Coaching contracts in the FBS: A legal analysis and financial valuation of the termination and liquidation damages

portion of head football coaching contracts

Chris Reynolds, J.D. & Ryan Brewer, M.B.A.Advisor: Paul M. Pedersen, Ph.D.

2009 Scholarly Conference on College Sport

Coaching Contracts

• Popularity of college football

• Influence of coaches and increase in salaries

• Increased media attention given to contracts– Barnhart (2008), Corry & Fenech (2008)

• Scholarly research related to coaching contracts

Contractual Agreement Between Coach/Institution

• Grounded in contract law

• Expresses a compensation promise for services performed by one party to another

• Conveys promise as well as the consequences for either party breaching any promise asserted in the document (Restatement of the Law, Second: Contracts, 1981)

Purpose of Study

• Because of the popularity of football, the impact of football coaches, and the media attention devoted to coaching contracts, this study sought… – To examine coaching contracts in college football to…

• [Part A] Determine the elements of the (a)typical• [Part B] Analyze one element in particular (buy-out)• [Part C] Examine effectiveness of buy-out clauses

• Sample (n=75)• Exploratory analysis of coaching contracts

– Schools participating in Football Bowl Subdivision (FBS)

Part A: Elements/Components

• Determine components of football coaching contracts• Typically, the major purpose of content analysis is to

identify patterns in text (Krippendorff, 2004)

• Thematic analysis of text – The identification of themes or major ideas in a document (Cotton & Wolohan, 2007)

• Eight general themes/elements/components emerged from analysis of 75 contracts

Eight Elements

• 1) Contract Term• 2) Duties and Responsibilities• 3) Compensation Package

– Guaranteed Base Compensation – Outside Activities/Income (Supplemental Income)– Fringe Benefits– Bonuses

• Academic Achievements• Bowl Participation• Golden Handcuffs Clause

Eight Elements (cont.)

• 1) Contract Term• 2) Duties and Responsibilities• 3) Compensation Package• 4) Severability• 5) Governing Law and Jurisdiction• 6) Waiver• 7) Notice• 8) Termination and Liquidation Damages

• Commonly known as “Buy-out Clause”• Penalties for leaving early; Coaches’ penalties

Part B: Buy-out Clause

• 75 contracts examined– 58 included buy-out clauses (77.3%)– 17 did not include buy-out clauses that would

compensate the coach if he left the institution prior to the expiration of his employment contact

• Texas, Kansas, Maryland, Texas Tech• Alabama, Kentucky, Troy• Iowa, Illinois, Florida State• Virginia Tech, Rutgers, • Fresno State, New Mexico St.• Toledo, Miami, Marshall

Buy-out Clause (cont.)

• Typical Clause– An amount equivalent to one year’s salary

• Atypical Clauses– Marshall - MAC - Mark Snyder

• $700,000– Louisville - Big East - Steve Kragthrope

• $2,000,000– Utah - Mountain West - Kyle Wittingham

• $600,000 if new position is in the MWC• $250,000 otherwise

Analysis of use of buy-out clause as a correlate of program success

• Research Hypothesis (H1): – FBS programs whose coaches do not have buy-out

clauses are more successful than programs where coaches contracts include buy-out clauses

• Statistical analysis– Group 1: n=17 (no buy-out clause)– Group 2: n=58 (buy-out clause)

Analytical Basis• Power Rankings

– Used to identify “program success”– Includes W-L records 1998-2008– Includes strength of schedule 1998-2008

• Buy-out Versus no Buy-out– Value of buy-out not considered

Results • Group 1 (no buy-out):

– Mean group rank across time: 45.1• Rankings beginning 1-year from date of contract to present

– N : 17– Mean : 45.1– Standard Deviation: 27.0– % Power Teams: 58.8%

• Group 2 (buy-out):– Mean group rank across time: 61.5

• Rankings were taken from end-of-season (‘98-’08)– N: 58– Mean: 61.5– Standard Deviation: 23.7– % Power Teams: 46.6%

Results• T-Test

– Significant difference between means at the p = 0.07899 level.

– Strong “pilot” evidence for ∆ (H1)

• Implications

– Use of buy-outs in future coaching contracts– Use of other forms of motivation to stay

Analysis of use of buy-out clause as a correlate of program success

• Research hypothesis (H2)– Guaranteed compensation contracted to a football

coach (most recent coach’s labor contract) predicts historical program

winning percentage

• Statistical analysis– OLS linear regression

• One exogenous variable (guaranteed compensation)• One response variable (historical performance factor)

Some definitions….

• Guaranteed compensation (x) includes all money the coach will earn by “just showing up.” It does not include dollar value equivalents for country club memberships and other intangible benefits.

• Historical performance factor (y) combines the effect of Ws & Ls and strength of schedule, weighting the most recent year (2008) 10, 2007 9, 2006 8, …, 1999 1.

Highest Paid Coaches in Sample (most current coaches’ contracts)

As a % of Budget1. George O'Leary 2. Mark Snyder 3. Jim Leavitt 4. Robb Akey 5. Rickey Bustle 6. Les Miles 7. B. Petrino 8. Nick Saban 9. Butch Jones 10. Greg Schiano

As a direct measure of dollars1. Charlie Weiss 2. Les Miles 3. Nick Saban 4. Rich Rodriguez5. J. Tressel 6. Urban Meyer 7. Kirk Ferentz 8. M. Brown 9. B. Petrino 10. T. Tuberville

Highest Ranked Teams in Sample (last 10 years)

1. Texas 2. Boise State 3. Ohio State 4. Georgia 5. Florida 6. LSU 7. Virginia Tech 8. West Virginia

9. Texas Tech 10. Utah 11. FSU 12. Auburn 13. Wisconsin 14. Michigan 15. Tennessee

Multiple R-Square Adjusted StErr of

Summary R R-Square Estimate

0.6435 0.4141 0.4060 19.3405631

Degrees of Sum of Mean of F-Ratio p-ValueANOVA Table Freedom Squares Squares

Explained 1 19037.3 19037.26 50.9 < 0.0001

Unexplained 72 26932.1 374.06

Coefficient Standard t-Value p-Value Confidence Interval 95%

Regression Table Error Lower Upper

Constant 79.97 3.96 20.2095 < 0.0001 72.1 87.85

Annual Compensation (NOTE 7) -0.00002 0.0000023 -7.1340 < 0.0001 -0.00002 -0.00001

Variance in FBS Program Performance Explained By Coaches’ Compensation

Support for H2

Conclusion

• Study found…– Eight elements of coaching contracts– Buy-out clause included in 77%– Buy-outs appear to reduce team power– Compensation explains team power

• Recommendations for future study– Applications to Title IX – Reverse model: winning compensation

• Audience questions and comments