Navigating NIL Demands and Revenue Sharing in College Athletics

Athletic programs across the country are grappling with growing NIL-related demands and the looming implementation of the revenue sharing model expected to take effect next year following final approval of the House settlement.  Concerns of big donor burnout have pushed programs to solicit donations directly from fans and experiment with innovative solutions to fund NIL, such as Tennessee’s “talent fee” applied to season tickets and South Carolina’s subscription-based membership for exclusive access to Gamecock content.

Universities are already adjusting budgets in anticipation of the new revenue-sharing landscape.  One option for savings could come through reducing the amount of funds allocated to a school’s coaching staff—particularly the compensation to its head football coach.  In recent years, coaching compensation has ballooned, with some athletic departments dedicating nearly 20% of their annual revenue to coaching salaries and benefits. 

Last season, former Michigan head coach Jim Harbaugh boldly advocated for reduced coaching salaries so players could receive a greater share of the revenue.  That sentiment came to fruition last week when Oklahoma State restructured the contract of long-time football coach Mike Gundy to redistribute the savings to players as revenue sharing.  In a similar vein, Virginia Tech athletic director Whit Babcock recently signaled a shift in focus, prioritizing resources for athletes over inflated coaching pay.

The Cost of Retaining and Replacing Head Coaches

Increased NIL-related expenses could also increase the tolerance for underperforming head coaches.  While retaining an elite head coach certainly consumes a significant portion of an athletic department’s budget, firing one without cause can be financially crippling.  Historically, frustrated programs have paid exorbitant buyouts to terminate contracts prematurely when a coach failed to meet the expectations of the program or its fanbase.  The cost of such buyouts—which do not even include the expense of hiring a new head coach—can quickly drain an athletic department’s resources.

As of the end of the 2024 regular season, schools had paid over $36 million in buyout fees to fire 15 head coaches.  But buyouts for high-profile coaches on the hot seat at premier programs, such as Ryan Day at Ohio State ($37 million) or Mike Norvell at FSU ($63 million), climb into the tens of millions.  Staring down the financial demands necessary to build and retain a competitive roster in the NIL-era, athletic departments and their donors will likely be less willing to absorb these hefty buyouts.

Mitigation Clauses in Coaching Contracts

For programs that elect to terminate a head coach despite the financial burden of doing so, including a robust mitigation clause in coaching contracts can be an important and effective way to limit excess liability.

Under basic principles of contract law, a non-breaching party has a “duty to mitigate” damages, meaning the non-breaching party must make reasonable efforts to minimize the losses suffered from a breach.  Put more simply, a terminated coach must make reasonable efforts to try to find a comparable job, and the payments from that job will reduce the amount the coach’s former program owes.  Despite this general rule, ambiguity surrounding mitigation requirements can lead to disputes.  Universities can protect themselves from unnecessary disputes by including a comprehensive mitigation clause in coaching contracts that defines the respective parties’ obligations and ensures enforceability. 

A well-crafted mitigation clause should include, at a minimum, the following key elements:

1. Clear obligation to mitigate: explicitly state that the non-breaching party has an obligation to reduce his damages, and that the right to receive any liquidated damages under the contract is contingent on his fulfilling that obligation.

2. Reasonableness standard: state that the actions taken to mitigate should be reasonable, preventing either party from being required to take excessive or impractical steps.

3. Definition of “comparable employment”: specify what constitutes comparable employment and provide examples of acceptable mitigation actions.

4. Notification requirement: require the non-breaching party to promptly notify the breaching party upon acceptance of new employment, including compensation details.

5. Offset provision: clarify that the breaching party’s obligations will be reduced by any compensation the non-breaching party receives from a future employer as a result of his mitigation efforts.

Even the most carefully drafted mitigation clause can be difficult to enforce in practice.  As a result, programs may alternatively consider negotiating a reduced amount of liquidated damages to be paid to the coach in the event of termination without cause, in exchange for waiving the obligation to mitigate damages.  Regardless of the chosen approach, it is crucial for schools to take proactive steps to safeguard their financial interests.

As athletic programs navigate the financial pressures of the NIL-era, strategic approaches to budgeting and contract management, including detailed mitigation clauses or negotiated reductions of liquidated damages, will play a pivotal role in safeguarding their financial health.

Alec McNiff, an attorney licensed to practice in California, is an Associate at a global law firm.  He earned his J.D. from University of Michigan Law School and holds a business degree from University of Southern California.  (Twitter: @Alec_McNiff)