April 16, 2013
Q&A: Richard Pitino’s Contract with Minnesota
Q #1: How many years does Minnesota have Pitino locked up for?
A: Zero. Contracts are made to be broken. However, the term of the agreement is 6 years ending April 2019. We would expect some of the terms to change (i.e. compensation) over the next one to three years.
Amendments and restatements to college coaching contracts are common. As an example, VCU’s Shaka Smart agreement with the school has been changed each and every year he’s been there.
Q #2: What is Pitino’s compensation?
A: The following are key elements of his compensation. We believe it’s likely that the guaranteed compensation will be increased in the next one to three years.
Guaranteed compensation - $1.2 million in 2013-14 consisting of $500k base and $700k supplemental. The $500k must be increased by at least 5% each year (i.e., will be a minimum of $525k for 2014-15).
Stay bonus – $133,333 per year. If he is still employed on April 30, 2016, Pitino will receive a payment of $400,000. Also, if he’s still coaching the program on April 30, 2019, he’ll receive another payment of $400,000.
Performance bonuses - Coach Pitino can earn bonuses each season for reaching certain athletic and/or academic performance targets. Most years we’d expect these to total between $50k and $200k. See also Question #7 below.
Q #3: I heard Minnesota is letting Pitino fly private, but they are limiting the cost of those flights to only $50,000 per year?!
A : We see the $50,000 as largely symbolic. There are situations where being able to fly on a private jet is essential to performing your job at the highest level. Many schools that pay big bucks for their head coach’s recruiting travel don’t have anything formally agreed to and they see it for what it is – a business expense that provides value to the program.
Let’s imagine it’s the end of July and Coach Pitino has been doing an excellent job with the program. The school has already spent $50,000 on private flights and Richard is trying to figure out how to get from Orlando to Las Vegas as quickly as possible. In that situation he’ll be flying on a small jet and the cost will be well worth it.
In other words, don’t get hung up on the $50,000. Pay more attention to the administration showing that they are interested in supporting the basketball program.
Q #4: What happens if Coach Pitino leaves Minnesota early? Does he owe the school something?
A: If Pitino leaves prior to April 30, 2016, he would owe the school a $1.5 million termination fee. If he leaves after then but before the six year term has been completed, he would owe a $500k termination fee.
In addition, any of the stay bonus “earned” but not yet paid would be forfeited. For example, if Pitino stayed three seasons before leaving in early April 2016, he would miss out of the $400,000 due to him if he stayed to the end of the month.
Finally, Pitino must pay back the Florida International contract buyout costs (estimated by Pleasant Avenue Athletics to be around $400k including tax gross-ups) that Minnesota covered if he leaves before April 30, 2018.
The April 30 date in these provisions is important. If a coach leaves one program for another it generally occurs well before that date.
Q #5: You said that Minnesota’s buyout costs to terminate Tubby Smith were about $3.25 million. How large is the termination fee for Coach Pitino?
A: If Pitino was fired without cause today the termination fee would be around $5.9 million. This amount decreases by approximately $950k to $1 million per year over the term of the agreement.
Pitino is in a very different position than Tubby Smith. He should be given a good four to five years before any strong consideration is made regarding an early end to his employment with Minnesota.
The termination is large, but the risk of a significant financial hit is considerably less with Coach Pitino than it was with Coach Smith.
Q #6: I’ve heard that if Minnesota fired Pitino and he then got another job, the U could stop making termination fee payments. Is that correct?
A: Not really. First, let us be clear: we are not offering tax advice in this article. That said, based on how the agreement is written and US tax regulations, it’s likely Minnesota would pay around 40% of the termination fee regardless of whether Pitino found other employment a short time after being terminated.
The issues surrounding this matter are complex and this is not the forum to get into the detail. (Besides, we don’t see Pitino on the hot seat any time soon, if ever.) You may hear from others that Minnesota will “get out of the buyout costs” if Pitino gets another job; however, the issues here are complex.
Q #7: Are the bonuses available to Pitino similar to those in Tubby’s agreement?
A: They’re similar in nature (i.e., bonuses for winning the conference, making the tourney, etc.), but overall? Not really. They are far more reasonable in amounts and are more difficult to achieve. We find the goals and amounts that Pitino can earn to be reasonable for his situation. The reality is that with success, Minnesota will need to increase their coach’s guaranteed pay.
Remember, contract terms are frequently revisited. If the incentives earned under the agreement aren’t deemed adequate, an increase in compensation (or a discretionary bonus) may be warranted.
Q #8: Coach Pitino’s pay is a lot lower than Tubby’s was, right?
A: Indeed. Tubby had a sweetheart deal at the U and he’s now making considerably less at Texas Tech. Let’s compare what compensation would have been for Smith and what it would be for Pitino under a hypothetical scenario for 2013-14.
Compensation under Hypothetical Scenario for 2013-14 Season
We’ll assume Minnesota finishes in 4th place and makes NCAA tournament appearance, where they lose in their first game. The team has an APR of 950, GPA of 2.9 and a graduation success rate of 50%.
|Guaranteed||$1.33 million||$2.25 million|
|Incentives||$0.08 million||$0.35 million|
|TOTAL||$1.41 million||$2.60 million|
Using the hypothetical scenario above, Smith would have made over $1.19 million (84%) more in 2013-14 than Pitino would.
Note: Certain information and interpretations in this article were provided by Pleasant Avenue Athletics.