What if the NCAA adopted Dodd-Frank?

Larry Ribstein —  30 September 2011

Larcker & Tayan speculate, for example (footnotes omitted):

Researchers have long noted that the compensation of college football coaches has risen faster than the compensation of other university employees. According to one study, the compensation awarded to head coaches rose 500 percent between 1986 and 2007. By comparison, the compensation of university presidents rose 100 percent and the compensation of full professors only 30 percent over this period. Student athletes receive no compensation. As a result, the average head football coach of an NCAA Division I school earns three times the compensation of the average president, 17 times the salary of an assistant professor, and an infinite amount more than the average student athlete. The NCAA Act required that a university calculate and disclose these ratios for its own constituents.

They ask:

* If these requirements would not work in an athletic setting, should we expect them to work in business?
* Why are the governance provisions of Dodd-Frank legally required, rather than voluntarily adopted by individual companies?
* Why does Dodd-Frank place such emphasis on executive compensation and disclosure? Will its compensation requirements reduce governance failures?

Larry Ribstein

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Professor of Law, University of Illinois College of Law

12 responses to What if the NCAA adopted Dodd-Frank?

  1. 

    This brings to mind a funny story I heard from my thesis advisor. In the 1980s, University of Texas was recruiting Nobel prize winning physicists from Harvard. Shelly Glashow responded reluctantly to UT’s advances,. UT said, “but we’ll pay you as much as the football coach!” Glashow replied “I already make more than the football coach!” Which was true at Harvard.

  2. 

    Another item if the NCAA adooted Dodd-Frank.
    They would be hiring lots more lawyers to verify compliance, and would do away with most scholarships to make sure they were not in violation.

  3. 
    Willie Spanker 3 October 2011 at 9:58 am

    If student athletes receive no compensation at all wouldn’t that infer that the school presidents and associate professors also receive “an infinite amount more than the average student athlete”?

    • 

      There is what student-athletes are ostensibly paid, and what student-athletes are actually paid. From this standpoint, Dodd-Frank’s treatment of CDS and the NCAA’s “shocked, shocked” response any time one of their sainted institutions is found to be involved with payment of student-athletes reflect an equal level of transparency, e.g., none. It happens, everybody knows it happens, the only thing that is remotely surprising is that it is occasionally reported.

      My personal theory is that Nick Saban left the NFL to go back to the SEC because there is no salary cap in the SEC.

  4. 

    Dodd-Frank suffers from two primary weaknesses. First, it addresses areas that are not really the cause of the financial crisis (such as executive compensation and conflict minerals). Second, it addresses areas that were the cause of the financial crisis (derivatives, particularly CDS) in a way that basically eliminates proprietary trading of CDS by banks and other financial institutions but does not lend any further transparency to the market. Really, the primary problem was that if one had invested in AIG back in 2007, one would not have known whether AIG had written CDS on Bear, Lehman, WaMu or whatever. One would not have known exactly what the investment in AIG would entail. What Dodd-Frank should have done was to require people writing or buying CDS to disclose to investors those positions rather than have them floating around until a credit event occurs.

    • 
      thinkingdownstream 3 October 2011 at 3:48 pm

      Doodad Pro, you are correct. Dodd-Frank, though it has a few good changes, overall is going to be a disaster – and the BoA debit card fee just the tip of the iceberg. Too much regulatory change, too soon. Much of what was touted by Obama as a “sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression” was created before a thorough analysis had been done on the actual causes of the financial collapse.

      The Obama administration and congressional Democrats were not about to let a good catastrophe go to waste, so under Dodd-Frank they implemented regulations to deal with things on the ‘List of Things Lefties Hate’.

      Most of the debacles to come will only be understandable and visible to the masses as a news headline, increased costs of financial transactions, and lots and lots of layoffs in the financial industry.

      Most of the changes Dodd-Frank causes has yet to take effect. Add in the new Consumer Protection agency and we are royally screwed.

  5. 

    The rich get richer, the poor get poorer; typical of academia, in deed if not in word.

  6. 

    I know this is meant as satire, but I think the joke is on the authors. It actually sounds like a good idea! The compensation market for coaches is much more flawed than the market for CEOs, because there’s a ton of money in NCAA sports but it can’t go to the actual athletes. So it has to go somewhere.

  7. 

    Nassim Nicholas Taleb and Mark Spitznagel have a far better view

    The Great Bank Robbery

    http://www.project-syndicate.org/commentary/taleb1/English

  8. 

    The Question was asked: Why does Dodd-Frank place such emphasis on executive compensation and disclosure?

    Answer: Because Congress lacked the will and capacity to pass laws that would do the job, such as repealing the business judgment rule.

    • 
      Observer isn't very observant 3 October 2011 at 11:23 am

      The BJR isn’t a federal law. Some states have statutory standards of director conduct, some don’t. Are you suggesting that congress should preempt state law (whether statutory or common) when it comes to the fiduciary duties of directors and officers?

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