Jeff Tedford Contract Details: Why A Buyout Might Make Financial Sense

Jeff Tedford's current contract calls for monetary compensation through three primary channels: base salary, talent fee, and deferred compensation or retention bonuses.

Original Contract - December 2001

When Tedford was hired in December 2001, his monetary compensation derived from only the base salary and talent fee. Another feature of his original contract called for Cal starting construction on Football Training Facilities within 5 years of Tedford's original hire date. For all intents and purposes, this meant by the end of 2006.

2004 Contract Extension

In Tedford's first contract extension (December 2004), Deferred Compensation was added to encourage Tedford to stay if construction did not start before January 1, 2007. Tedford was to receive $2,500,000 if he was employed by Cal through the completion of the 2009 football season.

The 2004 Extension also included a Renovated Stadium Bonus of $500,000 if "...(Tedford) is the Head Coach on the date the Cal Football team plays its first intercollegiate game in the newly renovated stadium."

As it so happened, the infamous Tree Sit started December 2, 2006 and continued until September 9, 2008. Were it not for the Retention Bonuses, Jeff Tedford might have left Cal after the 2006 season; the point is open for debate. It is noteworthy that the 2006 team achieved a Pac-10 co-championship with a 10-3 record, a Holiday Bowl win over Texas A&M by a 45-10 score, and was ranked No. 14 in the final AP and Coaches Polls. The future for Cal football under Jeff Tedford looked very bright, indeed.

2007 Contract Extension

Tedford's 2007 contract extension in the wake of the 2006 season called for a base Salary of $225,000, a Talent Fee no less than $1,575,000, and the Deferred Compensation was restructured as "Retention Bonuses" payable on three different dates and in different amounts:

$1,000,000 payable on January 8, 2009 (if employed through the 2008 football season)

$1,500,000 payable on January 8, 2012 (if employed through the 2011 football season)

$1,000,000 payable on January 8, 2014 (if employed through the 2013 football season)

2009 Contract Extension

Everyone remembers the disappointment of the 2007 season and that Cal stumbled to a 7-6 record with a win over Air Force in the Armed Forces Bowl. The 2008 season looked more hopeful and included an Emerald Bowl win over Miami and a 9-4 record, earning Tedford an automatic 1-year extension. Another year was added, and Tedford was now under contract through the 2015 season.

Details of the 2009 extension included repackaging the Retention Bonuses as Deferred Compensation with the following payment schedule:

• $500,000 payable as regular income on January 8, 2009;
• $500,000 contribution on January 8, 2009 by UC to Deferred Compensation Plan on behalf of Tedford;
• $500,000 contribution on January 8 of each subsequent year by UC to Deferred Compensation Plan on behalf of Tedford.

Additionally, Tedford's Talent Fee could now be increased by certain amounts assigned to certain accomplishments. Among those accomplishments are $1,000,000 for winning the National Championship, $500,000 for winning the Pac-10 Championship or playing in the Rose Bowl; $400,000 for playing in a BCS bowl but not wining a Pca-10 title; plus various 5 figure amounts for playing non-BCS bowl games. Only two accomplishments apply at this time: participating in the 2009 Poinsettia Bowl ($30,000) and the 2011 Holiday Bowl ($60,000) and have increased Tedford's Talent Fee by a combined $90,000.

2011 Contract Amendment

This action did not extend Tedford's contract. Rather, it re-worked the ways in which monetary compensation was paid out or distributed.

First, the $500,000 Retention Bonus due on January 8, 2011 was instead re-directed as a contribution to Tedford's Deferred Compensation.

Second, the bonuses available to Tedford if he is head coach when the team occupies the newly built SAHPC and plays its first home game at renovated Cal Memorial were reduced from $250,000 each to $150,000 each and the money was used to increase the pool of compensation available to assistant coaches.

No Buyout Provision

Nowhere in any of Tedford's contracts, Extensions, Addendums or Amendments is there any language that prescribes or suggests a buyout. Indeed, the 2009 Extension clearly indicates that "...if the University terminates the contract early without cause that Tedford will be owed the base salary, retention bonus, and talent fee in the amounts noted..., paid out in monthly installments, and any additional earned bonus income as set out by the contract." In simple terms, Tedford is paid his compensation in monthly installments through December 2015.

