Thursday, September 15, 2022
The Case of the Nebraska Football Coach's Buyout
You have to be an extraordinary person to be an elite college football coach. You must be unusually savvy about contracts. That must be true, because I know a lot about contracts but I can't make any sense of the incentive structures in the contract of former Nebraska head coach Scott Frost (right). Andrew Doughty of BetMGM has the numbers here.
Coach Frost had an extraordinary second season, leading the University of Central Florida to an undefeated campaign and defeating Auburn in the Peach Bowl. Nebraska paid $3 million to buy out his contract and then agreed to a seven year, $35 million contract with Coach Frost. Two dismal years in, the contract was extended through 2026. After two more dismal years, Nebraska and Coach Frost renegotiated his contract, reducing his annual salary to a miserly $4 million/year. The buyout structure is complicated, but in the end, Coach Frost is entitled to a $15 million buyout. If the team had waited until October to buy him out, it would have owed only $7.5 million.
You might think that Nebraska is not really out that $15 million because Coach Frost has a duty to mitigate. Except that I seem to recall reading somewhere in Victor Goldberg's Rethinking Contract Law and Contract Design that coaches' contracts often specify that there is no duty to mitigate [if someone can find the cite or knows from some other source, please chime in]. Moreover, Coach Frost's record at Nebraska was 16-31 overall, 10-26 against conference opponents, and the team was winless against ranked teams. When Nebraska landed Coach Frost, he was the most sought-after young coach in college football. Now, he's asking Kramer's question after a prolonged cigar binge:
Why, you might ask, did Nebraska not wait until October? Some sportswriters speculate that the timing was dictated by an upcoming game against the Oklahoma Sooners. Nebraska's athletic director did not want to see his team humiliated by the team he played for. One would think that even rabid Nebraska football fans would not think that motivation justified a $7.5 million price tag. But there are other reasons that would surely pass a business-judgment-rule type sniff test. It seems there are advantages to being the first in the pool when it comes to picking a new head coach.
Has Nebraska learned its lesson? Coach Frost's resume shows that past performance is no guarantee of future success.
Interesting point, Otto. Vic wrote to remind of his examples. In Chapter 1 of Rethinking Contract Law and Contract Design, he notes that John Calipari had a duty to mitigate and that Rich Rodriguez did not.
Posted by: Jeremy Telman | Sep 17, 2022 5:05:35 AM
In Frost’s initial contract (Dec 2017 ) he has no obligation to mitigate, but if he gets another coaching job either in the NBA or NCAA division 1, the liquidated damages are offset.
In the 2019 and the Nov 2021 addenda, there appears to be neither a duty to mitigate nor an offset.
Posted by: Vic Goldberg | Sep 19, 2022 5:32:12 AM
There is authority that a liquidated damages clause eliminates any duty to mitigate. Perhaps a buyout clause is considered to have the same effect.
Posted by: Otto Stockmeyer | Sep 16, 2022 6:53:55 AM