Language is Key to Buyout Contracts in College Sports

BY KEVIN CASAS | Star Telegram | August 24, 2015


In December 1956, the late Darrell Royal took the final coaching offer of his career in leaving the University of Washington and coming to Texas.

While it’s a staple now in college coaching contracts and negotiations, there was no buyout in Royal’s deal.

In fact, back in the day, most college coaches agreed to terms in simple one-page contracts.

“Some of them were just handshake deals,” Dallas attorney and UT Law graduate Tom Melsheimer said.

But when Jim McElwain bolted from Colorado State to take the head coaching job at Florida last December, the buyout clause in his agreement triggered a call for $7 million to compensate CSU.

Former Texas basketball coach Rick Barnes had a clause in his contract that triggered a $1.75 million buyout if he was fired before April 1 of this year.

Barnes was let go March 29, but had the university waited until after April 1, that could have saved about $250,000.

Either way, Barnes was wearing a slightly different orange just two days later when he was introduced as the next basketball coach at Tennessee.

The coaching carousel in any sport is an annual thing. But whether a coach gets fired or is sought after in the hiring process can be a whole different ballgame.

Contract leverage

Melsheimer, who’s résumé includes cases representing Dallas Mavericks owner Mark Cuban in his trial against the Securities and Exchange Commission as well as a contract dispute with former coach Don Nelson, said that the evolution of coaching buyouts is natural when it comes with multimillion dollar industries.

“I think generally coaches are still winning here no matter how big the buyouts get and the schools are simply not,” he said. “The school’s mission, or at least it should be, is academics. Sports obviously throws off a lot of value and so that’s why you’ve seen this increase in coaching salaries.

“But the institutions are competing with themselves for limited talent so the party that’s always going to win here is the coaches.”

Buyouts are different in every contract and used in a give-and-take way to negotiate for both sides.

Kevin Sumlin’s contract at Texas A&M has a $5 million buyout should the Aggies’ coach choose to take another job prior to the end of 2016.

After that, his obligation drops to nothing.

Agent Jill Baxter said she’s not a big fan of buyouts, choosing to push more for retention bonuses with her coaching clients.

“Up front, the biggest issue I have with buyouts is that it limits a coach’s right to work,” she said. “And while that might not seem like a big deal at the very elite level, it’s a very big deal with assistants. What’s happened with assistants and coordinators over the last few seasons is the real phenomenon.”

Baxter said assistant coaches are having to negotiate buyouts and that if those coaches are not properly represented, trouble can arise.

Texas offensive coordinator Joe Wickline is embroiled in a lawsuit with his previous employer (Oklahoma State) over whether his jump to Texas was for a realistic move up in the coaching ranks.

Oklahoma State claims Wickline’s move was a lateral one, which triggered a clause in his previous contract to compensate OSU.

A&M defensive coordinator John Chavis is involved in similar litigation with LSU regarding the timing of his departure from Baton Rouge nine months ago.

Because LSU claims Chavis began working for A&M prior to his employment being terminated with the Tigers, LSU believes it is owed $400,000 in compensation from Chavis’ contract.

Texas judge Travis Bryan III dismissed Chavis’ suit against LSU on grounds of jurisdiction. The litigation will now be in Baton Rouge, The Baton Rouge Advocate reported Friday. Chavis attorneys plan to appeal the decision, said Jill Craft, the coach’s attorney in the Louisiana case.

The Buyout

When something happens with a college coach, be it hired or fired, the language of the previous contract comes into play.

In McElwain’s case, that meant somebody compensating Colorado State to the tune of $7 million.

“It’s the coach that has to come up with that money and it can be difficult to understand in a negotiation,” Baxter said. “The school hiring usually has to come up with more money to cover the full amount of the buyout because it’s classified by the IRS as income.”

Florida’s willingness to hire McElwain was one thing, but coming up with the cash to buy out the contract became a sticking point.

In the end, McElwain agreed to pay part of it, Florida agreed to provide the other part and then both schools agreed to a home-and-home series to completely satisfy the deal.

For Charlie Strong, however, Texas used language in his Louisville contract to pay a $4.375 million direct fee for assignment of that contract to the Longhorns’ athletic department.

From there, the Louisville contract was essentially voided and his new Texas deal was put in place. By taking this action, Texas should have saved some money in having to compensate Strong and then the new UT coach would avoid the accounting of additional income in the transaction.

“And this is why I don’t think buyouts work,” Baxter said. “In the end, the university is trying to prevent someone from leaving, but in this case it still didn’t do that. Both of them left anyway and how they worked the tax implications for that, I have no idea.

“For me, the retention bonus is a better way. Even having language to match a salary offer is better. That way, it’s clear what money a coach is leaving on the table to make the move.”

The Jackpot

Royal’s salary in his first head coaching job at Mississippi State was a four-year deal worth $60,000.

Melsheimer said the simplicity of that is long gone.

“You know the rumors are out there also as to how coaches are being offered compensation. When Texas was in discussion with Nick Saban, the rumor was that Texas was going to give him a stake in the Longhorn Network,” Melsheimer said. “Whether that’s true or not, those are the typical elements now in coaching negotiations and you’re going to see more of that.”

In his second season now, Texas turned the tables on Strong with regard to any potential buyout if another suitor comes along.

By not following the model used in his acquisition from Louisville, Strong would be personally liable for the remaining salaries of any coaches still employed at Texas 60 days after Strong leaves.

Innovations in coaching contract language are rapidly evolving and Melsheimer said more is to come if the ascent of revenues continues.

“We’re already seeing compensation tied to performance; if you win a conference title you get this bonus, get in the playoff you get this,” he said. “Thirty years ago you didn’t see that.

“I think you’re going to see more dollars, I think you’re going to see coaches negotiating a piece of the success of the university. On the other hand, you’re going to see the university trying to protect its interests as well by keeping their coach in place for a long time. But at the same time, push for language that makes it easier for them to fire someone when it’s not working out.”



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