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Two Observations on the Mark Mangino Settlement with KU

2009 December 18
by Phil Miller

The University of Kansas has released the details of the settlement it reached with former football coach Mark Mangino.

In the afternoon, KU athletic director Lew Perkins released the details of the settlement agreement between the athletic department and Mangino that will pay Mangino $3 million as he exits. Mangino had four years remaining on his contract, which would have paid him $9.2 million ($2.3 million per year).

The settlement will be paid through private funds raised by Kansas Athletics; no state taxpayer funds will be used.

Here is the copy of the settlement. Mangino will get the $3 million in a lump sum by Christmas eve.

One thing this tells me is that Mangino and KU, by settling on 36.8% of his contracted salary ($8.16 million in present value assuming a 5% discount rate for both parties), were implicitly saying that the chances were about 63% (3/8.16) that he would have been found to have violated his contract. Had the chances been 50-50, we’d expect Mangino to have gotten closer to $4.08 million.

Mangino and KU agreed that KU would pay Mangino’s life and health insurance premiums for a few months, but these premiums will likely be miniscule compared to the $3 million lump sum payment. So it’s safe to ignore them.

Of course, I have assumed that there are other things behind the scenes that could have driven the settlement away from the midpoint (differences in legal expenses, differences in underlying preferences for negotiation, different discount rates, etc). Moreover, $3 million is a nice chunk of change… but it’s not $8.16 million.

Secondly, where will this $3 million come from? I assume that by “private funds” that KU is going to raise the funds through donors. If so and given that donors have a fixed budget constraint of some sort, what will these “private funds” come at the expense of?

There is an implicit assumption made by some people that donors have a fixed amount to donate to a given college. If so, when an additional dollar is donated to athletics, it must come at the expense of academics. There is some empirical evidence of this (I’m thinking of papers by Stinson and Howard (2004 and 2007). But the same authors also have empirical evidence that they are not subsititutes (2008).

But it also possible that additional donor dollars come from budgets that would otherwise be allocated to other charities or to consumption. It could also come from a fixed donor budget allocated towards athletics. If so, the academic interests at KU have nothing to worry about.

Cross-posted at Market Power.

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