Wilner Estimate

Jon Wilner, in his October 4, 2012 College Hotline column, estimates that it would cost Cal in "...well in excess of $7 million..." to fire Tedford. Wilner bases his figure on Cal owing Tedford $6.9 million on the remainder of his contract plus the costs of the succeeding staff over and above the current staff's costs, and the costs of the search for a new head coach itself (travel, head-hunter firm costs, etc.). According to USA Today, Cal's coaching staff was paid $1,570,000 in salary and bonuses for the 2011 season. The 2012 numbers are not readily available, but it seems reasonable to assume that the coaching staff pay did not exceed $1.75 million in 2012.

Wilner then cites a range of $8 to $10 million as the cost of terminating Tedford without detailing the costs (coaching staff salaries, search costs for new head coach, etc.) that could add up to as much as $10 million.

An Analysis of Actual Costs of Firing Tedford

An analysis of Tedford's contract and known accomplishments (2009 Poinsettia Bowl and 2011 Holiday Bowl) strongly suggests that Tedford's Talent Fee for 2012 and beyond is $1,665,000. His Base Salary remains at $225,000. He will receive a Retention Bonus of $500,000 on January 8, 2013 for completing the 2012 season. But beyond that, if Tedford is terminated without cause in 2012 he will not earn the Renovated Stadium Bonus ($150,000) because the West Side Improvements project (aka the Retrofit and Renovation of Cal Memorial Stadium) will not be finished until January 2013. Tedford would have to be Cal‘s head coach at the beginning of the 2013 season to earn the Renovated Stadium Bonus.

The current value of Tedford's contract if he were to be fired in November 2012 would be an estimated $6,327,500 for the period of December 2012 through December 2015 (this includes the $500,000 Retention Bonus/Deferred Comp payment to be made in January 2013). In short, Wilner may have overestimated what Cal owes Tedford through 2015 by about $570,000.

But let's say that Tedford wants to receive the value of his contract through 2015, what would that require? The contract spells it out:

"The parties recognize that Coach has the duty to obtain other employment in mitigation of any damages he may sustain by virtue of the termination of this Employment Contract. It is expressly understood by the parties hereto that any payment so made to Coach will be reduced by any amounts received, or to be received at a later date, by Coach for rendition of services by Coach in a Head Coaching position at a college or university or in a head or assistant coaching position within the NFL, during the period of time in which Coach, pursuant to this Agreement would have been employed by the University if this contract had not been terminated."

This portion of the Termination Clause clearly indicates that Tedford has a positive duty to seek a job as outlined above in order to mitigate the costs of the University's payments to him. If he fails to seek such jobs where the opportunities are present, the University can argue that it is not obligated to pay him the amounts remaining on the contract.

Could a Buyout be Negotiated?

It is not a stretch to assume that burn out may be playing a role in Tedford's performance this season. It may be that Tedford would welcome a chance to step away from football for a year or two, possibly take a job as an analyst for a TV network. He might even choose to take a job as an offensive coordinator at another college program, a move that would be outside the prescribed terms of his current contract.

All of this is an opening for both Tedford and Cal to come to terms on a buyout at a reduced cost to Cal and gives Tedford an opportunity for a break that would allow him to recharge his batteries and brighten his outlook. It is quite conceivable in such circumstances to find that Tedford would accept a buyout at a lump sum of between $2.5 to $3.0 million in addition to the Deferred Compensation Plan contribution due him on January 8, 2013.

In sum, I think that Wilner overestimated the cost of firing Tedford by a very large amount, indeed.

ESPs, average attendance, and opportunity costs

Cal's interests in the football program should be obvious: a winning program brings in the revenue necessary not only to fund 27 other sports (not including Men's Basketball which generates a surplus to the Athletic Department budget), it also generates the revenue necessary to pay off the construction costs of the Simpson High Performance Center (aka SAHPC) and the Renovation and Retrofit of Cal Memorial Stadium.

