Tag Archives: buyout

Regents Cry Foul, But Should They? Pitino Buyout and More

Regents Cry Foul, But Should They?

Who’s responsible for approving the Pitino extension that multiplied his buyout by more than two times, to more than $8 million?

The answer is extremely important to the story, and the mainstream media should do the work to report on it.

Ultimately, this falls on the Board of Regents and the President’s office, but the details are important.

In March 2016, certain Regents became vocal and expressed frustration over Pitino’s large buyout (which at that time had amortized to just over $7 million). Some called for more oversight and ability to approve significant contracts.

The reality, however, is that they already had the ability to do so. The Pitino contract situation illustrates the Board of Regents and President’s office not working well together.

This week a resolution will be brought forth that specifies the process on certain contracts (e.g., Board approval required for any initial appointment where an employee’s annual salary will exceed $250,000 or any employment agreement, or amendment thereto, that has at total cost to the University of $600,000 or more.)

However, in the case of Pitino and the other contracts amended in reaction to the very public and shameful resignation of Norwood Teague, the Board should have been brought into the process under existing policy. Continue reading Regents Cry Foul, But Should They? Pitino Buyout and More

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They Said It: Amy Phenix

They Said It: Amy Phenix

The Board of Regents (“Board”) effectively approved the contract extension of Richard Pitino on August 14, 2015. The Board delegated authority to the President, who delegated to his Chief of Staff, Amy Phenix. Ms. Phenix signed under the big block letters, “REGENTS OF THE UNIVERSITY OF MINNESOTA.”

The timing of certain members of the Board voicing their concern about Pitino’s contract and their claim of a lack of a role in approving it is a topic for another day, but one which certainly is deserving of further discussion.

Now, let us move on to the topic of this article: “They Said It: Amy Phenix”

In a Star Tribune article published on March 31, 2016, Chief of Staff Amy Phenix explained, “The reality is you’re very rarely going to fire someone not for cause in year one of a contract extension,” she said. “It’s just highly unusual.

Let’s quickly explore what “the reality is.”
Continue reading They Said It: Amy Phenix

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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.”
Continue reading Buzz Williams, Virginia Tech Finalize Contract

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Crean’s Buyout Suggests He’s at IU for the Long-Term

August 9, 2013
Crean’s Buyout Suggests He’s at IU for the Long-Term

Indiana’s buyout cost to early terminate their head men’s basketball coach dropped last month from $16 million to $14 million

Oftentimes the end date of a coaching contract has little meaning. This is due to termination provisions and the frequency of amendments and restatements. However, if Tom Crean tells a recruit, “I’m staying with Indiana for the long haul and vice versa”, his employment agreement with the school would appear to support his words.
Continue reading Crean’s Buyout Suggests He’s at IU for the Long-Term

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Battle of the Buyouts: UCLA vs. Minnesota

March 22, 2013
Battle of the Buyouts: UCLA vs. Minnesota

LNH clears up some misinformation on Howland’s buyout costs

It’s been reported multiple times over the past week that Howland’s contract runs through 2015 and that a buyout of his contract would cost the school $2.3 million. Both of these are claims are inaccurate.

SHORT VERSION
Ben Howland is under contract as head coach for UCLA through the 2016-17 season. If the agreement was terminated in the next week and a half, the buyout costs for the school would be $3.2 million. That amount could be reduced in the future depending on the future employment of Howland.

ENHANCED VERSION
The expectations of Ben Howland and Tubby Smith could not be more different. A review of their respective employment agreements makes it clear from the employers’ perspective. The media and fan bases of these two programs leave no question about who must deliver more.

The results demanded from Ben Howland are far higher than Tubby Smith. However, any reasonable financial valuation model will conclude that the value of Tubby Smith’s contract is higher than that of Ben Howland’s.

If interested in how the termination provisions in Howland’s contract compare to that of Minnesota Gophers head coach Tubby Smith’s, see our February 2013 article “Tubby Smith’s Buyout: Approximately $3.25 Million.

Let’s now narrow the focus to UCLA’s costs if they were to terminate Ben Howland without cause.

Components of the $3.2 million are:
(1) Base pay for the remainder of the contract – $1.2 million ($300,000 per year X 4 years                          remaining on contract); and
(2) Guaranteed fee for one year – $2.0 million.

The guaranteed fee is effectively what is commonly called supplemental compensation. UCLA is on the hook for the remainder of the fee in the year that a termination is made plus one additional year. The $3.2 million assumes a scenario under which a termination would occur just before April 2, 2013.

