A Closer Look At Coach Tedford's "Buyout" Provisions

Kelley L Cox-US PRESSWIRE

Rumors are swirling regarding Coach Tedford's firing at the end of the season. What do we know about his contract and what Cal Athletics would need to do to fire him? Let's dig deeper.

[Many thanks to FiatSlug for his invaluable assistance with this post. Additionally, many thanks to OhioBear for finding the information on the 2011 addendum]

I have seen a lot of people upset with the play of the Bears this season (and prior seasons, too). It is tough to disagree. Although I know that everybody involved with the team is working as hard as they can for success, it is just not happening. And the arc in the last few seasons has been downward. Under Tedford, Cal didn't have a losing season prior to 2010. However, since 2010, Cal has won 15 total games. Cal is likely to end up with a Holmoe-esque 3 win season. I have nothing but the greatest respect for Coach Tedford who has drastically altered the football landscape at Cal.

But the time is ripe for a change.

To make a change happen, what would Sandy Barbour and the Athletics department have to do? That is a discussion that has raged all throughout the Bearosphere. Do they have to pay a buyout? If so, how much is that buyout?

A few years ago, I took a look at Tedford's contract. I made a slight error there (as you can see at the top of the post). I initially looked at the 2nd most recent contract extension for Coach Tedford, signed in 2007 (viewable in PDF format here). That provides us some of the specifics that we want to know, but there are more recent contract extensions. The first was signed in 2009. I have never been able to find that specific contract (I'm not entirely certain how people get the contracts anyway). There are references to it in the notes of a Regents meeting in 2009 (viewable on page 30 of this PDF). So, while we do not have the specifics, we can extrapolate information from these notes.


Additionally, there are 2 other sources that I am using in organizing this post. The 3rd source are more Regents notes for a 2011 addendum. You can read this on page 7 of this PDF. And finally, Jon Wilner of the Mercury Newswrote an article recently regarding this topic. He has some language that appears to be specifically from the 2011 addendum itself.

So, to recap, here are the four sources, I am using:

1. 2007 addendum contract

2. Regents notes regarding 2009 addendum

3. Regents notes regarding 2011 addendum

4. Wilner article

As we do not have the specific language from the 2009 and 2011 addendum, we have to figure out the situation by extrapolating from all of these sources. Let's look at the 2007 one first. Section 21 talks about firing Tedford "without cause." "Without cause" means that Tedford has not done anything to breach his contract (like failing to show up to a game or assaulting a player). Although many people might jokingly argue that Tedford's performance since 2010 would allow for a firing "without cause," that is not true legally.

Two years ago, I wrote this:

Section 21. Cal can fire Tedford at any time without cause, but would have to pay all the remaining payments he would be entitled to under the contract, including the 'talent fee' and 'retention bonuses.' Further, Tedford has to mitigate his damages by trying to obtain another coaching job. If Tedford gets a head coaching job at a college or a head or assistant coaching job in the NFL, then the payments Cal has to make are lowered by the sum of payments he receives there. There is no language regarding obtaining an assistant coaching job in the college ranks.

Although generally true, this is slightly inaccurate, because of changes in the retention bonus. In the 2007 contract extension, Tedford got certain bonuses if he was coaching at certain dates. The 2009 and 2011 addendums seemed to play with the retention bonuses a bit. Let's look further:

2009 Addendum

The Regents notes state the following:

Deferred Compensation: The revised contract eliminates what was characterized as retention bonus payable in the following manner under the old contract if the Coach met certain conditions:


$1,000,000 payable on January 8, 2009
$1,500,000 payable on January 8, 2012
$1,000,000 payable on January 8, 2014

The retention bonuses have been eliminated and replaced with the following:

• UC will pay $500,000 as regular income to the Coach on January 8, 2009.

• UC will contribute $500,000 on January 8, 2009 to the Deferred Compensation Plan on behalf of the Coach.

• On January 8 of each subsequent year the Coach is employed through the end of each season through 2015, including post-season play, UC will contribute $500,000 to the Deferred Compensation Plan on behalf of the Coach.

In the event Coach becomes unable to provide services described in the contract and the contract is terminated, UC's contribution to the Deferred Compensation Plan will be a pro-rated amount based on the termination date.

