-at-all-cost approach. See the recent Texas Tech situation. Long-term reputation matters for a university in ways that might even sacrifice football winning percentage.
Align Individual Player and Team Incentives with the Desired Outcome - Here is the heart of what we want. We don’t want a player to choose personal gain over team success. We also don’t want to attempt tying a detailed, player-level or team-level pay plan to grandiose objectives like the ultimate desired outcome. So in a sense there are two major levels to this. First is align the team’s performance game-by-game and season-by-season with the desired outcome. We will assume this comes by saying team winning success including looking good doing it (not being a win-at-all-cost program) is aligned with the desired outcome. Second is align team winning success with individual player success—the purpose of this post. Again, many would think I should have started with this because it is obvious, and it basically is. BUT all of the above actually does have to be considered because excluding it is an oversimplification that risks a phantom menace being an inherently undermining problem.
Therefore, Align Individual Player and Team Incentives with Team Success - Now comes the hard part . . .
Second, the design (four components):
Component 1 - Direct
Individual players should NOT be compensated for positive outcomes that are directly recorded into the box score. This includes payment for points directly scored (e.g., catching a pass for a touchdown, kicking a field goal, etc.) as well as meaningful plays (e.g., making a sack, creating or recovering a turnover, etc.). At first glance this seems like ways one would want to compensate players. However, there are too many pitfalls. Namely,
It would make individual decisions made in the moment more complicated like considering if one should try to take a last-minute interception down the field for a touchdown rather than taking a knee. Trying to get more yards and perhaps a touchdown following an interception usually is the right call for the team and the player. However, in certain situations like at the end of a game the team wants you to go down and all but lock in victory where the player might want the glory of the touchdown as well as the additional pay. One could solve a lot of this by only paying for good plays in the first three quarters, but that’s a weird partial solution that unnecessarily complicates it and still has bad incentive consequences at the end of the third quarter like where a player might try something unduly risky knowing it is his last chance at the additional pay. In another example a running back might try to bounce outside on third and one from the opponent’s ten yard line hoping to spring it into the endzone rather than make the dive for the first down. Asking them to solve for this type of dilemma in the moment is asking for trouble. Players need as little exceptions to general rules of what to do in a given situation as possible. Coaches would surely agree.
It would build resentment play-by-play and within position groups. A player whose touchdown gets called back for a holding call on a lineman already has reason to be upset with the touchdown-thwarting penalty. There is no need to add to the frustration. And one wants players coming out of games when they are tired rather than, say, a running back not leaving the field knowing his replacement is likely to get a touchdown from first-and-goal at the one yard line after the player’s big run to set up the situation. Also, you don’t want a running back on that goal-line play angry that the quarterback chose to keep the ball rather than hand it off. Yes, all of these things are already at play, but let’s not compound the problem.
Overall, it encourages players to think too much for themselves rather than the team.
Individual players SHOULD BE compensated for positive outcomes that are meaningful to team success at the coach’s discretion AFTER the game has ended. This is equivalent to the awarding of team balls for outstanding individual plays or overall effort. The amount should be meaningful but not so much that it is excessive. What is excessive? If the amount approaches much less dwarfs general compensation on a per game basis, it is too much. In keeping with the caveats in the point above, the coach should be very careful not to basically award pay for individual plays in a way that does informally what is thoughtfully avoided formally.
Component 2 - Indirect
Players should be compensated for the team’s success. “Isn’t winning enough?” I hear you ask. No, as the following should demonstrate.
Player effort often falls before the team’s full objectives are reached. The team might want a player to help make a losing effort not look so bad (e.g., play hard to keep the loss respectable). The team might want a good showing in a late-season or bowl game that is worth very little to the players themselves. This might indeed have a direct component to it such that some players would have a bigger incentive package to play in games than others. Still, it would be important that all players are rewarded for efforts toward this team goal.
Players should feel that their contributions from practice on Monday to finishing the game on Saturday are being recognized.
The star players are already being compensated well. But winning comes from great contributions from the third-string lineman as well as the star quarterback. Spreading out compensation for a team’s win helps to reinforce that it was in fact a team win. By extension, the team’s overall goals such as earning a spot in the conference championship, winning that championship, making a bowl game, winning a bowl game, etc. are progressive in nature.
Again, the amount should be meaningful but not so much that it is excessive. Notice that coaches have incentives in their own packages much like these designs. A coach generally will get a bump for being conference champion, making a bowl game, making the playoffs, winning the national championship, and sometimes for just beating a rival. These amounts usually are not life changing in comparison to the coach’s already very large compensation. However, they are meaningful and send the right message.
Component 3 - General Contract
This is the amount per player that a player has negotiated. It encompasses the salary from the school as well as any NIL arrangement the school is helping to orchestrate.
The point of it being a contract is key. That allows both the school and the player to understand the terms of agreement getting them out of the way once practice and play begins. It also should have clawback provisions and buyout clauses and step-up conditions to allow the university as well as the player to have options and insurance against interfering circumstances. A player who is having a break-out year shouldn’t have holdout as their only option. Knowing that, at the very least, certain things will be sufficient cause to renegotiate and, even better, that certain achievements will trigger a better paying status will help players be confident that playing better means actual reward. Likewise, it will grant universities some recompense if a player fails to perform or worse is attempting to sandbag awaiting a better future elsewhere.
Component 4 - Outside Arrangements
This would encompass the rest of the NIL world, that which is not directly controlled by the athletic department of the university for which the player plays. Understand that I mean this as an exhaustive category filling any gaps left of how college football players would be paid. These payments are up to the player and the payer. If you are the payer, I would encourage you to look for guidance from the university as to the structure of the deal as well as the size, but do not give them veto authority on your end (see the next point). You would want to make sure this trade is mutually beneficial to you including protection against failure to perform (athletically or otherwise like in the case, say, they do not appear in your car commercial as expected). You also would want to make sure you are not thwarting the bigger picture congruent with the outline above. However, you might be wiling and able to do something the university is not. That said, . . .
The university should be able to stipulate in its contractual arrangements with players that the terms of outside deals they strike abide by certain guidelines uniformly applicable to all contracts that they the university enters with players. This could include precluding things like direct pay for scoring touchdowns, etc. It is up to players to make sure these restrictions are not overly onerous. If it surprises you that this leads me, of all people, to suggest a players union is likely needed here, consider yourself warned. While I am almost always negative on unions, state-granted/enforced monopoly (monopsony technically) is an area I find exception.
Conclusion
As in any compensation scheme, getting the structure right is essential and ongoing to best align incentives. I believe this approach I’ve outlined is a very good start to how a pay for performance arrangement with college football players would best benefit them and the university for which they are selling their services.
Two notes on that. First, you should not recoil at the phrase “pay for performance”. That is what EVERYONE WHO WORKS DOES. That includes work that is compensated with money wages as well an non-pecuniary benefits. It is funny how when pressed those who claim some strange moral high ground with statements like, “Amateur players should _____,” with the blank filled by some weak attempt apologizing away not paying athletes that only Cartman could understand will pivot to, “Acktually, they are paid with scholarships and room and board.” So, we are just haggling over price after all.
Second, a better approach to payment should result in better results given that better means improved alignment of incentives. This will be hard but not impossible to demonstrate. I look forward to sports economist research on this in the future. For now expect that you might be able to perceive more competitive balance at least among teams within certain tiers (e.g., better top-fifteen matchups as well as better games between middle-of-the-pack teams), a somewhat more professional look and feel as well as behavior both on and off the field, and more participation in games that have slipped like lesser bowls. Importantly for most who clutch their pearls with this topic, it should restore much needed and sought stability in these turbulent college football times.