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Sunday, April 06, 2008
 
Can Large Buyouts Keep College Coaches from Jumping Ship?

How many millions does it take to keep a college coach from leaving? A $1.... A $2.... A $3.... (crunch) -- A $3. I don't know what made me think of that owl in the Tootsie Pop commercial, but that's how much new Indiana University basketball coach Tom Crean must pay IU if he leaves within the first three years. Conversely, if IU fires Crean without cause, IU's liability to him is capped at $3M. So it ends up being a two-way street. In yesterday's edition of The Indianapolis Star, Terry Hutchens and Mark Alesia provide all the details of Crean's new eight year, $18.24 million contract as well as IU's reasons for demanding such a large buyout obligation.

While it used to be that liquidated damages obligations on the part of the coach for leaving early were rarely seen in college coaches contracts, these provisions are now fairly common. And much larger buyout amounts appear to be a rapidly growing trend. For example, Rich Rodriquez had a $4M buyout with WVU, and reportedly now has the same buyout in his new contract with Michigan. Xavier basketball coach Sean Miller has a $2M buyout. Auburn football coach Tommy Tuberville's five year contract has a buyout starting at $7M if he leaves during the first year of the contract term, which then gets reduced a million each year thereafter. Former Kentucky basketball coach Tubby Smith had no buyout obligation in his contract with Kentucky when he recently left for Minnesota, but his new contract with Minnesota contains a $3M buyout in year one, $2M in year two, $1M in year three, and $500K in year four. Some coaches contracts contain liquidated damages provisions that are the same on both sides; meaning that the breaching party owes the non-breaching party an amount equal to the coach's annual salary owing through the remainder of the contract term, which could be extremely costly depending upon the amount of the coach's annual salary and the number of years left on the term of the contract.

According to IU athletics director Rick Greenspan: "I've done about a 180 on this. I used to not believe in buyouts. But I believe there are now deterrents that are important to have.'' Greenspan also knows that nowadays it's going to take more than a $500k - $1M buyout to deter a coach from leaving, because IU is paying Tom Crean's $650K buyout that Crean owes Marquette for breaking his contract there. Eventually, these much larger buyout obligations will help contain the "coaches carousel" in collegiate athletics. Les Miles has a $1.25M buyout obligation in his contract if he bolts for Michigan, and only he knows how much of a deterrent it served when he decided to stay at LSU. At some point, the economics are such that leaving early can become virtually impossible for the individual coach to afford, and it doesn't make good business sense for the new school to pay the coach's buyout obligation on his behalf either.





10 Comments:

Wouldn't RichRod having the same $4 million buyout in his new contract hurt his claims regarding the old one, especially since his attorney explicitly stated that $4 million is an absurd amount and equated it to slavery? Shouldn't somebody have thought of that beforehand?

Anonymous Anonymous -- 4/06/2008 11:38 AM  


What is preposterous is that whoever represented Crean agreed to that ridiculous $3mil max for premature termination by IU... They want to fire him, they (should) need to repay the remaining of the salary plus perks etc... unless it is FOR CAUSE, which should have been the case for Sampson, which would also render IU more vulnerable before the NCAA COI and risk more severe sanctions... What a travesty!
Mutuality of obligation and stability of contracts are being raped!

Anonymous Anonymous -- 4/06/2008 12:19 PM  


Greenspan's acknowledgment he did an "180" after losing Coach Versyp to Purdue w/o a buyout would equate to resignation for any prudent professional in any field, including intercollegiate athletics administration... And if IU was able to shell out the appx. $2 mil (http://newsinfo.iu.edu/news/page/normal/5144.html) required to get him out of there, be sure President McRobbie would; he is not Herbert (who honored Greenspan with an extension through 2013!), he knows what he's doing, and he has demonstrated this both during the Sampson mess and currently.
Any "anonymous donors" out there, please assist... The job is not done with Sampson's & Crean's buyouts... Greenspan needs to go.