Contract years begin on April 3 and therefore April 2 becomes an important date. If UCLA fired Howland on or before April 2, 2013, component (2) would be approximately $2.0 million. If they terminated his employment on April 3, 2013, component (2) would be $4.0 million.

Unlike many coaching contracts, the school would not immediately pay out the $3.2 million. Rather, UCLA would continue to pay certain amounts in equal monthly installments, similar to as how they would pay the amounts if Howland were still employed.

A key provision is that if Howland found other employment, the payments from UCLA would be reduced by his income from the other source(s). The contract wording could be firmed up and might be open for legal challenge, but the intent is that in year one after termination Howland would receive $2.3 million and in years two through four he’d receive $300,000 per year.

That said, if Howland were fired in the next week and a half you might expect him to take a year off from working in basketball (includes not only coaching, but promotional/endorsement work, consulting, etc.). If he went to another school to coach next month, his new income will reduce what he’d be receiving from UCLA. (i.e., if the new school pays him $1.8 million, UCLA’s cost in year one would be only $500,000 and in future years – assuming he’s still employed – $0.)

In summary, Ben Howland is under contract through the 2016-17 season and his current buyout would be $3.2 million. However, that amount could be reduced by as much as 100%.

NOTE: Certain financial information and legal interpretations above provided by the consulting firm Pleasant Avenue Athletics.

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Tubby Smith’s Buyout: Approximately $3.25 Million

February 13, 2013
Tubby Smith’s Buyout: Approximately $3.25 Million

There are two key points presented below.

First, our interpretation of the employment agreement between the University of Minnesota and its men’s basketball head coach Tubby Smith is that the cost of a “buyout” at the end of this season would be approximately $3.25 million. You may have been hearing multiple other sources discussing the $2.5 million termination fee as being the buyout figure, but this particular agreement is unique in some respects as compared to most other head coaching contracts.

Second, it’s important to remember that the cost of a buyout isn’t all new. Had the agreement not been amended last summer, buying out Smith’s contract would have cost the University approximately $2.36 million. The increment cost resulting from the amendment is less than $900k.

Question:
If Minnesota terminated Coach Smith’s contract in late March or early April, how much would they still have to pay out to Tubby?

Answer:
Approximately $3.25 million.

Explanation:
The $3.25 million figure includes three components:

(1)    Termination fee – $2.5 million

If Minnesota terminates Smith’s contract without just cause, they are required to pay one-half of the base salary and supplemental compensation owed for the remainder of the term of employment, subject to a maximum of $2.5 million.

(2)    Ninety (90) day written notice clause – $498k

Minnesota is required to provide written notice to Coach Smith 90 days prior to the termination of the employment agreement. The $498k represents base salary and supplemental compensation for 90 days from the date of notification.

This requirement in general and especially its length is rare for head coaching contracts. For Minnesota, it’s helpful from a PR perspective in that it effectively keeps a half million of buyout dollars out of the headlines and most news stories. See also component (3) below.

(3)    Supplemental retirement contribution – $250k

If Smith is still employed as of April 30, 2013, he will be due a supplemental retirement contribution of $250k. The contribution immediately vests.

Although the notification of termination might be made several weeks before April 30, the 90 day written notice requirement means his employment will not have been terminated as of April 30.

Question:
If the contract had not been amended in July 2012, how much would they still have had to pay Tubby if he were to be terminated in late March or early April 2013?

Answer:
Approximately $2.36 million, or $890k less than under the amended contract. 

Explanation:
Prior to the amendment last summer, a termination effective after May 1, 2013 would not have resulted in a termination fee. However, Minnesota would have been required to pay Smith the remainder of his base salary and supplemental compensation through the end of the agreement (i.e., April 30, 2014).

The written notice and retirement contribution components discussed above also existed in the original contract.

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Question:
Why are you including the 90 days of pay and retirement contribution in this discussion?

Answer:
The 90 day written notice requirement effectively creates an additional termination fee. When a college coaches is fired, the school and the coach quickly move on. The school will not receive value in exchange for paying the coach this “salary and supplemental compensation”.

The intent(s) of the supplemental retirement contribution isn’t explicitly conveyed, but we believe there is some element of reward for the future commitment by the coach. That is, if Minnesota wanted to retain Coach Smith but he wanted to leave after this season and did so before April 30, he would lose out on that $250,000 contribution. The intent may partly be to compensate him for past services, but the retention of his services is relevant as well. Since the $250,000 payment would not result in retention of his services if the University terminated the agreement, we are including this amount in the buyout discussion as well.
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