So, instead of getting X amount of dollars if Tedford is coaching on Y date, instead he starts getting his money put into a "Deferred Compensation Plan." Every January, Cal puts $500,000.00 into this Deferred Compensation Plan account. If my math is correct, it is the exact same amount of money that Tedford would get under the Retention Bonuses plan. Just deferred. Potentially, because Cal couldn't afford to pay all that money up front? Potentially because Coach Tedford wanted to take advantage of certain tax benefits? I do not know.


2011 ADDENDUM

However, the 2011 addendum says slightly different things. It changes the $500,000.00 payments made on January 8, 2012 and future January 8th payments from Deferred Compensation Plan payments BACK to retention bonuses. Here is the info from the Regents notes, which claims to be the specific language:

The University will make a similar contribution, adjusted for withholdings, to the Deferred Compensation Plan on behalf of Coach on January 8, 2010 and as soon as practicable after January 8, 2011 provided Coach continues as Head Football Coach through the end of the applicable University of California, Berkeley football season, including post-season play, for the prior year.


Beginning on January 8, 2012 and for each subsequent year of this Employment Contract, if Coach is continuously employed by the University of California, Berkeley as Head Football Coach through the end of the University of California, Berkeley football season, including post season play, for the prior year, University will pay a retention bonus in the amount of $500,000 to Coach. Normal taxes and withholdings will apply to all payments of retention bonuses.

So, some of these January payments were into the Deferred Compensation Plan, while others were meant to be retention bonuses paid immediately. I'll go further into these payments in the Deferred Compensation Plan section below. First, let's look at the termination language.

TERMINATION LANGUAGE

We have specific language from the 2007 addendum, which I will get into later. We also have what the 2009 Addendum states regarding termination and what Wilner claims the 2011 addendum states regarding termination. Let's look at those two first.

The 2009 Regents notes state the following regarding termination:

If the University terminates the contract early without cause, the campus will owe the base salary, retention bonus, and talent fee in amounts noted above, paid out in monthly installments, and any additional earned bonus income as set out by the contract. The University will not be responsible for paying unearned bonus/stipend income in this circumstance. If Mr. Tedford secures employment during this time, these payments will be reduced by such amounts.

Wilner states that the following language is in the 2011 Addendum;

In the event the University terminates this agreement without cause ... University shall continue to pay Coach for the remainder of the term of this Agreement, including ... base salary, talent fee in such amounts and in such manner as set forth in the Contract Addendum as of the date of termination ... In lieu of the contributions that otherwise would have been paid into the Deferred Compensation Plan or paid to Coach as a retention bonus as provided in Paragraph 9, the University will pay such amounts directly to Coach at the time the University would otherwise have been obligated to ... pay such retention bonus.


I do not know what is in the ellipses. I wish I did just for the sake of completeness. The 2009 Addendum notes list the following 4 things owed to Tedford if Cal fires him without cause.

1. Base salary

2. Retention bonus/Deferred Compensation Plan

3. Talent fee

4. Any additional earned bonus income (this is for the variety of "Accomplishment" bonuses, like winning the National Championship etc etc).

Wilner's language only includes the first 3 of those items. There is no language in there regarding "Accomplishment" bonuses. I do not know if that language is in the ellipses or not. I am going to go on the assumption that that language IS in there, but I may be wrong.

Let's take these payments in turn.

DEFERRED COMPENSATION PLAN/RETENTION BONUSES

Let's look at #2 first. The notes state that the retention bonuses will have to be paid. However, the notes also say that the retention bonuses are deleted. But then the 2011 Addendum brought them back. Kind of.

So, let's say in late November, after a loss to Oregon State, Sandy Barbour pulls the trigger and fires Coach Tedford. Then, what? Well, firstly, there is a Deferred Compensation Plan account somewhere with slightly less than $1,500,000.00 in it with Coach Tedford's name on it. $500,000.00 in January, 2009, 2010, and 2011. He would be entitled to that money, I believe, based on what the Regents notes say there.

But it is also not money that needs to be raised in the "buyout" sense. This Deferred Compensation money is money that already exists and has been earmarked for Tedford. So, no additional money is required here.

