Like many big-time sports schools, the University of Arizona gives its football and basketball coaches longevity bonuses to reward them for staying in their jobs a certain number of years. These can be worth millions of dollars. In a twist unique to the Wildcats, those incentives are tied to the price of oil.
That means Sean Miller, whose men’s basketball team was set to play in the opening round of the NCAA tournament on March 17, and Rich Rodriguez, who led the football team to the Gildan New Mexico Bowl, are in a strange situation for successful coaches: Their bonuses have been losing value. Crude, which reached more than $90 a barrel in 2014, has crashed to $36. The first part of Rodriguez’s longevity payout, due in mid-March, is likely worth about $907,000, 41 percent less than the paper value of the bonus in 2014. In full, the bonus plan for each coach is probably worth $3.6 million, down from $6.2 million.
Arizona isn’t a major oil producer, so how did a public university’s coaches’ pay end up linked to energy prices? The bonus structure was put into place two years ago after the school received an anonymous donation of 500,000 shares of a master limited partnership. An MLP is a tax-advantaged, publicly traded company that operates pipelines and other energy industry equipment. Miller and Rodriguez each received 175,000 shares, worth $6.2 million at the time. Athletic Director Greg Byrne got 100,000 shares, worth $3.5 million.
The name of the donor is redacted from public records and wasn’t released by the university. However, the records show a price of $35.36 for the donated shares on May 12, 2014, which strongly suggests one company: Western Refining Logistics. Jeff Stevens, the company’s president and chief executive officer, is an Arizona alumnus, and in 2009 he donated $10 million to help fund the school’s facilities plan, at the time the largest athletics gift in the school’s history. The MLP traded at $20.74 on March 15. Stevens declined to comment.
Arizona had good reason to get creative with its pay plan. Athletics departments are typically among the richest corners of public universities, but salaries are growing faster than other forms of spending. By using the donated MLPs, the school was able to shift some of the risk of guaranteed compensation onto the coaches, says Chad Chatlos, a principal in the sports practice of executive search firm Korn Ferry. In exchange, the coaches had a chance at a bigger reward. “Unfortunately in this case, it hasn’t worked out for the coaches,” Chatlos says. Miller, Rodriguez, and Byrne were unavailable to comment on the bonus structure, according to Arizona athletics spokesman Jeremy Sharpe.
In theory, the deal could have been a winner for both sides. Arizona was in a position to keep the distributions the MLPs paid over the course of the coaches’ tenures and was also giving them an incentive to remain in Tucson. If they stayed, the coaches could look forward to a big payday at the end of their contracts. Rodriguez’s name was floated for a number of jobs last year, including some with higher salaries. He chose to stay put.
Several Division I athletic directors say they had never heard of such a bonus structure. Or if they had, they say they wouldn’t consider it for their own coaches. “In the world of higher education, many outside-the-box ideas need very close scrutiny,” said Bill Battle, athletic director at the University of Alabama, in an e-mail.
In the original Arizona deal, the MLP shares were set to be converted to cash and paid out only if the three men were still employed by the university at the end of March 2022. One year into the agreement, they all signed new deals that, among other things, changed the payout schedule. Byrne and Miller will get their final payouts two years earlier, in 2020. Under his contract, Rodriguez will receive his bonus in fragments, starting with 25 percent this month.
The ultimate value of the bonuses will be determined over the next four years. Should oil rebound, there’s time for all three to make back the lost amount and then some. But there’s also the possibility the payouts will become even smaller.
The bottom line: Big-time college coaches are expensive, so Arizona got creative by paying them with donated energy-company shares.