“Money” is going to be discussed ad nauseum during the NC State coaching search. Unfortunately, like so many other topics, many people who don’t have a damn clue how the world really works are not going to be short on proclamations regarding the financial position of the NC State Athletics Department. Our goal today is to introduce some reality and clarity to these conversations so when idiots with their uneducated misinformation (this includes the local media and most radio talk show hosts) you can interject some reality into the situation.
To start to get your mind in the right frame, you need to take a look at the entry that preceeds this entry and uses Herb Sendek, Roy Williams, and Matt Doherty as specific examples of how coaches are paid.
Coaches’ pay should be discussed in terms of “total compensation” as opposed to “salary”. Many people talk about what schools “pay a coach” without understanding that schools don’t directly pay coaches all of their compensation. Schools are not the direct source of 100% of coaches’ compensation. Schools and their programs are platforms from which coaches generate “total compensation” – some of which comes directly from the school and some that does not. Much of what a coach gets paid is actually “market driven” by outside parties and sources (like shoe contracts). The more attractive the mix of the program and the coach, the more revenue that can be generated for the coach.
Coaches generally generate income from the following sources that comprise total compensation:
(1) Salary paid directly from the University (Athletics Department)
Private schools typically pay coaches more in direct compensation than public schools because of the increased public reporting (and therefore, scrutiny) of financial information of public institutionals. North Carolina schools have traditionally structured coaching packages differently and chosen to pay less direct salary than many schools to avoid public debates on the topic.
Salary is generally the only component of total compensation that is “guaranteed”. Unless otherwise defined in the contract, this is what usually constitutes the amount of “buyouts” in coaches’ contract . The obligated buyout is why Lee Fowler’s annual compulsion to reward Herb Sendek with 1-year contract roll-overs in each off-season was so frustrating as it continuously increased the amount of a potential buyout of Sendek’s contract.
(2) Media Contracts
Companies like Capitol Sports, ISP, and Learfield Communications pay Athletics Departments for the rights to the University’s media properties and pay coaches to appear in some of those media properties — like coaches’ radio shows, coaches’ television shows, signage at facilities that can then be sold for advertising, etc. These contracts are often called “personal services contracts”.
Athletics Department are not built to function as media companies, so this structure allows the Department to outsource media & marketing functions to a more efficient private entity – in NC State’s case this is currently Capitol Sports. Capitol Sports then goes to market selling advertising and signage they now “own”. They (hopefully) and make a profit on the spread between what they contractually pay the department and the coaches and what they can charge for advertising rates.
Think about this — the more popular your coach and the more successful your program, the more valuable the rights to your media properties become as there is greater demand for viewership and therefore greater potential for the media company to generate larger advertising revenue.
Media contracts are where some funky things can happen with accounting that is hard to trace. For example, what if the market value of the basketball program’s media rights is $1 million? Perhaps the department chooses to only accept $250k for the rights and allows Capitol Sports to ‘overpay’ the coach for said coach’s services. This is a creative way for the coach to earn more compensation that they can’t earn in direct salary because of state laws and political climates.
(3) Other Endorsements, highlighted by Shoe Contracts
Coaches often have contracts with various private industry entities. These can take the form of small local commercial endorsements or larger ones. (Can you say Jim Valvano?) This is where the “prominence” of the program &/or the personality is so important. The exact coach at school #1 may only be able to generate a fraction of the income of what the same coach could generate at school #2.
The primary income source from other endorsements is typically generated from contracts with shoe companies like Nike and Adidas. The market dynamics of shoe deals are similar to those of the media deals — the more popular the coach, the more successful the program, and the more national attention that generated by said program creates more lucrative opportunities for coaches to derive compensation from shoe contracts. As we highlight here, Adidas valued Herb Sendek’s market value at a piddly $80,000 a year compared to Roy Williams $500,000 a year from Nike. (Carolina’s shoe situation is unique because of their “all sports deal with Nike. But the theory remains the same and we aren’t going to deal in the specifics for the purposes of this discussion).
To be clear on this – this revenue is not paid by the University. It is market driven based on the prominence of the coach and the University. Because of the market-based nature of this compensation component, a school could theoretically hire a more nationally popular coach who would immediately make more money than the previous coach simply because of their shoe deal.
(4) Private Supplements / Personal Services Contracts
Additional private services contracts generate extra money for coaches that is usually provided by booster(s) to supplement a compensation package. For example, Herb and Sendek and Matt Doherty had no such supplement and Roy Williams gets almost $800,000 a year from the Ram’s Club.
These funds are usually raised through a booster clubs in the form of restricted gifts. Booster clubs are non-profit entities set up for the administration of scholarship money; boosters must stipulate that these pledges are earmarked for private payments to said coach when contributing. These contributions are usually made by the larger donors in booster clubs and take the form of large dollar figures because of the inefficiencies caused by administering a fund with thousands of donors contributing small numbers. Of course, the booster gets no “club credit” for such a payment.
In the coming days, we will be taking a closer look at the “money situation” related to NC State’s Basketball program. Until then, we thought it would be prudent to set the table on the mechanics of how this works before too many people said too much that wasn’t true about the general topic.