The Lombardo Trophy: Gambling with a settlement

Firing a football coach costs a lot of money. For Cal, getting rid of Jeff Tedford three years before his contract ran out was going to set the university back $6.9 million.

But on Feb. 4, the university and Tedford settled the remaining three years of his contract. The maximum amount the university can now owe Tedford is $5.55 million — not pocket change, for sure, but around Cal every $1.35 million counts.

On the surface, the settlement looks like a good move. Decreasing Cal’s maximum liability by almost $1.5 million seems like smart business. But because of other terms included in the settlement, it is possible that the university could end up paying Tedford more under the settlement than it would have under his original contract.

Tedford’s original contract stipulated that, should he be fired and subsequently find employment as either a college head coach or a NFL head or assistant coach, the university would decrease its payout to Tedford by the total amount he earns at his new job. But under the settlement, this term has changed. Now, the university will only be able to reduce its payment to Tedford if he earns more than $1.5 million annually at his new job, and it will only be able to reduce its payments by $150,000 plus half of the amount he earns over that $1.5 million — in short, far less than the university would have been able to reduce its payments under the original contract.

The university is gambling twice in this settlement. First, it is hedging that Tedford will not be able to find a job as an NFL head or assistant coach or as a head coach at another college in the next three years (the only way it can reduce its payments to Tedford). Given the way that Tedford’s career ended here, that’s not entirely unreasonable. If this pays off, the university will save $1.35 million from what it previously owed him.

That being said, Tedford isn’t exactly unemployable. While a NFL head coaching gig is almost certainly out of the picture, it’s not hard to imagine a lesser college team or an NFL team hiring a guy who at Cal won 82 games and two Pac-10 Coach of the Year awards and as Oregon’s offensive coordinator engineered a high-powered Ducks offense that won 38 games in four seasons. If Tedford does find a job like that, the university could end up paying out significantly more money than if it had not settled.

Second, the university is basically betting that, if he is to land one of those jobs, Tedford will not earn that $1.35 million over the next three years. But if he lands a gig as an NFL assistant, who can sometimes earn over $1 million, or a college head coach — the average college head coach earned $1.64 million in 2012, according to USA Today — there’s not a chance he won’t earn less than that. Bobby Petrino, who was as disgraced as coaches come just 10 months ago and has won 10 fewer games than Tedford as a college coach, now earns $850,000 as the head coach of Western Kentucky, a mediocre team from the Sun Belt conference. Tedford right now measures up favorably to Petrino, so there’s no reason to think he shouldn’t be able to earn something comparable.

In sum, the new terms included in the settlement could hurt the university not once but twice. Not only would the university not be able to decrease its payments by the total amount of Tedford’s new contract, but it might not be able to reduce its payments at all if that contract is worth less than $1.5 million. Given what other coaches earn, it’s possible that the university will end up paying more money to Tedford under the settlement than it would have under his original contract.

To give a concrete hypothetical: Tedford is hired tomorrow as the University of Tennessee’s head coach at a salary of $2 million per year. Under the old contract, the university would owe Tedford only $900,000 (the $6.9 million originally owed to him minus the money he earns at Tennessee). Under the new contract, the university would owe him $4.65 million (the $5.55 million now owed to him minus $750,000 — the three year total of half the difference between his salary and the $1.5 million thresholdand the extra $150,000). This is unlikely, but it illustrates the gamble Cal is making here.