“Buyout” Madness

Last October, after Louisiana State University’s football team lost 49-25 at home to Texas A&M, head coach Brian Kelly was unceremoniously fired. Kelly had been hired from Notre Dame at the end of the 2021 season with hopes that, given LSU’s resources and fan base, he would lead the Tigers to a national championship. Instead, he lost 14 games over less than four seasons, a record that included finishing a disappointing 19-10 in conference play.

Kelly did not leave LSU empty-handed. Rather, the university agreed to pay his contract buyout of $54 million even after Louisiana’s governor, Jeff Landry, objected. Ironically, although Landry made public his opposition to Kelly’s buyout figure, Kelly’s replacement, Ole Miss’s Lane Kiffin, has an even bigger buyout of $73 million. That sum will be owed to the new coach, should, as seems inevitable, LSU one day decide to fire him.

In the era of the transfer portal and NIL payments, nothing resembles college football’s past. In the past, firing a coach would not have been such a huge financial event. In the era of the transfer portal and Name, Image, and Likeness (NIL) payments to athletes, however, nothing resembles college football’s past. For example, Indiana University won this year’s CFP, inaugurating a very different world of college football. Until the 2024 season, IU was a perennial doormat, having gone 3-9 as recently as two seasons ago.

Athletic departments and their boosters are shelling out huge sums of money to hire the next Curt Cignetti. Indiana transformed its program by hiring coach Curt Cignetti, who tapped the transfer portal for veteran talent, then compensated the players with NIL money. In the past, coaches depended on bringing in highly rated high-school recruits and developing their talent, a system that favored programs that could tap into rich recruiting bases such as the Deep South, Florida, Texas, and California. The Transfer Portal and NIL have turned that model upside down.

Until recently, it might have taken several years to develop a solid program, but a good coach who has financial resources behind him and who can work the portal can do what Cignetti did and quickly build a contender. While Cignetti’s success seems like the ultimate Cinderella story, there is also a darker side. Other Division I programs now look to equal the “Indiana Miracle” by hiring coaches who can perform the same trick.

For every winner there is a loser. Only one team can win a national championship each year. Cignetti’s success meant failure for opposing teams and coaches, and the fan bases supporting those teams will not readily accept defeat. College football is a sport in which the head coach makes a huge difference between winning and losing, and athletic departments and their boosters are shelling out huge sums of money to hire the next Curt Cignetti.

All of this means huge paydays for coaches. With paydays come buyouts, record examples of which are sweeping college football. After all, many or most coaches will eventually be fired or pushed out. Most coaches fired from top jobs never reach that summit again. Like corporate CEOs who rarely find their way to the top after being let go, they are given golden parachutes, without which they probably would not have taken the job in the first place.

The career of Lane Kiffin is both instructive and unusual. In 2009, Kiffin was hired to replace Phillip Fulmer after the latter’s firing from the University of Tennessee. During a 50-year stretch from 1970 to 2020, Tennessee had seven head football coaches, and all but Kiffin were either fired or pushed out. After a 7-6 season in 2009, Kiffin jumped from Tennessee to the University of Southern California upon being offered their head coaching spot. He would go on to be fired from USC within four years.

Kiffin’s “rehabilitation” path led him first to the University of Alabama, where he served as offensive coordinator for the legendary Nick Saban, helping the Crimson Tide win a couple of national championships. From Alabama, Kiffin took the head job at Florida Atlantic University, a relatively new program seeking respectability. There, Kiffin had a successful three-year tenure, went 26-13, and got an offer at the University of Mississippi. We know the rest of the story.

Despite Kiffin’s pulling it off, it is rare for one person to lead four different sought-after programs, especially after being fired from one. Most coaches will get one or, at best, two shots at the brass ring, a fact that leads inevitably to the existence of buyouts. After all, why leave your secure mid-tier job for the big boys unless the financial reward of doing so is guaranteed?

Most coaches will get one shot at the brass ring, a fact that leads inevitably to the existence of buyouts. Although many in higher education have expressed alarm at these sky-high buyout numbers, it is not hard to explain why such payments have boomed. First, as noted above, top coaches are only as good as their number of wins. Given the College Football Playoff’s expansion to 12 teams (with a 16-team playoff on the horizon), failure to qualify means doom for coaches at places where boosters and the fan base have high expectations.

Why leave your secure mid-tier job for the big boys unless the financial reward of doing so is guaranteed? Not surprisingly, higher stakes bring higher standards, and higher standards bring bigger buyouts. Because of the insecurity of top college-football jobs, coaches want long-term contracts and guaranteed money. For example, Jimbo Fisher’s staggering $76-million buyout from Texas A&M came because he signed a 10-year contract in 2021 and lost his job only a couple of years later. A&M had to pay him through 2031.

But why would a university leave itself on the hook for such enormous sums of money in the first place? As pointed out earlier, coaches want stability and a good paycheck if their top-tier job doesn’t work out. They may never have the opportunity for such high earnings again. At least arguably, universities also are protecting themselves with these buyouts to keep coaches from jumping to another program. To stop a then-hot Fisher from jumping ship, A&M extended his contract and doubled his existing buyout four years before firing him.

While not record-breakingly massive, the UNC System’s coaching buyouts illustrate this trend.

Presumably afraid that head coach Dowell Loggains will go elsewhere, App State has agreed to pay him two and a half million dollars should the university decide to terminate his employment. The same is true of NC State’s Dave Doeren, whose name occasionally comes up when bigger programs’ vacancies arise. The manifest foolishness of UNC-Chapel Hill’s giving a not-particularly-in-demand Bill Belichick a $21-million buyout is outside the scope of this article. In any case, the economics of college football suggest that such contractual promises will continue to be made.

Interestingly, professional football coaches have much lower buyouts, even though they might command higher salaries. That is because it is harder for successful coaches to jump to other teams midway through their contract. Furthermore, if a head coach is fired, he is often picked up by another team. Andy Reid, winner of three Super Bowls with the Kansas City Chiefs, came to that team after being pushed out by the Philadelphia Eagles in 2014. Likewise, John Harbaugh was just fired by the Baltimore Ravens, where he won a Super Bowl in 2012, and was immediately hired by the New York Giants, a program with a rich championship history.

A football fan base might quickly kick out of office any lawmaker who put the home team at a considerable competitive disadvantage. No new coach expects to fail, and the university athletic department that hires him inevitably claims to see only success on the horizon. Unfortunately, reality tells us that the new coach will most likely disappoint the fan base and be on the unemployment rolls within five years (or fewer). Likewise, if a new coach does have success and is suddenly coveted by other programs, a buyout provides some protection for his current school—unless, of course, the buyout offered by the new university is higher.

While state legislatures have a financial incentive to put a stop to buyout madness, individual legislators don’t. Indeed, a football fan base might quickly kick out of office any lawmaker who put the home team at a considerable competitive disadvantage.

Finally, while not football related, another reason for the explosion of buyouts is the government’s easy-money regime. As Tho Bishop and I recently pointed out, easy money makes it much easier for universities and boosters to shell out enormous sums. If and when the inflationary spigots are cut off, one can bet the effect on college football—indeed, on all college sports—will be seismic.

William L. Anderson is professor emeritus of economics at Frostburg State University and a senior editor for the Mises Institute. He has published in Public Choice, American Journal of Economics and Sociology, The Independent Review, Quarterly Journal of Austrian Economics, and many other journals.