WASHINGTON — A potential new tax on seven-figure salaries for employees of non-profits hasn’t deterred schools from doling out huge contracts to new coaches.
Football powers aiming for a national title have continued to pay the market rate for proven coaches, topped by the 10-year, $75 million deal for Jimbo Fisher at Texas A&M. If the GOP tax overhaul becomes law — perhaps before the end of the year — the school could be on the hook for $15 million in new taxes over the life of that contract.
Both the House and Senate versions of the bill include a new 20 percent excise tax on salaries of $1 million or more paid by universities and other nonprofits. Universities also would take a financial hit from the elimination of a tax deduction for the donations that many schools require for the right to purchase season tickets. Donors currently get to deduct 80 percent of those contributions. Without the tax break, giving could plummet.
How schools would absorb those costs is an open question. But economists and other experts say an excise tax is not the best way to drive down coaches’ salaries or combat the widespread public perception they are overpaid.
In its most recent survey, USA Today found 78 football coaches and 41 men’s basketball coaches making $1 million or more, topped by Nick Saban’s $11.1 million salary at Alabama. If the tax proposal does become law, Alabama would face a $2.24 million tax bill every year.
“Right now, there’s so much uncertainty,” Alabama athletic director Greg Byrne told The Associated Press. “All we know is, it’s going to have an impact.”
Many schools are taking a similar wait-and-see approach, at most doing some preliminary number-crunching about the potential impact on their budgets. In the meantime, coaches continue to get eye-popping contracts. Twelve Power Five schools hired new coaches this year — including Mississippi, which gave a four-year deal to interim coach Matt Luke — and the lowest annual salary among that crop is $1.9 million.
Eight of the 12 schools are paying their new coaches less than their predecessors. But most of those who are making less are either first-time head coaches or have thinner resumes than the men they replaced. For highly coveted coaches, salaries continue to grow.
Willie Taggart, for example, will make $5 million annually at Florida State, which is $700,000 less than Fisher made before he left for Texas A&M. That still makes Taggart one of the dozen highest-paid coaches in the country. Also new to the $5 million-a-year club are Dan Mullen at Florida ($6.1 million) and Scott Frost at Nebraska ($5 million). Chip Kelly will make $4.66 million a year at UCLA, a hike of more than $1 million over predecessor Jim Mora.
Texas A&M stressed that no public funds will be used to pay Fisher’s salary. But the tax bill doesn’t make any distinctions about where the money comes from.
Tom McMillen, a former Democratic congressman from Maryland who is now the CEO of the Lead1 Association, which represents Division 1 athletic directors, doesn’t expect the new tax to drive down salaries.
“Certainly our schools, if they have to choose between a great football team and getting a coach that’s going to deliver that and making cuts elsewhere, they’re probably going to make cuts elsewhere,” McMillen said.
The hit on universities from getting rid of the season-ticket tax deduction and adding the salary tax will be in the hundreds of millions of dollars annually, McMillen said, and he believes Olympic sports subsidized by football and basketball revenue likely will be affected the most.
But John Colombo, a University of Illinois law professor who has studied the economics of college sports, said cuts to other programs “would have to be done on the sly” to avoid an outcry from faculty. He said schools most likely would raise ticket prices or hit up their donors, arguing that more money is necessary “to stay competitive.”
“The way to deal with football coaches’ salaries is to turn college athletics back into an amateur sport played by real students on the side, not a minor league for the pros,” Colombo wrote in an email. “Maybe Congress ought to spend some time thinking about how to make that happen instead of adopting indiscriminate policies that make no sense at all.”
Coaches will still have plenty of leverage when negotiating their salaries. Larry Hutcher, a New York-based attorney who has represented wealthy clients including Charles Barkley, predicted schools and coaches would structure contracts creatively in an effort to mitigate the tax burden and exploit possible loopholes in the new law.
In the case of contracts that have already been signed, schools will have to scrounge up the money somehow. Keith Mann, the assistant athletic director for communications at Nebraska, said the potential $1 million a year tax on Frost’s salary would be drawn from “operating revenues such as ticket sales, sponsorships (and) conference distributions.” The money would not come out of donations or university funds, he said.
Nebraska is one of many schools watching nervously as the tax bill takes its final shape in negotiations between the Senate and the House.
“This is happening really quickly,” Washington athletic director Jennifer Cohen said. “I’m not sure any of us are well prepared to figure out how to manage.”
Power Five schools that handed out eight-figure contracts to football coaches this fall could face millions in new taxes on those coaches’ salaries if the tax overhaul becomes law. Here’s a look at how much the new coaches are making and the potential tax burden on the universities:
Herm Edwards: five years, $12.5 million total, $2.5 million annually.
Potential tax burden: $2.5 million total, $500,000 annually.
Pay cut: $700,000 annually over predecessor Todd Graham.
Chad Morris: six years, $21 million total, $3.5 million annually.
Potential tax burden: $4.2 million total, $700,000 annually.
Pay cut: $700,000 annually over predecessor Bret Bielema.
Dan Mullen: six years, $36.6 million total, $6.1 million annually.
Potential tax burden: $7.32 million total, $1.22 million annually.
Raise: $1.6 million annually over predecessor Jim McElwain.
Willie Taggart: six years, $30 million total, $5 million annually.
Potential tax burden: $6 million total, $1 million annually.
Pay cut: $700,000 annually over predecessor Jimbo Fisher.
*Matt Luke: four years, $12.6 million total, $3.15 million annually.
Potential tax burden: $2.52 million total, $630,000 annually.
Pay cut: $1.55 million annually over predecessor Hugh Freeze.
Joe Moorhead: four years, $11 million total, $2.75 million annually.
Potential tax burden: $2.2 million total, $440,000 annually.
Pay cut: $1.75 million annually over predecessor Dan Mullen.
Scott Frost: seven years, $35 million total, $5 million annually.
Potential tax burden: $7 million total, $1 million annually.
Raise: $2.1 million annually over predecessor Mike Riley.
Mario Cristobal: five years, $12.5 million total, $2.5 million annually.
Potential tax burden: $2.5 million total, $500,000 annually.
Pay cut: $400,000 annually over predecessor Willie Taggart.
Jonathan Smith: five years, $9.5 million total, $1.9 million annually.
Potential tax burden: $1.9 million total, $380,000 annually.
Pay cut: $750,000 annually over predecessor Gary Andersen.
Jeremy Pruitt: six years, $22.8 million total, $3.8 million annually.
Potential tax burden: $4.56 million total, $760,000 annually.
Pay cut: $300,000 annually over predecessor Butch Jones.
Jimbo Fisher: 10 years, $75 million total, $7.5 million annually.
Potential tax burden: $15 million total, $1.5 million annually.
Raise: $2.5 million a year annually over predecessor Kevin Sumlin.
Chip Kelly: five years, $23.3 million total, $4.66 million annually.
Potential tax burden: $4.66 million total, $932,000 annually.
Raise: $1.1 million annually over predecessor Jim Mora.
* Matt Luke coached Mississippi for the entire season as interim coach before he was given a contract after the season.