|June 17, 2014|
Previously published on June 11, 2014
In the “quiet” period for intercollegiate athletic competition, compensation to college coaches has taken center stage. During the ongoing trial in the O’Bannon v. NCAA litigation, the plaintiff’s expert economist highlighted the financial benefits to coaches from the current amateurism structure. This testimony came one week following the announcement of a significant contract extension for the head football coach of the University of Alabama, with an average annual compensation value of $6.5 million. With the significant funds invested in these employment arrangements, universities would be well advised to take a fresh look at whether their contracts truly protect the institution.
The head coach of key athletic programs for Division I (and in some cases, Division II) institutions serve not only as the manager of a particular sport program, but as a spokesperson and ambassador for their schools. The harm from a failed employment relationship can be significant and can impair divisions of the university beyond the athletic department.
This leads to a reasonable question - what key issues should each university be concerned with in their athletics contracts? The answer is expanding on a daily basis and includes the following:
- “Morals” clauses - These provisions proscribe certain behavior both during and off work hours which, whether illegal or not, would bring harm or negatively reflect the athletic program. The proper use and application of these terms are key in determining a right to severance pay at termination.
- Incentive Provisions - Certainly the on-court achievements of a team can affect the rights of a coach to a bonus, but what of academic standards or coordination with the institution’s academic officials? The academic fraud investigation at the University of North Carolina - Chapel Hill shows the extreme example of what may happen when the employment relationship does not fully address accountability to the academic side of the house.
- Responsiveness to student concerns - While this may appear on its face to be a feel-good issue, consider how important addressing legitimate concerns raised by members of the football team may be to the union organization vote at Northwestern University. As caretaker of student-athletes, the evaluation and review procedures in coaching contracts should address responsibility to inform necessary university stakeholders of concerns affecting student health, academic options, and access to other key student services.
- IRS Compliance/Compensation Reporting - The thought of IRS auditors circling college coaches as targets would have seem farfetched until the Service issued a comprehensive 2013 report on compensation reporting for colleges and universities that also made findings on the pay of coaches. The IRS noted areas of non-compliance for certain high-profile perks such as cars, housing, social clubs and travel. Private colleges face the two-fold concern of ensuring their contracts satisfy the IRS intermediate sanctions regulations for “reasonable compensation”.
- Conflicts of Interest - As the NCAA moves toward a potential restructuring that would grant more power to the FBS conferences to establish separate rules for payments and benefits to student-athletes, the influence of financial relationships will become more important. The ability of a coach to engage the services of a high school or AAU coach with affiliation to a prospective or current student-athlete raises immediate concerns. Similarly, the commercial relationships of the coach should be contained with respect to their involvement and effect on the university.
With class out for the summer, this is an ideal time to prepare for a great year by auditing your athletics contracts. We can provide the unique insight of having worked with hundreds of universities on compensation issues to bring necessary protections and best practices to your agreements.