Weekly Column: Pedal to the Metal on Buyouts in Collegiate Contracts

In his capacity as a Columnist for California Sports Lawyer®, Founder and Managing Attorney Jeremy Evans has written a column about the rise of buyout provisions in collegiate head coach contracts leading to millions of dollars in payouts to coaches and universities.

You can read the full column below.

Contractual coaching buyout provisions and fines for storming fields highlighted a portion of the college football weekend. It was rivalry weekend so maybe there was some extra fervor on- and off-the-field. However, the contractual situation with buyouts and other exemplary or eccentric provisions are almost exclusive to the entertainment, media, and sports industries.

In the entertainment and media industry, there are often provisions that require a repayment of salary (or bonuses) if a senior executive leaves before the contract expires. Whether those provisions are legally enforceable is an entirely different matter. There are even “key man” provisions in insurance policies and contracts to make sure that the contractual agreement outlines specific procedures and actions to be taken if a key individual becomes unavailable, like limiting certain investments, or to provide an insurance coverage/payout where a key executive is incapacitated.

In California, there is a negative specific performance law in the civil code that requires a person cannot work for another company or party with certain requirements being met. California Civil Code § 3423(e) is often used in the entertainment space that allows courts to require a party not to do something (thus a negative specific performance) where the agreement is related to certain types of unique or irreplaceable skills and obligations. The law would be effective in situations where monetary damages cannot make the party whole. For example, if a musician is contractually obligated to deliver an album, but decides not to provide those personal services to one label, but then tries to provide their services to another label while under contract, the musician would be prevented from performing for the second label.

On the other hand, California Labor Code § 2855, often referred to as the “Seven-Year Rule”, prevents personal services contracts exceeding seven-years, but a party refusing to perform can be sued for monetary damages or be prevented from performing for another party subject to the party seeking the negative specific performance (Cal. Civ. Code § 3423(e)) fulfilling certain requirements along with other elements related to payments. If one is wondering why player contracts in baseball and other professional sports can exceed seven years, it is because Major League Baseball and all professional sports leagues enjoy some level of antitrust exemption protection and the existence of a collectively bargained agreement (“CBA”), which includes exemption from some labor laws as described above. Moreover, the owners of teams are also prevented from signing or tampering with players under contract signed with another team.

College sports seem to be the only industry that requires a buyout of a coaching contract for personal services where the coach decides to leave early or is dismissed before term. If a head coach leaves to join another university, it makes sense that the university/athletic department making that hire would pay a fine to compensate the university for losing a “key man”. It is like a trade for a player to another team in exchange for some consideration. However, an argument could be made that such payments are punitive in nature and should be more akin to endorsement relationships—if a party does not support a product, the results are not going to look much better. In other words, it is better to let the party walk. Whether good or bad, in the NIL era, buyout payments serve more as luxury taxes on athletic departments that will go to other athletic departments to pay players and athletic department personnel, marketing, or related efforts.

Furthermore, universities being required to pay a buyout for coaches who do not perform seems gratuitous where the coach failed to perform as expected. When was the last time a head coach was fired that won a national championship or led their team to consecutive winning seasons, won a bowl game, or was widely respected by the university and players? More likely the head coach would retire if ready to do so as opposed to being shown the door. It would be a significant challenge to fine one, let alone thirteen, compared to the thirteen head coaches who were fired after the weekend results and paid a collective $36 million dollars. As reported by Front Office Sports, $36 million pales in comparison to the $118 million paid in 2023, with $76 million going to former Texas A&M head football coach Jimbo Fisher.

Understandably college and professional sports are high performance arenas for jobs. Being a head coach is not an easy job and they get paid well for it. However, the NCAA or colleges would be wise to limit or negotiate better buyout provisions to make sure monies saved get invested or pay for educational or related purposes. Severance packages are clearly a part of CEO departures, but employers and coaches need to be able to make personnel, family, and career decisions without the fear of significant buyout provisions to move in a different direction. Unfortunately, a buyout provision in the millions of dollars can be a punitive remedy for either party. The matter today is complicated by the fact that coaches and NIL managers are now being relied upon as CEOs and front office personnel of college sports franchises. Conference realignment has also exasperated the urge to move coaches along with colleges. The job description has changed, but universities and coaches would be mutually wise to move away from buyout provisions, while also demonstrating more patience to see success through the process.

About Jeremy M. Evans:

Jeremy M. Evans is the Chief Entrepreneur Officer, Founder & Managing Attorney at California Sports Lawyer®, representing entertainment, media, and sports clients in contractual, intellectual property, and dealmaking matters. Evans is an award-winning attorney and industry leader based in Los Angeles and Newport Beach, California. He can be reached at Jeremy@CSLlegal.com. www.CSLlegal.com.