How to Protect Against the Cost of Contractual Bonuses in College Sports
When a college team has an unexpectedly successful season, it’s usually a cause for celebration. But it may create a budget headache for athletic departments — having to pay coaches’ bonuses that may not have been fully accounted for in budgeting.
Budget planning for salaries and bonuses can be difficult: There’s no guaranteeing a winning (or losing) season. Coming up with the money for payouts can create problems.
There’s a ton at stake for institutions of higher education across North America: At the highest levels of collegiate competition, teams can produce millions in revenue each year for their schools, with the vast majority coming from football and men’s basketball.
However, high revenues don’t always mean athletic departments run in the black, as many run over budget. And coaches’ salaries and the subsequent bonus incentives are moving in tandem with the increase in revenues. The median salary for Division I head football coaches was more than $3.5 million in 2019, even without factoring in perks and bonuses.1
Covering contractual bonuses in college sports through insurance
When bonus provisions are triggered, athletic departments may need to transfer funds from other sports budgets. Other schools may not budget for bonuses at all, relying instead on donors or affiliated foundations to pay bonuses.
Contractual bonus insurance can help fill these gaps. For example, when a school’s football team is invited to a major bowl game with a 10–2 record after going 3–9 the previous season, coaches may receive hefty bonuses that insurance can help pay.
In addition, greater athlete mobility creates greater uncertainty; while transfers may immediately boost a program’s success, they can also create unforeseen budget issues.
One size doesn’t fit all
There are numerous ways for colleges to customize bonus insurance: Some may want to cover bonuses for all sports in a single policy; other institutions want bonus coverage for a single sport.
Also worth noting: Thresholds for coverage can vary by school and sport. Football and basketball powerhouses that often trigger bonus provisions are not ideal candidates for bonus insurance. It may make sense, however, for those same schools reaching the very highest levels, such as a major football bowl game or the NCAA Basketball Final Four.
Another option, particularly for schools with consistently winning teams, is to package their bonus insurance for all sports under an umbrella policy that can be a low-deductible, high-premium program or a high-deductible, low-premium policy. The coverage is designed to transfer risk with a single policy that covers every performance bonus provision.
Ultimately, administrations should look at bonus insurance as a tool that can support both offense and defense in recruiting and keeping successful coaches. As compensation and bonus structures get richer and more complex, it can be a beneficial way to offload some of the financial risk.