The Beilein Buyout

With Michigan reportedly focused on John Beilein in their search for their next basketball coach, Beilein's much-discussed buyout looms ever larger. How big is it? Depending on who you talk to it could be as much as $4 million or as low as two once taxes and economics and all that jazz get considered. The Ann Arbor News FOIAed John Beilein's contract and took it to a local law-talkin' guy in an attempt to determine just how much of a hurdle it is. The results:

I think the answer is effectively he will not be taxed on it,'' said Douglas Kahn, a law professor at Michigan who examined the contract for The News on Friday.

Timing would be the key. Kahn said no tax would be due if Michigan hired Beilein, then paid the buyout. The contract doesn't specify when the buyout must be paid.

"There would be an agreement with West Virginia that the payment isn't made until after he is hired, until he's clearly an employee,'' Kahn said. "If an employer reimburses an employee for a business expense, it becomes a non-itemized deduction. Then it's above the line and there are no limitations on it.''

Emphasis mine; an effort to highlight the assumption that underpins the article. Indications are that West Virginia is in no mood to come to such an agreement if you wander by 'Eer message boards, but I have some further doubts as to whether West Virginia needs to be agreed with at all. You can check out Beilein's contract for yourself without FOIAing anything and trace the path of his buyout.

2002:

Section V-D-b: ...if Coach terminates the agreement for any reason without breach of the Agreement by University, in addition to all other forfeitures and penalties provided herein, Coach will pay University Five Hundred Fifty Thousand Dollars ($550,000) as liquidated damages.

Simple half-million. When they extended his contract after one season they jacked it up. 2003:

...if Coach terminates the agreement for any reason without breach of the Agreement by University, in addition to all other forfeitures and penalties provided herein, Coach will pay University a sum equal to Three Hundred Thousand Dollars ($300,000) per year for the remainder of the Agreement's term, subject to proration for any partial year.

Note that the balance isn't due right at the front: he pays 300k per year until the contract expires.. The contract length is extended to six years at this point. The next year Beilein's contract is extended without modification. In 2005 the length of the contract extends to a seventh year, Beilein gets a raise, and the hammer buyout gets dropped. 2005:

...if Coach terminates the agreement for any reason without breach of the Agreement by University, in addition to all other forfeitures and penalties provided herein, Coach will pay University a sum equal to Three Hundred Thousand Dollars ($500,000) per year for the remainder of the Agreement's term, subject to proration for any partial year.

(Further note that there are no exceptions in the contract language. The rumor that Beilein's contract has a penalty-free NBA out is incorrect.) The contract language remains the same but the amount increases. The contract clearly stipulates that Beilein pay the buyout in 500k chunks every year. Law-talkin' guy again:

Kahn also believes the actual buyout would be closer to $2 million rather than $2.5 million because of the buyout clause's language.

"It's still a lot of money, but it's not $2.5 million,'' Kahn said. "You've got to reduce it to present value because every payment that's a year or more later is not worth $500,000. ... That means the $2.5 million has to be discounted to present value.''

IANAL, but I did take discrete math. I think this should mean that Beilein has the option of delaying at least 80% of the payments he'd have to make until he was obviously a Michigan employee; at that point Michigan could pay it without it being counted as income. Also, exactly when Beilein owes West Virginia the money (Lebowski) is not specified... it just says "per year". And it's prorated. If WVU was to demand it right away, Beilein could hypothetically play WVU the prorated share for the rest of this year -- which according to his contract ends in two weeks -- and then Michigan could cover 99% of the buyout without invoking onerous taxes. Since it seems 50% of this blog's readership is lawyers I'm sure to get corrected in the comments; dissect away.

The upshot: the widely circulated $2.5 million figure is probably high by $500k.

UPDATE: As you might expect, WVU fans think law-talkin' guy is stupid and that his reading of contract is wrong. I am still not a lawyer but the phrasing seems clear to me: "500k per year for the remainder of the Agreement's term." If it was a lump sum up front, wouldn't it be "500k for each remaining year on the contract" or some such thing?

Meanwhile... the WVA Scout board has what appears to be a bonafide insider who proved his mettle during the Rich Rodriguez soap opera. I reproduce his comments in this thread for you to take or leave as you please:

Several Truths re: Coach B situation

First, he was as good as gone last year. How do I know? I know the attorney who reviewed the contract -- yes it was the buyout.

Second, he has requested that his buyout be reduced during this basketball season. Ask yourself why this would be and what consideration could we get in return? The reasoning for not doing it is that if he is going to go, we might as well get the buyout $$ to use for new coach. If he is going to stay, then there would be no need to reduce the buyout because it would never come into play.

Third, there were some discussions this year with respect to renegotiation of his contract. I stated on this board before that the Hardesty situation has influenced these talks. There are some differences of opinions with respect to certain powers at be and it will be interesting to see how this plays out. [Hardesty is WVU's outgoing president -ed]

There are two schools of thought with respect to the Coach B situation and the shifting powers that be. I don't know if Hardesty leaving will be much of a factor in the risk of Coach B leaving as that is likely on any school which truly makes a run at Coach B -- at least this year. The chances of Coach B staying would be better (does not mean they are bad now) if the Presidential situation were more "solid." Now, if Coach B stays this year and would want to leave after next season, he may get his way.

Coaching is a business and while Coach B is held in high regard, his personal interests are at stake. He did double talk with respect to the NC State situation. You may still be in denial, but this did happen.

Again, I never said he was going anywhere. I just think the Coach B/WVU relationship is not as strong as you (and I) would like it to be.

And the interesting one:

Ok -- some updated info -- most has already been posted, but I can confirm this --Eddie P did offer a new deal to Coach B. Coach B was offered 500K raise and also there was some reduction in the buyout. This has not been accepted yet because Coach B does not want to have the buyout hanging over his head. -- I can understand that, but if you were not going to leave, you could make the buyout $100,000,000, right?
Ther
e has been what I would term a "lack of communication" between the Coach B and the Athletic Department regarding this issue in recent days.

That being said, I am sure the anticipated Michigan offer has Coach B evaluating his offer.

Also, some former players who are very, very close to Coach B have indicated that they do not think he will leave. Some others close to the program seem to agree.

What does all of this mean -- not much I guess? I think we are all justified in our concerns.

Someone with "very high power" wants this "athletic department" issue to remain as is. Others want him out. So, it will be a delicate balance and it will be interesting to watch over the next year. The more info that goes through my Eerhole, the more I think Coach B will stay. Note -this is just my opinion and should not be considered as gospel. I am still working on solid info for all of us.

FWIW.