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February 16, 2009

What are Leach and IMG thinking?

coach leach_3This earlier post noted the fascinating contract dispute that has arisen between Texas Tech University and the most successful coach in the school's history, Mike Leach.

Now, with the university and Leach at loggerheads, and a university-imposed February 17th deadline looming to get a deal done on a proposed modification and extension of Leach's contract, the real issue ought to be this -- why has IMG, Leach's agent in these negotiations, allowed the negotiations to reach impasse?

Well, it probably is not all IMG's fault because Leach has a law degree and is likely highly-involved in the negotiations. But one has to wonder about the judgment of the agent and the coach who would allow a five-year, $12.7 million contract go up in smoke over a few contractual details that simply should not be deal breakers.

To put this in perspective, the contract that Tech has offered Leach is one of most lucrative in big-time college football, almost certainly one of the top 10 or 15 contracts in terms of compensation. What makes that all the more remarkable is that Tech -- with a relatively modest athletic budget of a bit less than $50 million a year -- is not close to being one of the most lucrative football programs in college football. By way of comparison, Texas' annual athletic budget is over $100 million and Oklahoma's is about $75 million.

In short, a distinct possibility exists that the eccentric Leach will never receive another offer as lucrative as Tech's current one in his coaching career. How on earth is Leach -- who is a good but not great coach -- thumbing his nose at that kind of scratch?

In short, because IMG and Leach don't like several contractual details of the university's proposed contract. For example, IMG and Leach want it to be relatively inexpensive for another program to swoop in and hire Leach away from Tech. Not surprisingly, Tech wants it to be relatively expensive for another program -- at least during the first three years of the new deal -- to hire Leach away from Tech.

Similarly, Tech doesn't want to have to pay an arm and a leg to buyout Leach's contract if it wants to make a change, while IMG wants Tech to pay Leach a buyout equal to 40% of the remaining compensation due Leach under the contract at the time Tech elects to fire him.

The other two issues are so minor that they barely merit mentioning. First, Tech wants Leach to pay a penalty of $1.5 million if he interviews with another school during the term of the contract without Tech's consent. The other issue is that Tech wants to have any outside income that Leach arranges approved by Tech and run through the athletic department.

imglogoHaving been involved in a few of these rodeos, here's why I think IMG and Leach are foolish if they allow this potentially lucrative deal to evaporate on Tuesday.

First, it's simply not unreasonable for Tech -- which does not have a particularly wealthy football program -- to hedge its risk of losing Leach to another program by requiring a substantial buyout of the contract. The purpose of such a buyout is to allow Tech to mitigate its loss by using the buyout funds to hire a good coach to replace Leach. Moreover, the amount of Tech's proposed buyout will not deter a bigger program that really wants Leach. IMG and Leach ought to recognize this reality, negotiate the least amount of buyout that they can, and move on.

The buyout of Leach is the toughest issue, but not all that difficult to resolve. IMG's 40% proposal, particularly during the early years of the contract, is unrealistic given the size of Tech's resources, so they should come off those amounts. On the other hand, Tech's proposal for the buyout in the later years of the contract is relatively paltry, so Tech should come up considerably on those amounts. By both sides giving a bit in those areas, a deal can be reached.

The other two problem provisions are easily resolvable. On the outside compensation issue, Tech has to regulate that income under NCAA regulations, so requiring Leach to obtain Tech's approval is not an unusual or unreasonable demand. Leach and Tech should simply agree that Tech will have the right to approve any such outside comp and that such approval will not be withheld unreasonably. For his part, Leach should agree that he will report and account to Tech for all such outside income so that Tech can comply with its obligations under NCAA regulations.

Finally, Tech would probably waive the proposed $1.5 million penalty if Leach would simply agree that he won't interview for another job during the term of the contract without Tech's approval, which Tech should agree would not be unreasonably withheld. Then, if Leach were to do so anyway, Tech could elect to fire Leach for cause, which means that it wouldn't have to pay him anything further under the contract. That would resolve that issue.

So, if the foregoing is all that it would take for Leach to become a multi-millionaire, then why are IMG and Leach thumbing their noses at Tech's attractive offer?

The only answer I can come up with is that sometimes pride and emotion really can overwhelm good judgment during the heat of negotiations.

Having said that, I still think cooler heads prevail and a deal gets done. There is simply too much for Leach to lose by not doing so. Leach may be eccentric, but he is not stupid.

And IMG didn't become the world's most successful agents by recommending that their clients reject very lucrative contracts.

Posted by Tom at February 16, 2009 12:01 AM |

Comments

"Finally, Tech would probably waive the proposed $1.5 million penalty if Leach would simply agree that he won't interview for another job during the term of the contract without Tech's approval, which Tech should agree would not be unreasonably withheld. Then, if Leach were to do so anyway, Tech could elect to fire Leach for cause, which means that it wouldn't have to pay him anything further under the contract. That would resolve that issue."

I'm not sure I agree with that. It seems that it is never unreasonable to forbid your employee from interviewing with someone else. So Tech would always be able to prohibit that. If I were Tech I'd be worried that he is trying so hard to reserve his right to get a new job, but I don't know if your fix works.

Posted by: David George Author Profile Page at February 15, 2009 10:50 PM

From my experience in such things, Tech is probably not all that concerned with preventing Leach from interviewing for other jobs. They already have an expensive buyout that a suitor would have to pay to hire Leach and Tech really doesn't want Leach to remain as coach if he wants to be elsewhere. What Tech doesn't want is for Leach to be interviewing without their knowledge, which usually is a PR mess. That's why my proposed solution would probably resolve the issue. Being able to fire Leach without having to buyout his contract would probably make it worth the risk for Tech that Leach would interview with another program without Tech's approval.

Posted by: Tom K. Author Profile Page at February 16, 2009 6:07 AM

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