Anonymous Anonymous -- 4/06/2008 12:36 PM  


What does it mean to fire a basketball coach "for cause"? Is it only if the coach violates NCAA regulations? What if he wins but does not graduate his players? And what if he just does not win, at least not to some unspecified level?

Blogger Howard Wasserman -- 4/06/2008 2:26 PM  


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Anonymous Anonymous -- 4/06/2008 5:58 PM  


Howard,

If a coach is terminated for cause, he only gets his salary owing up until the point of termination. The definition of "for cause" means whatever the coach's contract says it means, and, as you can imagine, some contracts broadly define for cause containing an exhaustive list of circumstances which tends to favor the school, and other contracts define it more narrowly which tends to favor the coach. And as with any contract, there are oftentimes interpretation issues. While it is commonplace for the definition of for cause to include violations of NCAA rules, contracts can differ as to what exactly is required in order to meet the for cause definition, e.g. it might require a "major violation of NCAA rules" or "a violation resulting in lack of institutional control", or it might simply say "failure to create an environment of compliance with NCAA rules."

As far as winning at certain levels, good graduation rates, meeting certain academic performance levels, etc., coaches often receive incentive bonuses for doing well in those areas. Doing poorly in those areas is not typically a "for cause" reason to terminate. But you raise an interesting point -- in other words, maybe poor performance in these areas should be for cause reasons? I tend to disagree with anon's comment regarding the $3M cap on IU's liability if it terminates Crean without cause. Why should IU be required to pay ALL of Crean's $18M salary owing through the remainder of the term if he doesn't win (in other words, if he is terminated without cause)? IU is basically telling Crean, "If you perform well here, you'll get your full $18M and possibly more with incentive bonuses. But if we terminate you b/c you don't do well here, then we'll give you $3M (in addition to the millions you earned in salary for not doing well here prior to the termination)". Is that unreasonable? I guess you could say Crean's contract has sort of a "quasi" for cause termination provision. Why should coaches' multi-million dollar salaries be guaranteed for the full term when they don't perform well?

Blogger Rick Karcher -- 4/06/2008 8:44 PM  


As for not winning enough being a basis for a "for cause" firing, I'd bet that most coaches have the definintion of "for cause" specified in their contract.

I was looking at Bob Stoop's contract at the USA Today database and there is a clause which defines what actions would result in a termination for cause.

As for bonuses tied to academics, his first tier is $40K for a graduation rate of 65% going up to $60K for an 85% rate (there is a $100K bonus for 100% rate, but it's crazy to think that is attainable). That is contrasted with $60K with appearing in ANY bowl game all the way up to $400K+ for winning the national title. Great incentive structure.

Anonymous Glenn -- 4/07/2008 7:13 AM  


Why not just try to attack it as an unenforceable liquidated damages clause? Seems to me that a $4 million "buyout" acts as a penalty more than any reasonable estimation of damages that a school will suffer?

Anonymous Anonymous -- 4/07/2008 8:37 AM  


Western Kentucky has an interesting approach to liquidated damages.

Darrin Horn and South Carolina have to pay the school $200,000 for his early release and play a four year home and home series in basketball.
http://sports.espn.go.com/ncb/news/story?id=3322582

Blogger Mark -- 4/07/2008 9:29 AM  


Glenn,

When I asked whether not winning should be a for cause reason, I was inquiring whether not winning should be within the definition of for cause as expressly stated in the contract. For cause termination only arises as expressly provided in the contract, and virtually all coaches contracts have a for cause (or sometimes referred to as "just cause") termination section that expressly defines the circumstances that permit a firing for cause.

Anon, you raise an interesting question about the enforceability of these buyouts. Most courts are going to conclude that damages are very difficult to ascertain when a coach leaves, and that the parties came to a reasonable determination and estimation of potential damages. I suppose that, at some point, the buyout could become large enough that it could be construed as a penalty. But if the liquidated damages on the coach's end for leaving early is construed as a penalty, why wouldn't the same argument be made that the liquidated damages on the school's end for terminating early (without cause) constitutes a penalty?

Blogger Rick Karcher -- 4/07/2008 10:21 AM  


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