Tedford would also be owed $500,000.00 for the January 8, 2013 payment. The 2011 Addendum states that if Tedford finishes a full season in 2012, then on January, 8, 2013, he is owed the $500,000.00 retention bonus. In our hypothetical, Sandy does not fire Coach Tedford until after the Oregon State game, so he has coached the full season. As such, he is owed that money. The January 8, 2012 payment was apparently a retention bonus and has presumably already been paid, so it is not money that needs to be raised.

So, in this section, we have two payments that would be owed to Tedford if he is fired after the OSU game. 1.5 mil in Deferred Compensation Plan payments and $500,000.00 for the January 8, 2013 Retention Bonus. In Wilner's article he states:

...yes, Cal would owe Tedford the retention bonus if he’s terminated.

In the context of his analysis, he seems to approach the retention bonuses for the 2013, 2014, and 2015 season as "must be paid in buyout." However, I do not see that anywhere in the language. I'm not 100% certain exactly where he gets that from, to be honest. That is 1.5 million potential dollars that I do not think Cal would owe Tedford.

ACCOMPLISHMENTS BONUSES

Wilner's quotation of the 2011 Addendum does not include these payments, but I'd be surprised if they were not included. Let's go on the assumption that they are.


Section 11 of the 2007 Addendum states a series of Accomplishments that Tedford could obtain to increase his salary. It seems to state that the payments must be paid by June 23 in the year after the accomplishment is achieved. FiatSlug noted to me that the Regents notes for the 2009 addendum are less clear:

"...this new contract provides opportunity to increase Mr. Tedford's talent fee by the amounts shown below, effective the year following the accomplishment. The maximum escalation over the length of the contract will be capped at $1,000,000. Any escalated amounts will be additions to the talent fee in all subsequent years of the contract."

The question is does the language "all subsequent years" mean that if Tedford achieves one of the accomplishments in 2009, he receives a single additional payment in 2010 or each and every year after that until the end of the contract? A bit confusing.

If you look at the list, Tedford achieved two of the accomplishments: Poinsettia Bowl in 2009 ($30,000.00) and Holiday Bowl in 2011 ($60,000.00). If my interpretation is correct, both of these payments have already been made. If FiatSlug's interpretation is correct, then Tedford is owed $90,000.00 per year for 2013, 2014, and 2015. That would be an additional $270,000.00. If FiatSlug's interpretation is correct. It is unclear to me. It is also kind of small potatoes compared to some of the other numbers here, but let's throw it in there just to err on the side of caution.

BASE SALARY AND TALENT FEE

Now, let's look at #1 and #3 as noted above: the base salary and the talent fee. Here is what the Regents notes state regarding the base salary:

Base Salary: There is no change to this element of Mr. Tedford's compensation:


01/01/08 - 12/31/08 $225,000 no increase
01/01/09 - 12/31/09 $225,000 no increase
01/01/10 - 12/31/10 $225,000 no increase
01/01/11 - 12/31/11 $225,000 no increase
01/01/12 - 12/31/12 $225,000 no increase
01/01/13 - 12/31/13 $225,000 no increase
01/01/14 - 12/31/14 $225,000 no increase
01/01/15 - 12/31/15 $225,000 no increase

So, Cal pays him $225,000.00 per year in base salary. If Tedford were fired this month, Cal would owe him December's portion of his 2012 Base Salary ($18,750) and then 2013, 2014, and 2015. This comes to $693,750.00.

Then, there is also the Talent Fee. But what is that? That is the bulk of his actual income. The Regents notes say this:

Talent Fee: There is no change to Mr. Tedford's annual talent fee, except as noted in section 4, below, which could provide potentially significant additional compensation to these amounts.

01/01/08 - 12/31/08 $1,575,000 no increase
01/01/09 - 12/31/09 $1,575,000 no increase
01/01/10 - 12/31/10 $1,575,000 no increase

01/01/11 - 12/31/11 $1,575,000 no increase
01/01/12 - 12/31/12 $1,575,000 no increase
01/01/13 - 12/31/13 $1,575,000 no increase
01/01/14 - 12/31/14 $1,575,000 no increase
01/01/15 - 12/31/15 $1,575,000 no increase

This appears to come from private sources and, as I noted two years ago, is widely believed to be paid by Nike. So, here, Cal would have to pay some small amount of 2012 (estimated to be $133,750 for December 2012), and then 2013, 2014, and 2015. So, let's say approximately $4,856,250.00.


