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Sunday, May 04, 2008
A Different Way to "Hold" Coaches to Contracts

We have had some discussion here lately about colleges using injunctions to try to keep coaches who are under contract from jumping to other schools.

Well Memphis, fresh off its Championship Game appearance (and almost victory) gave Head Coach John Calipari a five-year extension, averaging $ 2.35 million per year. And, according to the current Sports Illustrated, the school found a way (it hopes) to keep him from jumping ship: a $ 5 million bonus if he stays until the end of the contract. Think about that--an extra $ 5 million just for adhering to the terms of the contract.

We could look at the bonus as the school really paying him $ 3.25 million per year and backloading some of the money). Or, this is the mirror of the liquidated damages clause that schools have been trying to enforce lately--if you stay to the end, you get $ 5 million; if you leave early, we get $ 5 million. In other words, rather than using equity to keep coaches, schools will use a different form of market incentive.


I believe that other coaches have had similar clauses, but the difference here is the sheer size of the bonus relative to the annual salary .... more than two years pay.

Anonymous Glenn -- 5/04/2008 8:33 AM  

The $5M is simply backloaded compensation; I don't think it should be viewed as the mirror of a liquidated damages clause (which is not compensation, but represents an estimation of a party's damages in the event of a breach).

The key question to me is whether the $5M bonus is guaranteed. Does he get the $5M if he doesn't perform? -- in other words, if the school terminates him without cause.

Blogger Rick Karcher -- 5/04/2008 8:54 AM  

Well, if you get a bonus for anything, why is that considered "liquidated damages" again?

Anonymous Anonymous -- 5/04/2008 9:02 AM  

It will also be interesting to see how the bonus plays out in future negotiations. As has been noted on this blog in the past, this contract likely won't get to the five year mark given that schools want to show recruits that the coach will be there for all four years; it will get renegotiated in two or three years and Calipari will not stay until the end of this particular contract. Memphis will want to continue dangling this carrot at the end of the next contract term whereas Calipari will insist on including the $5 million in the beginning of the next iteration (in addition to a larger salary). This bonus will certainly change the dynamics of future negotiations.

Blogger David -- 5/04/2008 9:26 AM  

Bill McCartney had a similar deal with Colorado. Once his Promise Keepers ministry got going he stayed at CU an extra year or two to get a longevity bonus that he used to fund his retirement/transition to full-time ministry.

Houston Nutt had something similar with the University of Arkansas and paid him the money or at least a present value of it to bring the Nutt/Arkansas drama to an end.

Blogger Mark -- 5/04/2008 10:22 AM  

I agree with Rick. "Stay on" bonus is an option to the "buy out" clause, but the team puts itself in a weaker position than with the buy out clause when it comes to an earlier termination or breach induced by the team.

Anonymous ariel -- 5/04/2008 7:42 PM  

It essentially functions as a liquidated damages clause in that it becomes an expense of the boosters of the new team acquiring the coach. A coach determined to leave will and this bonus won't stop him because he'll see it in the form of compensation from his new team. What it does do is keep a coach on who might otherwise be thinking of retiring, which actually could be counterproductive. Think what this would mean to Penn State if Joe Paterno were under a 5-year contract with this kind of backloaded bonus.

Anonymous Anonymous -- 5/07/2008 1:31 PM  

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