Buzz Williams, Virginia Tech Finalize Contract

Buzz Williams, Virginia Tech Finalize Contract
May 14, 2014

On Monday Buzz Williams and Virginia Tech entered into an employment agreement for the former Marquette head coach to run Hokie basketball. An offer letter had been provided to Williams in March, but the full deal wasn’t done until this week. Such a delay is not unusual.

Paint Touches has also reported on the contract earlier this evening and you can read their thoughts at PaintTouches.com. We recommend doing so for some of the background and additional details on the arrangement.

There are two key points based on a preliminary reading of the contract that we want to discuss in more detail. Overall, this is a very nicely done deal from a Buzz perspective. To put it in Buzz-speak, “I don’t mean this in the wrong way, but he owns Virginia Tech.”

BUYOUT
First is the buyout. Paint Touches does lay some of the numbers out, but another important fact is that the contract is automatically extended by one year, every year, beginning on June 30, 2017 (i.e., three seasons into the original seven year term). In order for the automatic extension to not occur, Virginia Tech must notify Williams by April 15 (2.5 months prior to the extension) that the term will not be extended.

Unless Virginia Tech told Buzz they were not going to let the term be extended, our preliminary understanding of the contract’s language is that the following would happen with the buyout (i.e., if Virginia Tech terminated Williams without “good cause”… numbers presented are as of the beginning of each respective year):

Year 1: $18,200,000
Year 2: $15,900,000
Year 3: $13,500,000
Year 4: $14,000,000
Year 5: $14,500,000
Year 6: $15,000,000
Year 7: $15,500,000
…and so on, increasing $500k each year.

Because of the automatic annual extension and $100,000 increase in pay each year, (1) there are always five years remaining on the contract and (2) each year that is added on is worth $500,000 more per year than the year that falls off. This results in the buyout increasing in year 4 and beyond.

OUTSIDE INCOME
The initial reaction of some in March was surprise. Buzz is leaving for only $2.3 million per year? The reality is the employment agreement has been arranged such that Buzz can make an amazingly higher amount “outside income” at Virginia Tech than compared to what he could at many other schools.

Some would argue a best practice from an institution’s perspective is to control substantially all major outside arrangements (i.e., endorsement deals with shoe and apparel companies, certain public appearances, certain media work, etc.). A portion of supplemental compensation paid to a coach under a contract will often be specifically for such outside arrangements and with the understanding that revenues go to the school, not the coach.

In Virginia Tech’s case, the deal is setup to allow Buzz to rake in income from outside sources. Virginia Tech will generally allow such income to be paid directly to Buzz’s company. He’s a smart man and is capable of capitalizing on such opportunities in a major way.

Excerpt from the employment agreement:
“Williams shall have the right to incorporate himself into a personal service corporation for the purposes of protecting his personal assets from liability resulting from sports camps or other professional activities, and/or to shelter self-employed income in the appropriate retirement plan vehicles resulting from sources outside the University’s system, and approved herein.

Any income resulting from clinics, professional activities, endorsements,
speaking engagements, or other self-employment income generated from activities relating to his conduct as Head Men’s Basketball Coach shall be non-W-2 income and paid directly to Williams…”

The March headlines focused on the $2.3 million, but the $2.3 million this season doesn’t even begin to tell the story.

Buzz can get out of his contract with Virginia Tech after a couple of years for a minimal price. He’s got incredible job security if he wants to stay. And perhaps most importantly, his corporation stands to make major money.

Don’t let the numbers in headlines or the traditional media fool you. Buzz Williams taking less to leave Marquette and go to Virginia Tech didn’t happen.

@LateNightHoops is on Twitter.

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