Coaches, LLCs and extra income

Last July 2, five months after Greg Schiano signed a new 10-year contract, he and Rutgers came to terms on another add-on, one that would send an additional $250,000 to a limited liability company he had set up in February - and one that had that money coming from a third-party, Nelligan Sports Marketing.

The revelation today of this add-on caused quite the uproar. Woo-eee.

Now, I can understand why some folks are up in arms over not knowing about this add-on. Rutgers is the state university, Rutgers is ostensibly in a budget crunch (the state last week cut Rutgers' funding 10 percent and the school said it had no option but to raise in-state tuition 8.5 percent) and athletic director Bob Mulcahy just took some hits on transparency with his stadium expansion plans. Bob insisted to me today that he wasn't trying to hide anything here. He said he'd explicitly said corporate sponsorships would fund part of Greg's salary increase when he first announced the new contract and so he didn't feel it was necessary to have a press conference repeating that.

I don't know. I think you can argue both sides there. Bob said he didn't view the $250,000 as university money and so he didn't think he had to send out a release. I say if it isn't university money, what's the harm in sending out a release? Still, separate of that issue, I honestly think this is much ado about nothing. Really.

There are two parts to this, the first being that the money's coming from the sponsorship revenue Nelligan raises for Rutgers. T.J. Nelligan said Rutgers collected $4 million in such revenue last year and should be up to $6 million next year. He could theoretically give all that money to Rutgers and then Rutgers would send that additional $250,000 to Greg, but... by paying it to Greg directly, Bob gets to keep it off his budget. And guess what? This is totally common practice.

At Texas, $120,000 of Mack Brown's salary is paid by the UT Golf Club. Bob Stoops gets $150,000 of his salary from the Oklahoma Medical Center, Mark Richt gets $550,000 from the Georgia Athletic Association, which is a separate entity from the university athletic department, and Ron Zook gets roughly $200,000 from a personal services agreement with Nike. These personal services contracts are a way for athletic departments to defray some of the costs of their coaches' salaries, and they generally come from an apparel or equipment company, a radio or TV conglomerate, or a sports marketing firm. T.J. Nelligan said his firm has a similar arrangement with nearly all its BCS clients and he guessed that anywhere from 60-80 percent of BCS coaches get part of their salary this way. So no real scandal there.

The other sort of odd thing about this news is that Greg created an LLC for this money. Why not just have it paid directly to him? Well, turns out, creating an LLC or a separate business account is an increasingly common practice for coaches and profressional athletes. Think about it: coaches take their staffs out to dinner, buy their assistants plasma TVs (as then-West Virginia coach Rich Rodriguez did) or send all their assistants' wives flowers on Signing Day (as several coaches do). Those aren't expenses coaches get reimbursed for and so they keep separate accounts.

Clearly it makes bookkeeping sense. I'm not really sure if there's any sort of tax benefit to it too. (This is where I ask my accountant readers to help us out!) From what I can tell in reading IRS information (and I'm supposed to be a sportswriter...), a single owner of an LLC pays personal tax rates on the LLC's income, on his own personal tax form.

So that's it. Not so scandalous in my mind. What do you think?

Comments

[avidfan]

Very well written post.

Can you forward this to the fools at the Star Ledger? Or suggest a good journalism school to them even?

[Peter]

I attribute much of this to growing pains for the program. As you say, this is common practice for many BCS coaches. It's new to us so it's a big deal for some...and makes great headlines regardless. It's a "damned if you do, damned if you don't" situation. Coach gets income from outside the university? Bad. If the coach gets it from the university? Bad again. Personally, I'd rather have it come from outside sources than from the university budget.

[Dave]

I'm not an attorney or CPA but I would imagine that by having that income going to an llc that he could then open up a SEP-IRA and allow much of that to grow tax-deferred until he reaches retirement age.

[NJReel]

If only the elected legislators who are scrutinizing this $250,000 of non-public funds would be so tight-fisted with the $30-billion-plus NJ state budget.

[Vik]

Good Article and Aditi. I personally just don't think there's anything wrong with what they did, I don't think they HAD to be transparent with the information but as you said, there's no reason why they weren't. Might as well have... but whatever. Now that it's known... good. Time to move on.

And yes, you are right. There are tax benefits. Essentially, when Greg's LLC receives money from Nelligan, it's 'revenue' to the business. Then certain expenses that he has can be deducted before it hits his personal income tax return. So for example, he gets paid $250K, it goes as revenue to the business. But he spends $100K on various legitimate expenses that his accountant says are allowable write-offs/deductions. He's then left with a net income of $150K. Since there is no corporate income tax for an LLC, the $150K net income will be a 'pass through' to his personal tax returns and he will pay taxes on the $150K as opposed to him paying taxes on the entire $250K if it went directly to him.

Not to mention that as an LLC, he can set up pension plans that he can reap the benefits of in retirement (as one reader noted above).

[Treeman]

Mulchahy can say it's not University money all he wants, but then he needs to take out that University guarantee (of the money). If The University guarantees payments (backed by the University), then it needs to be divulged. He can't take the stance of - "ummm... it's not our money."

[SeeingRed]

Aditi, don't you pretty much HAVE to say it's not so scandalous because ... um ... your competition had it first? I wonder what you and the rest of the Rutgers fans would be saying if the team stunk. Think about it. Personally, I found the report interesting ... not mind blowing, but certainly relevant. I mean, in a way, it's good to know there are a variety of different avenues available to keeping a good coach.

[Dave]

Thank you Aditi, for a breath of fresh air in a sea of yellow journalism. This is just another example of the what journalism should be. Reporting and editorials based on facts and not pre-ordained political agendas like the Star-Ledger. Keep up the good work!

[Scott]

Aditi, thank you for putting facts before muckraking. If Luicci only had the guts to stand up to his own colleagues......

[SeeingRed]

So, if this isn't news, why is it the top story on the northjersey.com website? Seriously, I'm a Rutgers guy. I just want to know why.

Please write an article that speaks to the insanity of the people at the Star Ledger. Please I'm begging you.

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