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.
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.
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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