Is it Time for Division I Universities to Pull the Emergency Brake on the Football and Basketball Head Coach Cash Carousel?
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Is it Time for Division I Schools to Pull the Emergency Brake on the Football and Basketball Head Coach Cash Carousel?
Few maxims capture the essence of financial prudence more succinctly than the famous line: “A penny saved is a penny earned” - a line often attributed to founding-father Benjamin Franklin.
Today, this aphorism rings truer than ever when it comes to the severance payments (aka buyouts or liquidated damages) in Division I football and basketball head coach contracts, which costs schools millions of dollars annually. In fact, according to a recent AthleticDirectorU (ADU) analysis of Power Five institutions’ spending habits, 51 Power Five schools who listed buyouts on their 2018 NCAA Financial Reports spent a combined $119M on football and men’s basketball severance payments, which makes up roughly a quarter of the total severance payments in the two sports during the last 15 years. Yes, $119M spent in one fiscal year for head coaches not to work for their respective universities.
The ADU article further noted that the increased spending on severance payments makes sense since the value of coaching contracts has increased. The metaphorical horses on the coaching carousel are now not only larger and more expensive, but the carousel is also spinning faster. More schools are making more coaching changes more frequently. ADU’s full data set from this study is available here.
For presidents, athletics directors, and university CFOs looking to mitigate downside financial risk in light of the sobering COVID-19 impacts on the economy, increasing protections and limiting the amount of money pushed across the table within the terms of your next major head coach contract might be a good place to start.
There are an array of terms in modern-day head coach contracts that, collectively, build a head coach’s overall compensation package, from traditional salary to deferred compensation to bonuses.
Universities would be justified in placing greater weight on financial incentives tethered to ticket sales and season ticket renewals in major head coach contracts. Without fans purchasing tickets, the ability for a university to cover a coach’s total compensation becomes a steeper climb.
Other performance bonuses are a reasonable term for both parties in a head coach’s contract because the bonus amounts theoretically reward superior performance (e.g., winning records; graduating student-athletes). A winning program traditionally begets an expanding fan base that begets bigger crowds that purchase tickets, concessions, and parking (granted, it remains to be seen if that revenue formula remains intact post-COVID-19). Furthermore, the incentive amounts in a head coach contract are not usually part of a buyout.
And the buyout clause brings us to the central issue.
Division I universities walking up to a football or basketball head coach hire where financial exposure is greatest may want to consider a bolder position when it comes to the buyout provision.
As it works now for Division I football and basketball head coaches, especially at the Power Five level, if a head coach’s program underperforms on the field or court, but the coach has a few years left on the contract, a school would need to buy out the remaining years of the contract to start fresh. The buyout figures are typically enumerated in predetermined amounts based on the number of years left on the contract, and the provisions often work both ways. For instance, should a head coach decide to take another head coaching position at another university before the contract ends at the coach’s current institution, the departing head coach may owe liquidated damages back to their recently departed institution.
Buyouts do signal a long-term commitment between the university and the head coach. On paper, long term deals with copious buyouts provide perceived stability to the program,. This contracted stability can be particularly important when recruiting prospects who want to know a head coach will still be at the school in three or four years.
There are present-day financial realities, though. Massive ones. The bleak budget forecasts confronting Division I universities may be the tipping point to push the status quo of significant cash buyout parachutes in contracts for departing head coaches to the wayside. College endowments are shrinking at historical rates only rivaled by the market crashes in 2008, 1987 and the Great Depression era. Cash inflows to campuses across the country are on shaky ground and this reality only took a few weeks to manifest. And even if well-oiled boosters can come up with the cash to cover these head coach contracts, wouldn't those donations age even better toward endowed scholarships for student-athletes, additional academic services and computers, or new mental health support center for student-athletes?
Will Division I university leaders start asking themselves, “Is my head coach completely irreplaceable?” There is a short-list of college coaches that make up the Mt. Rushmore in the college coaching ranks. Icons like Mike Krzyzewski or Nick Saban only come around every so often. But by and large, are head coaches so irreplaceable that million-dollar buyouts are needed to keep them in place? (Everyone is replaceable in the workplace according to this article). Are there no more rising stars in the coaching ranks that could step into and match, if not exceed, your current head coach's performance without escalating the price tag?
The contrived long-term commitment spelled out in eye-popping buy-out provisions, even outside the Power Five, hasn’t been the reality. The frequency of head coach changes in football and men’s basketball at the Power Five level has been higher in recent years than ever before. Both parties are helping the carousel spin fast.
The six- or seven-figure buyout clauses found in Power Five head coach contracts have not deterred Division I institutions from firing head coaches with years left on their deals for underperformance or a new Athletic Director wanting their hiring imprint n place by replacing the incumbent. Meanwhile, head coaches routinely leave their current schools knowing a buyout would be due to their erstwhile employer.
These commitments can be fleeting.
Ironically, it’s the head coach’s new employer who often ends up covering the buyout for a coach on the move. The universities are the ones funding the carousel’s electricity, the staff to operate it, and, in some respects, are paying individuals to ride. To be fair, there is no begrudging anyone, including head coaches and their agents, from maximizing the best financial package one can secure in any employment opportunity.
The reality, though, is that the ballooning cash carousel for Division I football and basketball head coaches is spinning so fast that the university’s post-COVID-19 checkbook simply can’t keep up.
Instead of counting the “Benjamins” the university may or may not have to satiate these deals, Division I institutions might be compelled to heed Benjamin Franklin’s adage on frugality. Universities may need to pare down the number of zeros in buy-out clauses, let the market dictate whether your current head coach is going to be hired by another school or pro team (rather than further inflating their contract with a pay raise and contract extension based on conjecture and rumors) and make penny saving the new paradigm for new football or basketball head coach contracts in 2020. You can't lose what you don't spend.
Athletics Veritas is presented for information purposes only and should not be considered advice or counsel on NCAA compliance matters. For guidance on NCAA rules and processes, always consult your university’s athletics compliance office, conference office, and/or the NCAA.
