Pay You, Pay Me: Buy Out Clauses in Arkansan College Coaching Contracts

The below article originally published in the June issue of Arkansas Money & Politics 

When it comes to big-time college sports, Arkansas State University and the University of Arkansas rarely operate on a level playing field. The Razorback athletic department pulls in nearly seven times more total revenue than the ASU Red Wolves.

There is one place Arkansas’ largest sports programs stand on equal ground: each school’s head football coach has a contract demanding the same amount of money for cutting out early. If the Hogs’ Bret Bielema had decided to break his six-year contract last year — his first on the job — he would have owed the U of A $3 million*. Three million is also what the Red Wolves’ new coach Blake Anderson would pay to leave ASU during his first year. This symmetry is all the more striking because Bielema’s and Anderson’s salaries aren’t even close: Bielema makes $3.2 million a year, Anderson makes $700,000.

Conversely, if they leave at the behest of the schools, the coaches can look to pocket some walking-away money.

It’s all a matter of strategy and context, a common game played by universities across the country. Still, fans can be certain of one thing: in the world of coaches’ contracts, terms for parting ways matter every bit as much as the salary.

In the biggest conferences, a $3 million buyout provision isn’t all that large. In a conference as relatively small as ASU’s Sun Belt, though, this kind of number is almost certainly unprecedented — much like the situation in which ASU football finds itself on the whole.

“When you’ve gone through what we’ve gone through the last few years,” ASU athletic director Terry Mohajir said, “you learn a little bit.”

Since 2010, ASU has hired four different coaches. The first — Hugh Freeze — had a first-year buyout of $225,000. For his successors, that figure jumped to $700,000, then to $1.75 million, and now to $3 million. Where it ends, nobody knows.

Decades ago, things were simpler. Major college football coaches typically signed one-year contracts, which would roll over to the next year if they did a good job. Things started changing in the 1980s with the advent of bigger broadcast deals and the proliferation of cable sports programming. As multi-year contracts prevailed in the late 1980s and 1990s, “the institutions began looking for a commitment from the coach,” U of A athletic director Jeff Long said. At first, “it was really a one-way street and now it’s evolved into a two-way street on the contractual buyout terms.”

In business terms, the institution is looking for security after investing in a risky asset — the head football coach — that can either add or lose a great amount of revenue. Perversely, either one makes the coach more likely to leave. A chronically underwhelming coach is likely to be fired by the school, while star performers are lured away by institutions with more elite programs.

Buyout contracts therefore typically work in two ways. If a university fires the head coach “at its convenience,” legalese often translated to “too many games were lost,” the school usually gives the coach a ton of money to go away. Bielema, for instance, would be paid $12.8 million if he were fired in this context in his first three seasons. For Anderson, the number is $3 million if he’s let go in his first year. The University of Central Arkansas’ Steve Campbell would be paid $7,000 a month for the remainder of his contract ending Dec. 31, 2017, if he were fired; and the University of Arkansas at Pine Bluff’s Monte Coleman would get his annual base salary of $150,000 paid to him over 18 months.

In the 21st century, major college coaches’ salaries — and attendant buyouts — have grown hand-in-hand.

“When coaches got hired, they used to only worry about how much they would make each year,” agent Jimmy Sexton told ESPN in 2003. “Now they are worried about how much the school will pay them if they get fired. That’s the nature of the business.”

He should know. Coaches’ agents like Sexton are a major reason contract sweeteners like buyout provisions became ubiquitous in the first place. One of his clients, Little Rock native Houston Nutt, head coach of the Razorbacks football program from 1998 to 2007, had one of the most scrutinized departures in program history.

Nutt resigned from Arkansas in November 2007 after accepting a $3.65 million severance package. He then went to Ole Miss and was paid a $4.35 million lump sum to leave in 2011. This limited the school’s ability to pay premium dollar for its next coach, and is one reason the Rebels hired an up-and-comer like Hugh Freeze in December 2011.

Less than a year before, ASU had hired 41-year-old Freeze as head coach. For Freeze, it was a chance to call the shots at a high level after years as an assistant. ASU, meanwhile, rolled the dice on a relatively inexperienced but exciting talent. The Red Wolves got a potential star at a base salary of $151,660 for three seasons. If it didn’t work out in the 2011 season, ASU could simply pay back the remainder of his salary to let him go. If it did work and a bigger school wanted to hire him away, then Freeze’s payback clause could come into effect.

That type of buyout establishes what a university is to be paid if the coach terminates his own contract. If he accepts a job elsewhere, the hiring university usually pays this amount.

Much of that money is in turn used by the former to search for and hire a replacement. In 2011, after Freeze led ASU to its best season in decades and won a Sun Belt title, Ole Miss picked up the tab for Freeze’s buyout of $225,000.

The next two head coaches ASU hired — Gus Malzahn and Bryan Harsin — followed similar paths and jumped ship after one season.

Not surprisingly, Arkansas State has upped the ante for Blake Anderson, who like his predecessors was an offensive coordinator favoring a fast pace. If Anderson leaves before his first year ends on Jan. 31, 2015, he’ll owe ASU $3 million. The same amount would be owed after his second season, then $2 million after the third and fourth seasons.

