At this time of year, the subject of coaching contract buyouts tends to arouse a certain level of angst. This is of course no surprise, as it often comes with a considerable price tag and significant media coverage. According to ESPNAbout $146 million is owed to fired head football coaches at Power 5 schools since the start of the 2022 season, including $76 million and $21.7 million in buyouts.
Why do universities agree to these buyout provisions and payments?
From an outside perspective (and no doubt shared by many in the world of higher education and intercollegiate athletic programs), this question is difficult to answer. Pay someone to stop doing their job and walking away with money that has a generational impact, that must be unappealing, right? Maybe. But there are several reasons why this continues to happen.
Although simplistic, the insatiable desire to win – and win now – often leads to the hiring of coaches who can command these types of deals. Coaches who have a proven track record or have the potential to succeed will simply be able to dominate the market. Before joining Texas A&M, remember that Jimbo Fisher had over 80 victories, a BCS national championship, several conference championships and several bowl game victories with Florida State. In 2017, the year before Fisher joined A&M, the Aggies finished 7-6, but it’s no surprise that A&M went all-in on Fisher.
Examples such as Fisher, above, do not answer Why a contract is structured to allow a fading coach to walk with that much money guaranteed. But ask Why assumes the entire process was rational from the start…And in many cases, it isn’t. Hiring coaches is a frenzy guided, sometimes, by a single mission: find the person you are looking at.
The X’s and O’s of the deal are a little simpler: There’s usually a base salary, additional compensation, a bonus structure and a buyout clause. Buyouts are common in coaching contracts (not just in football, but in other sports as well) and are designed to provide a level of financial security for both the school and the coach. Coaches invest time and effort into their profession and want to ensure they are compensated if they are fired prematurely. Likewise, schools may find some comfort in the fact that a buyout clause acts as a deterrent to a competitor looking to poach.
While there are a number of reasons why coaching salaries and buyout provisions continue to rise, the primary reason is the fact that revenues from college sports, particularly those from television contracts and sponsorships , continue to grow in tandem. In addition, the commitment of very wealthy donors who are just waiting for championships has increased.
Is there enough money in the system to allow these massive buyouts?
Maybe. The system itself seems to perpetuate a certain win-at-all-costs mentality, but it is also not immune to the macroeconomic pressures of the world around it. Budgetary constraints, public scrutiny, and economic downturns are no exception to the world of higher education and collegiate athletics, but the system has built-in safety mechanisms to account for them.
Take donors, for example. For decades, donors have been involved in, or at least heavily contributed to, the hiring and firing of coaches. They have been at the forefront in providing resources to attract (and compensate) talented coaches, and they have also provided buyout funds when things go wrong. Donors also help provide money to student-athletes through NIL agreements. Whether through individual agreements or donations to a collective, universities are asking more from donors. Only time will tell if these same donors have enough resources to continue operating in the coaching buyout business while also being asked to support NIL, fund facilities, etc.
Is the massive buyout model sustainable?
The answer probably depends on where your school fits into the narrative. Hyper-competitive, winning schools will likely continue to use guaranteed money as an incentive that sets them apart from the rest. Others may need a more nuanced approach that allows for tighter control over spending. For these institutions, we propose the following reflections:
- Review your trading strategy. The university management is ultimately responsible for agreeing to terms and signing contracts. While the market is an unavoidable force, be aware of ways to insert college-friendly language and level the playing field. For example, if a coach leaves for another opportunity, the amount owed on the contract can be negotiated to be the same as if the university decided to leave. Another provision to consider is buyout compensation, which means that if a coach gets another job, compensation is reduced. Additionally, decision makers should consider the length of the contract, knowing that a separation may be imminent if they sign a long-term agreement (the average length mandate of an FBS head football coach lasts only 3.7 years, while contract lengths are often more than 5 years). Everything is negotiable and this is an opportunity for universities to get creative.
- Train and raise awareness about contracts. Universities can be proactive by training people on campus who play an active role in contract negotiation. Those authorized to sign must be familiar with basic contract terms and be able to identify potential problems. For example, depending on your state law, liquidated damages provisions (which are your buyout provisions) require certain language to be enforceable.
Bad hiring decisions and huge buyouts can set a program and department back financially for years, and directly impact the university as a whole. Winning now is tempting, but winning in the long term requires diligence and strategic vision.