So, if you combine the $4,856,250.00 of the talent fee, the $693,750.00 of the base salary, the $270,000.00 of the Accomplishments fee, and the $500,000.00 of the January 8, 2013 Retention Bonus, you have $6,320,000.00 remaining on Tedford's contract. So, they have to pay him 6.32 million, right?

20120901_jla_aj6_025

NOT SO FAST, MY FRIENDS!

CHANGES TO THE PAYMENTS

The Regents notes talk about the payments being made over time. "Monthly installments," it states. So, the 6.32 mil would not be paid out in one lump sum, but over time until 2015. Basically, they'd have to pay for two head coaches during that time. The actual Cal head coach and Coach Tedford. AWKWARD!

But wait, there is more. The Regents notes talk about the payments being lowered if Coach Tedford finds other employment. This language is probably the exact same language as we can actually see in the 2007 extension, so let's look at that. I copied and pasted what I wrote about that language two years ago above, but we can reiterate here:

Further, Tedford has to mitigate his damages by trying to obtain another coaching job. If Tedford gets a head coaching job at a college or a head or assistant coaching job in the NFL, then the payments Cal has to make are lowered by the sum of payments he receives there. There is no language regarding obtaining an assistant coaching job in the college ranks.

So, Coach Tedford is legally required to try to obtain another coaching job to mitigate the damages here. He has to make good faith and reasonable efforts. In the 2007 contract extension, it specifically states head coach at a college or head/assistant coaching job in the NFL. Nothing is stated in there regarding an assistant coaching job at a college. Perhaps the 2009 or 2011 extension rectified this oversight, I do not know.

If Coach Tedford does obtain a job as outlined above, he has to tell Cal how much he makes and then the payments are lowered accordingly. It may be lowered completely, such that Cal doesn't have to pay anything. It may only partially lower the payments.

LIQUIDATED DAMAGES CLAUSE

One thing that I did not note in the post two years ago is that there is a liquidated damages clause in the 2007 contract extension for some "outside" benefits from the contract. I do not know if there is one in the 2009 contract extension. Assuming there is, a liquidated damages clause is a specific number agreed to by all parties to compensate Coach Tedford for his losses from not being able to earn these "outside" benefits. Basically, the liquidated damages clause here is Cal and Tedford saying "You will have some other smaller, uncertain damages if we fire you early, but since we can't quite figure it out, we're just going to agree to a specific number."

It is a bit unclear exactly what:

a) the "supplemental" and "outside" benefits noted in Section 21 of the 2007 contract extension are and

b) what the specific number agreed to as the liquidated damages clause is

I do not know if this is in the 2009 contract extension, but I suspect it is. I also suspect that this is not a large amount of money. I think it relates to football camps, shoe deals, access to the Blackhawk Country Club, etc etc etc.

CONCLUSION

So, let's break it down.

1. 1.5 mil paid to Tedford in Deferred Compensation Plan. But this money already exists and does not need to be raised.

2. A max of 6.32 mil paid out over time to 2015 for base fees, talent fees, retention bonuses, and accomplishment fees. However, this amount can be lowered all the way potentially to $0.00 depending on factors. I would be surprised if Coach Tedford had any problem getting a job as a assistant coach in the NFL or college ranks. Head coach at another college school is also potentially likely. NFL head coach seems very unlikely. So, this number could easily be decreased quite substantially. Additionally, the amount does not appear to have to be raised immediately, so there is time to wait and see.

3. If the talent fee is the bulk of the payment and Nike *does* pay for it as theorized, how much is Cal actually (potentially) on the hook here? I genuinely have no idea.

Also, please note this:

The compensation provided under this contract is funded exclusively from athletic department revenues and private fundraising and no State or general campus funds are used in this arrangement.

That goes to all the people who beat their chest regarding tax payer money etc etc etc.

So, there you go. What are your thoughts on this? GO BEARS!

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