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November 21, 2012

DEAL OR NO DEAL? So much has changed since Chizik restructured his contract in 2011

AUBURN, Ala. — Jay Jacobs needed 11 words to explain himself.

“We believe that we have the best coach in college football.”

That was the kickoff to Jacobs’ statement nearly a year and a half ago, when Auburn’s athletic director handsomely rewarded Gene Chizik for coaching the program to its second national championship.

The terms of Chizik’s new contract, announced on June 10, 2011, went deeper than his nearly-doubled salary to $3.5 million. Where Jacobs, university president Jay Gogue and the Auburn board of trustees truly displayed their faith in Chizik in ripping up his old contract was the long-term security pumped into his new deal.

Chizik received a two-year extension, keeping him under contract until Dec. 31, 2015. He also was promised a hefty buyout, starting at $10 million and depreciating by a little over $200,000 on a monthly basis.

Just in case, you know, things went south.

“Winning equates to dollars”

According to USA Today, the average college football head coach’s base salary (before benefits and bonuses) topped $1 million for the first time in 2007. Based on the newspaper’s annual report released Tuesday, those average earnings have risen to $1.64 million in 2012.

SEC head coaches make an average of $2.7 million, slightly trailing the Big 12 for the nation’s richest league fraternity.

“They view the coach as the face of the athletic program,” Florida Coastal law professor Richard Karcher said, “and at some places, even the face of the university itself.”

It’s a simple explanation of supply and demand — especially when you consider in the big picture, college football is the sport’s minor leagues. Bidding wars with rival schools, and NFL suitors, escalate the price tags on Alabama’s Nick Saban, Texas’ Mack Brown, Iowa’s Kirk Ferentz, and yes, the Chiziks and Meyers and Richts out there.

“In the mind of the athletic director, there is obviously a very small number of people in the world who can bring star power as a head coach,” Karcher said. “They’re like CEOs. Why does a company pay a lot of money for a big-name CEO? It brings revenue. It increases the price of the stock. People want to invest in the company.”

Karcher, who played three years in the Atlanta Braves minor league baseball system, has produced numerous research papers and public speaking engagements pertaining to sports law.

His 2009 publication on ‘The Coaching Carousel’ touched on how universities like Auburn that spend top-dollar on sports — particularly football — contribute to the explosion of coaching salaries. Per USA Today, Auburn’s football program produced a net revenue of $37.2 million in 2011, the 10th-highest figure in the country and sixth in the SEC.

In many college football-crazed states, the head football coaches at public universities are the highest-paid state employees. Indeed, Saban and Chizik, owners of the last three national championships, rank 1-2 in Alabama.

“Roughly 60 to 70 percent of Auburn’s entire athletic department revenue is funded by football,” Karcher said. “So you’re going to be able to justify these salary obligations to the head coach, because winning equates to dollars.”

And coaches know that. As do their agents and attorneys. Which is why they’re able to protect themselves when restructuring their contracts following hugely successful seasons.

“There’s no question,” Karcher said, “the coaches have huge leverage in the negotiation process with universities.”

Price of doing business

Buyout is coach-speak (quite literally) for severance pay.

Just as contracted employees in other professions — think NBA players, television anchors, and anyone else who isn’t an at-will employee — can’t be cut loose without a kickback, firing millionaire coaches can’t be done cheaply.

Winthrop Intelligence’s database (Win AD) of more than 21,000 coaches has discovered a seasonal turnover of more than 20 percent in the Division I-A college football jungle.

A June 2011 release by Win AD stated of the coaches who were dismissed in 2010 or 2011 with buyout clauses written into their contracts, 70 percent of those buyouts were based on their remaining total or base salary.

The other 30 percent were guaranteed a partial take on their full salary — either a certain amount of money per month or year remaining on the contract, a percentage of the remaining base salary, or one year’s total or base salary.

Chizik’s contract is in that minority report. Since restructuring his contract, Chizik has compiled an 11-13 record, including a 4-11 mark against SEC opponents and nine league losses of 17 points or more.

So that severance package worth multiple millions, on the surface, seems an overly generous gift to a coach who might be fired for overseeing the sharpest collapse of any college football champion since World War II.

