How much would it cost Michigan to drop Brady Hoke? - Part 2
I am not advocating that Hoke should be fired. Rather, I am presenting the facts so that passionate sports fans can learn how the employment contracts may influence a franchise or school's hiring decisions. "He is a terrific coach and will be a great ambassador and leader for our football program," Dave Brandon stated when announcing Hoke's employment. "We look forward to having him build a championship program on the field and in the classroom." The top-rated recruits, accomplished assistant coaching staff and trainers, and other building blocks that typically cultivate a championship team are present, but there is an evident disconnect that needs repair. The first step of many in the Michigan Football/Athletic Department overhaul may be one of the four events I will discuss. Let's evaluate each relevant governing contract provision.
THE EMPLOYMENT CONTRACT
Section 3.02 in Hoke's employment contract with the University discusses compensation. Section 3.02(a) states that he receives a base salary of $300,000 each year. He receives additional compensation under section 3.02(c)(i-ii) of $1,700,000 (in Contract Year One) that increases $100,000 each year after Contract Year One for "his television, radio, internet, shoe and/or apparel sponsorships, consulting, or promotion and other appearances and services at the reasonable request of the University as part of his duties and responsibilities as the Head Coach." Therefore, the basic equation for his base salary plus additional compensation is $300,000 + $1,700,000 + $100,000(Y-1) = Compensation under subsections (a) and (c). So, for last year's contract period, he earned $2,200,000 in base and additional compensation, and this year that amount will increase by $100,000.
Subsection (d) describes noncumulative compensation for "Bowl and Conference Championship Game Appearance[s]" that Hoke receives as "an additional payment of compensation for that Contract Year" so long as he is indeed the Michigan Football Head Coach for that game. For "[a]ny bowl game," the value of compensation starts at $75,000 in 2011 with a $5,000 increase each year through the 2016 season. The value for a "2d or 3d place conference bowl" appearance grows each year by $10,000 with the 2011 value of $125,000 as its base. If Michigan makes it to a "conference championship game" this season, Hoke will receive $360,000, and if Michigan was to win that game, he would earn $575,000 beyond his base plus additional compensation. Win or lose, Hoke sees a huge payday.
Furthermore, section 3.02(f) denotes Hoke's "Stay Bonus," which is "a bonus of $500,000 for each full Contract Year he remains employed as head football coach by the University." This provision is different from the compensation discussed above because this bonus does not vest immediately at the end of the contract year; it vests in two chunks, where the first three years vested (i.e., possession of the first three years became secured) and became payable at the end of Contract Year Three and the following three years vests and becomes payable at the end of Contract Year Six. So, Hoke received a bonus of $1,500,000 at the end of the 2013 season simply because he remained Michigan Fooball's Head Coach, and he will earn another $1,500,000 at the end of the 2016 season if he continues to hold the position. Compensation that does not immediately vest creates incentive for Hoke not to find employment elsewhere.
That's not all, though. Subsection (g) gives Hoke "Deferred Compensation" that is "[i]n addition to the standard fringe benefits provided." Here, the University has a separate bank account that it adds monthly payments of one-twelfth of the "Credit Amount." For instance, section 3.02(g)(i) states that the Credit Amount for Contract Year One was $250,000, and the credit amount increases each year through Contract Year Six by $100,000, creating a Credit Amount of $750,000 during Contract Year Six. Under section 3.02(g)(ii), Hoke receives this compensation in two payments. The first payment was on January 1, 2014, and the second payment is scheduled for January 1, 2017. Notably, Hoke's right to receive this compensation does not vest immediately either, for it is "contingent upon the Head Coach's continued employment as head football coach of the University through and including" the vesting dates, and the second payment does not vest until December 31, 2016. What could inhibit this money from being secured in Hoke's checkbook? If Hoke is not employed as the head coach through and including the vesting date for "any reason other than death, disability ... termination by Head Coach for cause ... or termination without cause by the University, then the Head Coach shall forfeit his right to all amounts then credited" to the account. In other words, if Hoke leaves the job voluntarily, he will not receive the second payment under this provision. The second payment would total $1,950,000 on January 1, 2017.
Under section 4.01(a), Michigan could "buyout" Hoke's contract, and I will discuss this more later. The amount steadily decreases as the end of the employment agreement's contract term approaches.
Because that was a lot of information to take in, there will be a Part 3. Check back for the final installment of this discussion, which will go over the four scenarios!