Earlier this week, the University of Minnesota bought out Gophers basketball coach Tubby Smith’s contract for $2.5 million. The sticker shock has indeed attracted significant attention from the public, especially in light of concerns about the University’s administrative waste in the wake of the Wall Street Journal’s exposÃ©.
However, the buyout must be evaluated in the context of basketball revenues and profits, not in terms of education funding. The Business of College Sports blog reported that Minnesota’s basketball program earned about $9.5 million in profits in the 2010-11 season. Much of this profit goes to support non-revenue sports at the University.
The real scrutiny deserves to be applied to Smith’s contract renegotiation with the University shortly after Norwood Teague’s arrival as athletics director in June 2012. Smith’s contract renegotiation, finalized in August 2012, increased his buyout by $1 million and increased his bonuses for post-season success. On top of bonuses for winning early tournament games, the total tournament bonus would come to $2.75 million. Such a bonus is difficult to justify.
Forbes reported an estimate of the revenue a conference receives from a Final Four appearance (as there is no additional revenue earned for a championship): an estimated $7.7 million over six years.
While the University would see other revenues as a result of a Final Four appearance, Smith’s postseason bonuses would have consumed a significant amount of the marginal gains in revenue. This leaves little economic incentive to fund a new basketball practice facility — a recruiting tool to ensure better performance.
Smith’s buyout seems not to be in light of his performance but rather an admission that the athletics department handled the renegotiations poorly.