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Featured Fanpost: UW Buyout Clauses and Other Costs of Leaving

Having read through the thousands of comments regarding Sark leaving and Petersen coming, it seems there's a lot of confusion regarding the buyout clauses in contracts of the UW coaches. Here's a summary of my understanding of the buyout requirements for UW coaches.

  1. Steve Sarkisian - His buyout clause was $1.5M. Because he left to coach elsewhere, as opposed to just quitting and changing careers, his buyout is due in thirty days.
  2. Justin Wilcox - His contract runs through Dec 31, 2014. His buyout is $1M if he takes any job with a PAC-12 team other than a head coaching job. So it appears that if he leaves the PAC-12 to coach in any position he has no buyout.
  3. Tosh Lupoi - His contract runs through Feb 6, 2015. His buyout amounts to the "calculated amount of guaranteed pay pledged to him" for the remainder of his contract. This buyout applies if he takes a job with a PAC-12 team, other than HC or DC. Like Wilcox, it appears he could leave the PAC-12 for any job and not have a buyout.
  4. Eric Kiesau - His contract runs through Dec 31, 2014, and his buyout amount is $500K. Like Wilcox and Lupoi, it only applies if he leaves for another PAC-12 school, unless it's a HC position.
  5. Johnny Nansen - His buyout was $33,750.
  6. Neither Heyward or Sirmon had buyout clauses. According to source (1), because Sirmon left his contract early, UW is not responsible for the $75K buyout he owed Tennessee. I don't know if that means it's been paid already and he must pay back the UW, or if it was scheduled to be paid when he completed his conract, or something else. I'd love to know if Sirmon (hence USC) is on the hook to Tennessee for any amount.

Additionally, all contracts state that coaches who leave early could lose their bonuses for any upcoming bowl game. That's $150K for Sark and $5K for the assistants.

One last thing. For colleges who lure a coach away and agree to pay that buyout, the cost is much higher than the stated buyout amount. Buyouts are considered earned income for the coach for whom the buyout was paid (although there are some that argue it should be treated as a business expense). Therefore, in order to have the coach avoid paying the income tax on that money, the school pays it as well. For example, the income tax rate on income over $400K is 39.6%. Wilcox's buyout is $1M. In order for Wilcox to avoid paying the tax from his own pocket if he left for USC, they would have to pay $1,655,629.14. This is the amount that leaves $1M, after taxes, to pay the UW for WIlcox's buyout. If they simply paid $1M to the UW, Wilcox would be on the hook for $396K in income taxes. Some schools give their coaches a loan to pay off the buyout, and then forgive a certain amount each year of employment. However, loan forgiveness is also considered earned income, and income tax must be paid on that as well. I'm sure that all schools, and coaches, have very smart tax attorneys that help them minimize their taxes, but it's something that has to be considered in structuring how the buyout is paid.

Sources:

(1) http://blogs.seattletimes.com/today/2013/12/uw-coaching-shuffle-racks-up-4-coaches-and-1-5-million-in-buyouts-and-counting/

(2) http://seattletimes.com/html/huskyfootballblog/2018002090_buyout_clauses_among_items_rev.html

(3) http://www.footballscoop.com/news/6194-buyout-clauses-at-univ-of-washington

(4) http://seattletimes.com/html/localnews/2022382542_sarkisianbreachxml.html

(5) http://www.usatoday.com/story/sports/ncaaf/2013/11/06/college-football-coach-pay-buyouts-taxes-irs/3449639/

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