In order to meet these payments, Cal relies on attendance generated revenue: season ticket sales, single game and group sales, and most importantly, Endowment Seating Program (ESP) seat subscriptions. Attendance has spillover effects in other revenue opportunities such as ad sales, merchandise sales, and sponsorships by local businesses. It all starts with the popularity of the program as expressed by attendance at home games.

Cal's target for ESP subscriptions is 90% sales. ESP seats account for almost 3,200 seats. A count of seats sold on September 5 shows that 1,895 seats (59.2%) have been sold. Another 73 seats were in process of being sold on that date, potentially boosting sales to 61.5%. That still leaves ESP subscriptions short of the 90% goal by about 911 seats (28.5%). Since subscriptions can be dropped without penalty on an annual basis, the football team's performance can impact the following year's subscriptions.

Cal Memorial's seating capacity in 2012 is 63,186 or almost 60,000 seats outside of the ESP sections. That represents a reduction of about 8,600 seats compared to the stadium's seating capacity in 2010 (71,799). Cal must also continue to sell a high percentage of seats outside the ESP sections. It seems reasonable that if the target is to subscribe 90% of ESP inventory, that a similar goal in overall attendance is the target for Cal football.

Thus far in the 2012 season, Cal is averaging 88.0% percent of capacity through the Washington game on November 2, including subscribed ESP seats. Cal has had games which have sold well in terms of capacity in 2012: the Home Opener for the mostly renovated Stadium against Nevada on September 1 (63,186 sell-out), Homecoming and Stadium Re-Dedication against UCLA on October 6 (57,643), and The Big Game on October 20 (61,024). Indeed, attendance against Southern Utah was over 91% (57,745), but the Arizona State game drew slightly less than 82% (51,634) and the Washington game on November 2 drew lackluster paid attendance that was barely above 2/3rds (42,226 or 66.8%).

Cal can't afford to consistently draw crowds that are somewhere between 66.8% and 82% on a regular basis. It puts much more pressure on the other games in the schedule to make up for the lack of attendance with crowds that approach or reach sell-out capacity. This shortfall in attendance is accentuate when ESP subscriptions lag well below the targeted 90% goal.

In odd-numbered years, the Pac-12 home schedule will include Oregon State, Washington State, USC, and one of the Arizona or Rocky Mountain schools. In 2013, Cal also hosts Ohio State as an out-of-conference opponent likely to attract a sell-out or near capacity crowd, but that is the exception and not the rule for out of conference schools visiting Berkeley.

Scheduling plays an important role in attracting high capacity crowds, but most importantly, so does a successful team. Further, attendance often lags success and failure. When Tedford took over in 2002, attendance would have been down compared to the previous year under Tom Holmoe (2001) by about 2.8% except that Cal hosted the Big Game that year and the average attendance was up by 5.0% because of the near sell-out.

Attendance in 2003 when compared to 2002 was up about 10% (when controlling for the Big Game). In 2004, attendance grew 31.7% (average was 84.7% not including the Big Game), In 2005 attendance actually dropped 2.0% compared to 2004.

With a down year on the football field in 2012, Cal faces even lower attendance figures in 2013. If season tickets sold for games are not being used, that would indicate that interest in the program is waning as the team's success turns to failure. It is likely that most of those seats will not be sold in the following year, either as season tickets or as single-game tickets.

If we assume an average ticket price of around $30 per ticket in 2013, 33,333 seats would have to be sold to recoup $1 million. If you average those 33,333 seats over 6 home games, that's only 5,556 seats per game (or 8.8% of seating capacity) that must be sold to recoup $1 million. Clearly, retaining Tedford carries an opportunity cost that may very well exceed the costs of eating the remaining contract simply in season ticket losses alone.

If there are also loses in ESP subscriptions, the cheapest of which is $2,871 per seat, it only compounds the losses to the Athletic Department by retaining Tedford. Remember, the Endowment Seating Program (ESP) was designed not only to help retire the debt of the most recent construction, it also is intended to build an endowment for the Athletic Department that will be used to support the other intercollegiate sports that represent Cal.

The costs and risks of retaining Jeff Tedford are heightened given the financial commitment made by the Cal Athletics community not only towards football, but across the board in all sports. Cal can little afford to have a lackluster football program.