College Coaching Contracts and the Future of “Buyouts”

This time of year, the topic of coaching contract buyouts tends to bring a certain level of angst. This is no surprise, of course, as it often comes with a considerable price tag and an attendant level of press coverage. According to ESPN, approximately $146 million has been owed to fired head football coaches at Power 5 schools since the start of the 2022 season, including both a $76 million and a $21.7 million buyout.

Why are universities agreeing to these buyout provisions and payments?

From an outside view (and undoubtedly held by many inside the higher education world and intercollegiate athletic programs), it is a difficult question to answer. Paying someone to stop doing their job and walk away with money that has generational impact, must be unappealing, right? Maybe. But there are a handful of reasons that this continues to happen. 

Though simplistic, the insatiable desire to win – and win now – often leads to the hiring of coaches who can command these types of deals. Coaches that have a proven track record of success, or the potential for the same, will quite simply be able to command the market. Before joining Texas A&M, recall that Jimbo Fisher had amassed 80+ wins, a BCS national championship, multiple 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 is no surprise that A&M went all-in on Fisher. 

Examples such as Fisher, above, doesn’t answer why a contract is structured to allow a coach who is on the way out to walk with so much in guaranteed money. But asking why presumes that the entire process was rational from the start… And in many cases, it isn’t. Hiring coaches is a frenzy guided, at times, by a single mission: get the person you’re eyeing. 

The X’s and O’s of the deal are somewhat more straightforward: There is usually a base salary, supplemental compensation, a bonus structure, and a buyout provision. Buyouts are common in coaches’ contracts (not only football, but other sports, too) and are designed to provide a level of financial security for both the school and the coach. Coaches invest time and effort into their craft and they want to ensure they are compensated if they are terminated early. Similarly, schools can draw some comfort on a buyout clause serving as a deterrent from a competitor that is looking to poach.

While there are a number of reasons why coaches’ salaries and buyout provisions continue to grow, the main reason is the fact that the revenue flowing into college sports, particularly from television deals and sponsorships, continue to grow in tandem. In addition, there has been increased engagement of very wealthy donors who expect nothing but championships.

Is there enough money in the system to afford these massive buyouts?

Maybe. The system itself seems to perpetuate some of the win-at-all-costs mentality, but it’s also not immune to the macroeconomic pressures of the world around it. Budget constraints, public scrutiny, and economic downturns don’t pass the world of higher education and collegiate athletics, but the system has built-in safety mechanisms to account for as much. 

Take donors, for instance. For decades, donors have been involved with the hiring and firing of coaches, or at least strongly weighing-in on as much. They have been front and center providing resources to attract (and pay) coaching talent, and they have also provided buyout money when things go awry. Donors also have their hand in providing money to student-athletes via NIL deals. Either through individual deals or donating to a collective, universities are asking donors for more. Only time will tell whether these same donors have enough resources to continue to operate in the coach’s buyouts space 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, win-now schools will likely continue to utilize guaranteed money as an incentive that sets them apart from others. Others may need a more nuanced approach that keeps a tighter rein on spending. For those institutions, we offer the following thoughts: 

• Revisit your negotiation strategy. University leadership is ultimately responsible for agreeing to terms and signing contracts. Although the market is a compelling force, be cognizant of ways to insert language favorable to the university and levels the playing field. For example, if a coach leaves for another opportunity, money owed on the contract can be negotiated to be the same as if the university decides to move on. Another provision to consider is offsetting buyout payments, meaning that if a coach gets another job, the payments are reduced. In addition, decision makers need to consider the length of the contract knowing a separation may be imminent if signing a long-term agreement (the average tenure of an FBS head football coach is just 3.7 years, yet the length of contracts are often 5+ years). Everything is negotiable and it is an opportunity for universities to be creative.
   
• Train and educate on contracts. Universities can be proactive in training people on campus who have an active role in negotiating contracts. Individuals with signing authority need familiarity on basic contract terms, and have the ability to identify potential concerns. For example, depending on your state law, liquidated damages provisions (which are your buyout provisions) require certain language to be enforceable.

Poor hiring decisions and enormous buyouts can financially set a program and department back for years, as well as have a direct impact on the university as a whole. Winning now is tempting, but winning in the long-term requires diligence and strategic vision.