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Millions of Dollars Can Turn on a Phrase: The Story of How Football Coach Contracts Affected the Universities of Michigan, Florida and Wisconsin

Posted by Eric Parzianello on December 5, 2014

College football is big fun for fans but big business for universities.  Employment agreements for head coaches are as important as those for private sector employees.

The recent hiring and firing of three college football head coaches certainly raised some interesting contractual issues involving millions of dollars.

At Colorado State University (“CSU”), Jim McElwain’s decision to leave for a more lucrative position at the University of Florida required a $7.5 million buyout payment to CSU – but one which curiously could be reduced at the president’s discretion. At the University of Michigan, the timing of Brady Hoke’s dismissal earned him $1 million more than if he were fired a few weeks later. At the University of Wisconsin, Gary Andersen gave notice of his departure for Oregon State University, triggering a potential $3 million buyout.

THE McELWAIN / COLORADO STATE CONTRACT

McElwain and Frank

In the case of Jim McElwain, he entered into a new contract with CSU in June of 2014 after two years on the job. McElwain’s contract was full of incentives.  Some provisions allowed him to make up to an extra $150,000 if certain player graduation rates were realized and earn substantial increases to his base salary if CSU achieved a final national ranking in the top 10 or if it appeared in a post-season College Football Playoff system game.

The new contract extended at least through 2018 with annual options for either McElwain or CSU to extend it through 2023.  The agreement gave the coach the right to terminate it, without cause, and take a new job at any time.  However, if McElwain terminated it before December 31, 2018, he was required to pay the University $7,500,000 as liquidated damages.  Former CSU athletic director Jack Graham told the Colorodoan that the whole purpose of the new agreement was to give McElwain an opportunity to make money based on his performance and to give him security in the form of a 10-year agreement. In exchange, Graham said McElwain had to agree to a break-up fee that would make it very difficult for him to leave CSU for any other university. Graham said that McElwain’s attorney asked “a number of times if we would carve out Alabama and other top head football coaching jobs from the breakup fee,” but Graham declined to do so. Nevertheless, Graham was at least partially overruled on that issue by CSU’s president, Tony Frank.

Graham said that “unfortunately . . . Tony agreed to reduce if not eliminate the breakup fee if a ‘dream job’ were to come along.”  To the credit of McElwain’s attorney, they ultimately agreed on the following language which essentially left the buyout to the president’s discretion:

“The Parties acknowledge, understand, and agree that in the case or event of extenuating circumstances the University’s President shall have the discretion, but not the obligation, to reduce in whole or in part McElwain’s obligation to pay Liquidated Damages to the University. McElwain shall have the right to request that the Parties engage in a good faith discussion of such Liquidated Damages amount prior to McElwain providing formal notice to the University of his decision to terminate this Agreement without cause, and in such event the University agrees to engage in such discussion, although the University has no obligation to reduce in whole or in part McElwain’s obligation to pay Liquidated Damages, with an understanding and acknowledgement that lime will be of the essence in coming to a final decision.”

This provision essentially undermined what could have been an iron-clad liquidated damages provision. A complete copy of the agreement can be viewed at Scribd.

Ultimately, reports by the Coloradoan indicate that CSU will receive a portion of the $7.5 million buyout.  However, the president’s discretionary provision permitted him to agree that CSU would instead receive $3 million over a six-year period from the University of Florida Athletic Association and $2 million from McElwain over an unspecified period of time.  The University of Florida also agreed to play a football game against Colorado State in Gainesville between 2017 and 2020 and pay $2 million to Colorado State for that appearance.

THE BRADY HOKE CONTRACT

Hoke

In the case of the University of Michigan, it entered into a six year contract with Brady Hoke for its head football coaching position in 2011. Unlike McElwain’s contract at CSU, Hoke had no buyout clause if he left U of M prior to the expiration of the contract, although U of M did have to pay $1 million to to buy out Hoke’s contract at San Diego State University. Hoke also had no incentives for graduation performance, national ranking or appearances in a College Football Playoff Game. The contract did however have incentives for Big Ten Conference Championship game appearances.  Hoke was required to attend alumni,  donor solicitation, recruitment-related and other events as reasonably directed by the Athletic Director. A termination provision in Hoke’s contract also raised interesting issues.

U of M was able to terminate the contract without cause at any time and in fact did terminate Hoke’s employment on December 2, 2014. The contract had a sliding scale of buyout payments due to Hoke in the event of such termination. Because Hoke’s last date of employment occurred during “Contract Year Four” which was defined as ending on December 31, 2014, U of M was obligated to pay Hoke $3 million in monthly installments through 2016.  Had it terminated Hoke a few weeks later (on or after January 1, 2015), it would have been obligated to pay Hoke only $2 million in monthly installments through 2016.  The January 1 trigger date for determining the amount of the buyout is curious – when college football coaches are fired, it is typically done immediately after the season ends in late November or early December for various reasons including recruiting. The negotiation of that provision certainly benefitted Hoke.

Interestingly, he is required to seek employment in order to receive that full buyout in an ambiguous provision of the contract – the complete copy of which can be found at Crain’s Detroit.  The specific provision reads as follows:

The Head Coach is required to mitigate the University’s obligations under Section 4.01(a) by making reasonable efforts to obtain other football related employment (such as a head or assistant coach of a professional football team, head men’s football coach of an NCAA Division I team, or media commentator) as soon as possible following such termination.. . . .The University’s obligation to pay the Head Coach as set forth in Section 4.01(a) shall be reduced by Head Coach’s total compensation from all such sources.

This provision is anything but clear.  While “football related employment” is extremely broad, the parenthetical uses the phrase “such as” to describe types of employment without specifically defining or limiting them.  From the university’s perspective, it could take the position that the parenthetical merely contains examples of football related employment and an assistant NCAA coach position or any other football related employment would all reduce U of M’s obligation to pay Hoke the full buyout amount.  From Hoke’s perspective, anything other than the listed positions would still entitle him to receive the full buyout.  As with any contract, a lack of clarity can lead to later disputes.

THE GARY ANDERSEN CONTRACT

Unknown

The most recent coaching move came at the University of Wisconsin where head coach Gary Andersen left after just two years on the job and after just signing a contract extension in early 2014.  Like McElwain, Andersen’s contract has a buyout provision which is also discretionary.  However, the language of Andersen’s contract does not leave the decision solely to the president but to the University itself, requiring a vote of the Board of Regents:

This Agreement may be terminated by Coach by giving University written notice of the termination of his employment with University. In such event, if Coach accepts another coaching position at any time during the remaining term of this Agreement, Coach may be required to pay to the University, at University’s sole discretion, in lieu of any and all other legal remedies, damages of any type or equitable relief available to the University, and without regard to actions by the University to mitigate its damages, liquidated damages in an amount of three million dollars ($3,000,000.00) if separation occurs within first two years of Employment Agreement (February 1[2014] – January 31 [2016]) as amended; two million dollars ($2,000,000.00) if separation occurs during years three or four of Employment Agreement as amended; or one million dollars ($1,000,000.00) if separation occurs during year five of the Employment Agreement as amended.

Such liquidated damages shall be due and payable within one hundred twenty (120) days after notice of termination of this Agreement or after acceptance of employment in a college, university or professional program as stated above, whichever occurs first.

Oregon State was undeterred by this provision and scooped up its new head coach within days of losing Mike Riley to the University of Nebraska.

Eric Parzianello

eparzianello@hspplc.com
313-672-7300

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