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.



The same can be said for Steve Alford and UCLA. In what others said “makes no sense”, but we called “refreshing”, the contract for the new coach of the Bruins included mirror termination clauses that support the commitment of the parties to each other.

The traditional media slammed UCLA for this agreement; however, we still believe the contract was actually well done with regard to the termination provisions, so long as the school is committed to the idea that they want to give Alford a chance to succeed (i.e., they are willing to give him several seasons before potentially giving up on him).

Parting Gifts

According to the consulting firm Pleasant Avenue Athletics, the following are maximum termination fees under Crean’s and Alford’s respective deals, by year:

IU owes Crean owes UCLA owes Alford owes 2013 $ 16,000,000 $ 8,000,000 na na 2014 14,000,000 8,000,000 $ 10,400,000 $ 10,400,000 2015 12,000,000 8,000,000 10,400,000 10,400,000 2016 7,500,000 1,000,000 10,400,000 10,400,000 2017 4,000,000 500,000 7,800,000 7,800,000 2018 1,000,000 500,000 5,200,000 5,200,000 2019 1,000,000 500,000 2,600,000 2,600,000 2020 1,000,000 500,000 0 0

Table notes: (1) Years end on June 30 for Indiana and April 30 for UCLA; (2) Example: If Indiana terminated Coach Crean in July 2014, he’d be owed $12 million – the amounts due to Coach Crean above are the maximum buyout for each year – the amount due could be slightly lower in certain years depending on the exact date of termination (he’s due to the lower of the max listed above or remaining outside, marketing & promotion income payments over the full stated contract term [remaining payments were $14.3MM as of 7/1/13]); (3) If either coach earns income elsewhere subsequent to being terminated, but prior to the ‘normal’ term having passed buyout dollars will be offset.



Other Comments

As compared to UCLA’s agreement with Alford, there are other contracts out there with far less favorable buyout provisions for the schools involved. Only some have been covered by the traditional media.

Is there a conspiracy? No.

Is it due to a misunderstanding the buyout terms? Well, 9 times out of 10 when people write about contracts they get some of the facts wrong. This could be part of it, but in most cases it’s not.

We believe it’s usually simply ignorance. They just didn’t know the facts. It’s easier to regurgitate information than it is to do real work or provide unique insight. In fairness, there probably aren’t a ton of people who actually enjoy analyzing legal documents pertaining to basketball or football coaches.

Finally, a random piece of information: It’s interesting to see the breakdown between academic and athletic incentives. In Tom Crean’s deal, his stated max annual bonus (technically discretionary bonuses can be awarded so there is no max) for academic achievements is $55,000 and for athletic achievements it’s $685,000.

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