“When you’re hiring emerging coaches, you have a little bit more leverage with them,” Mohajir said, when asked how these relatively high amounts were reached. “If you’re hiring good guys, you’re trying to keep them around.”

Mohajir said that during negotiations, Anderson “never blinked an eye” at the buyout provision amounts.

Top assistant coaches are also inking long-term contracts. Here, though, many assistants are given contractual exceptions not afforded head coaches, whose exit usually means wholesale change.

At the UofA, both top assistants have multi-year contracts and buyout clauses. Offensive coordinator Jim Chaney makes $550,000 a year while defensive coordinator Robb Smith makes $500,000. The contracts, however, spell out a potentially bigger difference: if Smith were to leave early to become a defensive coordinator in the NFL or college head coach, he’s exempted from his $100,000 buyout. No such exception exists for Chaney. Associate athletic director Kevin Trainor pointed out contracts aren’t always followed precisely, though.

“It doesn’t necessarily mean the university would seek liquidated damages in those situations,” he said. “Our agreements are constantly evolving, and agreements can also be different depending on when they were negotiated.”

A recent example of this occurred at the University of Central Arkansas (UCA). Last year, its head basketball coach Corliss Williamson terminated his contract and became an assistant with the NBA’s Sacramento Kings. His contract stipulated UCA was owed $20,000 for the early exit, but UCA waived the buyout, its athletic director Brad Teague said.

Late last year, UCA’s head football coach Clint Conque terminated his contract. After 14 years in Conway, he left to take the head coaching position for a conference opponent. By that time, Conque no longer owed buyout money to UCA but he had agreed to a non-compete provision that barred leaving to coach for another program in conference.

Teague, however, said he decided not to enforce this. “The problem was, that made us out to be the bad guy,” he said. “Let’s assume we did block it, and now he’s here and he had the opportunity to go somewhere else and we made him stay. How effective would he be?”

Since football makes the most money in Arkansas, it usually produces the biggest coaching contracts. Basketball, though, is a clear second place.

Mike Anderson, the Hogs’ head basketball coach, had a buyout of $550,000 after he was hired in 2011 by the UofA from his last job in Missouri. The university would expect to recoup this expense if Anderson cut out early on his current seven-year deal. His buyout, whether he leaves or is fired at the UofA’s convenience, is set at $1 million for each of his contract years. But it’s been awhile since other universities swooped in to poach Hog coaches. Indeed, in March, the women’s basketball coach, Tom Collen, was fired for not winning enough.

Mike Anderson’s last three predecessors — Nolan Richardson, Stan Heath and John Pelphrey — were similarly dismissed. The four buyouts totaled more than $6 million, although the UofA may not have paid that entire amount. Some of the obligation is reduced by the salaries the fired coaches earn in their new jobs. Some hasn’t been paid. Pelphrey’s buyout, for instance, remains on the UofA tab through this summer, Long said.

So, where does all this cash come from? Not from taxes. The Razorback Foundation — the UofA athletic department’s private fundraising arm that gets money from donations and revenue from premium seating sales — pays for buyouts, Long said. Many Division I universities, like ASU, have their own athletic fundraising arms that do likewise.

“We’re one of less than 20 universities [nationwide] that are totally self supporting,” Jeff Long said of his department. “We receive zero funds from the university, either in direct support or in student fees.”

He added athletics annually gives more than $2 million a year back to the UofA for academics and non-athlete students.

This means sometimes buyout provisions can affect the lives of students who may not otherwise care about football. Such a scenario played out in 2012 at the University of Tennessee (UT), where its head coach and staff were fired and reportedly owed $9 million. The UT chancellor then said the athletic program would forgo the $18 million in contributions it was to make to the university over the next three years for academic scholarships and fellowship programs.

“It’s shameful,” Raymond Sauer, president of the North American Association of Sports Economists, told The New York Times in November 2012. “We can understand the market forces at work, but all that money being burned up that way is a high cost of doing business.”

Herein lies a silver lining for the UofA. Earlier, in the spring of 2012, former head football coach Bobby Petrino was found to have hired his mistress to a department job and then lied to his superior about his relationship with her. Jeff Long in turn found “just cause” to fire him, which let Arkansas off the hook for a buyout that would have amounted to $18 million.

Petrino’s actions temporarily marred the reputation of the athletic department, but having to pay $18 million likely would have made the overall damage worse. Yet even had Petrino gotten what would have been a historic amount, it’s unlikely lower salaries or buyouts would have resulted. There are, after all, too many boosters who care too much to allow their program to miss out on a potentially great coach for a few million dollars, especially when considering the kind of revenue a superstar coach can generate for a program.

“If certain schools just decide that they won’t pay this kind of money, it’s competitive suicide for the university and political suicide for the university president,” coach-hiring consultant Bill Carr told ESPN in 2003. “College sports is a cartel; everyone benefits from each other’s successes.”

That will be true so long as college administrators, players, and fans alike keep buying in.

*The price of Bielema’s buyout for leaving drops $500,000 each year. Now in his second year, Bielema would owe the UA $2.5 million if he left for another job. Leaving in his third year would cost $2 million, and so on.