Not so, says Nathaniel Grow, an assistant professor legal studies in Georgia’s Terry College of Business. The buyout is meant to protect the university, too.

“It’s more of a protection for the school, to be able to reduce the commitment,” Grow said. “They’ll be paying him less if they fire him now than they would be if they had to pay him under the agreement of his full salary. If anything, it actually makes it easier to fire them because it’s less costly.”

If Chizik merely had his salary jacked up without a buyout clause, Auburn would owe him every last penny through Dec. 31, 2015, if they chose to fire him. That would equate to over $10 million — and that’s before factoring in assistants.

Defensive coordinator Brian VanGorder ($850,000) and offensive coordinator Scot Loeffler ($500,000) are guaranteed the remainder of their salaries through June 30, 2014. The first-year coordinators don’t have buyout options.

Position coaches on Chizik’s staff for the 2010 national championship were richly rewarded, like their boss.

According to documents obtained by the Ledger-Enquirer, assistant head coach Trooper Taylor ($425,000), offensive line coach Jeff Grimes ($400,000), running backs coach Curtis Luper ($330,000), linebackers coach Tommy Thigpen ($320,000) and special teams coach Jay Boulware ($255,000) each received raises last summer. They all are owed the remainder of their contracts until at least next summer.

If the entire staff is overhauled, Auburn would ring up potentially an eight-figure bill … before hiring a new head coach and his assistants.

No burden on taxpayers

That’s a cost possibly worth it, because keeping an unsuccessful coach could produce unsavory consequences.

“There’s more money at stake in terms of ticket revenue and bowl revenue and TV revenue and advertisements,” Grow said. “So it definitely puts more pressure on administrators, the athletic director, maybe all the way up to the university president, to have a winning football program and make sure the fans are satisfied with the direction of the program.”

When Tommy Tuberville resigned in 2008, Auburn agreed to pay his $5.08 million prorated buyout. A university statement said no state or university funds were used, which is important precedent during hiring and firing season.

“Especially in times of financial difficulty, the pure purpose of the university is academics, right? So the more you’re diverting money from academic pursuits to the athletic pursuits, it could ruffle some people’s feathers,” Grow said. “So the more you can justify it by saying this is budgeted within athletic department-generated funds, we’re not hitting up money from the English department … it’s more justifiable, I think.”

Look out for loopholes

Firing a coach for losing does not define “termination with cause.” That much is clear.

“No really good coach would ever agree to it, which is sort of ironic,” Karcher said with a chuckle, “because really good coaches shouldn’t have a problem with it.”

The one stipulation that soothes Auburn’s budget: all terminated coaches must document reasonable effort to seek further employment. Any future capital — be it coaching, broadcasting, media appearances, book publishing, etc. — would be subtracted from Auburn’s books.

How well that contractual agreement is enforced, though, is a flaky proposition.

“The real question is whether the university wants to make an issue of it and go after a coach for failing to mitigate the damages,” Karcher said. “My experience with what I’ve seen, universities don’t want it to be a hassle. They don’t like ongoing litigation.”

Smaller businesses may legally enforce their rights, but not major universities under the public microscope.

“They’re constantly thinking about how it looks to not only their fan base, but also other coaches they may want to negotiate with in the future,” Karcher said. “If a university is suing their coach, they tend to look at that as bad P.R.”

Jacobs has not been available for comment on Chizik’s job status this season. Gogue addressed reporters last Friday following a board of trustees meeting at the Hotel at Auburn University.

“Just like all of us, (the fans) have been disappointed in the performance this year of the football team,” Gogue said. “That’s certainly legitimate. We all have (been disappointed). At the end of the season, we’ll have a chance to sit down and review where we are.”

3 Comments

  1. This is a very interesting and well written article. Thanks for the information Brenner!

    Comment by Richard — November 22, 2012 @ 9:15 am

  2. [...] DEAL OR NO DEAL? | So much has changed since Chizik’s contract was reworked to add buyout clause [...]

    Pingback by Game Week Links: Previewing The Iron Bowl | War Eagle Extra — November 24, 2012 @ 8:01 am

  3. Very informative and well written. Starting to wonder if this NCAA investigation will lead to a “loop-hole” and the end of the Chizik era?

    Comment by SMDAU — November 24, 2012 @ 11:25 am

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