Deferred Compensation – Analysis of Usage and Patterns

While buyouts sometimes can be tantamount to a transfer fee payable by the hiring school, deferred compensation is “money in the bank” for coaches, provided the requirements of the plan and the contract are met. If a coach leaves before vesting, the “money in the bank” accrues to the program’s budget. A paper presented at the NCAA Colloquium in January 2010 supports our hypothesis: deferred compensation may reduce turnover and expenses.

According to Bloomberg: “An analysis of 51 public universities in the six largest athletic conferences found that schools paid $38.6 million in severance costs for the fiscal year ending June 30, 2009, compared with $18 million in the fiscal year ending June 30, 2007. In those three years, schools have paid more than $79.5 million to fire their coaches and sports administrators.”

Using Win AD, we identified and analyzed 123 contracts with deferred compensation. Here’s what we found.

Among the publicly available DI coaching contracts, 123 include deferred compensation (DC), spread across 56 different schools, including 35 Big-6 schools. At least one school in each of the 11 FBS football conferences uses DC. Yet, only 15 schools use DC for three or more coaches, with one SEC program leading all schools by a wide margin (13 coaches in 13 sports). Most ADs (41 of 56 schools) use DC with one or two coaches per school. In 2008, schools using DC reported an average budget surplus of $3.15 million.

While coaches in 17 different sports have DC, 68% of them are concentrated in three sports: Football (34), Men’s Basketball (33) and Women’s Basketball (18). Outside those three sports, use of DC is distributed among 11 other sports at a rate of 2-3 coaches per sport. For coaches with DC in those 11 sports, there are two commonalities: long tenure (12 year average) and/or less than 11% DC as a percentage of Total Compensation (TC).

Standard practice (.719 correlation) in the ratio of DC to TC averages 14.7% (e.g, a coach with $100,000 TC, the DC component is $14,700). But that proportion is skewed by six coaches who receive over 40% of DC in TC. In fact, the majority (78.9%) of coaches with DC receive under 20% of TC as DC, and nearly half (45.5%) receive under 10% of TC as DC. Measured by the median, mainstream usage is 11% of TC as DC ($60,000).

There are two ways that DC is structured: one-time payment in a single year, or multiple payments over several years. In the one-time payment group, half of the coaches with DC obligations (67) are payable sometime in the next 1-6 years. DC as a percent of TC is a function of when DC is due:

2009 = 6 payments, average 23.0% of total TC prior to that year
2010 = 18 payments, average 18.1% of total TC prior to that year
2011 = 10 payments, average 13.9% of total TC prior to that year
2012 = 15 payments, average 11.9% of total TC prior to that year
2013 = 9 payments, average 8.8% of total TC prior to that year
2014 = 5 payments, average 5.6% of total TC prior to that year
2015 = 3 payments, average 15.6% of total TC prior to that year
2016 = 1 payment, average 2.5% of total TC prior to that year

For coaches who receive multi-payment DC, there is a wide distribution by number of payments and number of coaches in each grouping.

2 times paid = 21
3 times paid = 13
4 times paid = 5
5 times paid = 4
6 times paid = 8
7 times paid = 3
8 times paid = 1
9 times paid = 1

For our review, we defined DC as single or multi-year payments – excluding annual compensation and performance incentives – that are due in future years. Below are the coach annual averages of DC to TC by sport.