Coaches ben­e­fit from uti­liz­ing LLCs

Cor­po­rate setup gives top earn­ers tax re­lief, li­a­bil­ity pro­tec­tion

The Dallas Morning News - - SPORTSDAY - By BEN BABY Spe­cial Con­trib­u­tor

Ed Org­eron is known as the LSU coach who has the most rec­og­niz­able voice in all of col­lege foot­ball.

But on pay­days, the hoarse-throated, bar­rel­chested Ca­jun car­ries a dif­fer­ent ti­tle: of­fi­cer of “O” The Rozy Finch Boyz, LLC.

The name ref­er­ences Org­eron’s sons and the street they used to live on in Cal­i­for­nia. LSU’s con­tract calls for the lim­ited li­a­bil­ity com­pany to re­ceive his salary in­stead of mak­ing direct per­sonal pay­ments to the coach, ac­cord­ing to multiple reports.

“It en­ables me to put more money in re­tire­ment,” Org­eron said in May dur­ing SEC spring meet­ings.

What ini­tially started as a way to split up seven­fig­ure salaries has turned into a prac­tice that dates back at least 20 years and is used by sev­eral coaches, in­clud­ing Texas’ Tom Her­man and for­mer Texas A&M coach Kevin Sum­lin.

The use of LLCs, com­mon in many ser­vice­ori­ented pro­fes­sions, has its ben­e­fits, from tax re­lief to li­a­bil­ity pro­tec­tion. How­ever, those fa­mil­iar with the business struc­ture said it isn’t a se­cret po­tion that sig­nif­i­cantly boosts bank ac­counts for coaches.

“There aren’t any silver bul­lets with all this stuff,” said At­lanta­based agent Myles B. Solomon, who spe­cial­izes in rep­re­sent­ing col­lege coaches and ad­min­is­tra­tors. “There’s no magic to be done. But it’s

some­thing that coaches ap­pre­ci­ate, and I think that’s why coaches will do it.”

Roots of the prac­tice

While it’s un­clear ex­actly when LLCs started pop­ping up in con­tracts, coaches such as for­mer A&M coach Dennis Fran­chione and ex­Ge­or­gia Tech coach Paul John­son started us­ing the prac­tice in the ’90s.

Fran­chione’s “Fran, Inc.” was founded in 1996 dur­ing his time at New Mex­ico. Ac­cord­ing to his long­time ac­coun­tant, John Perner, the shell com­pany was formed out of a col­lab­o­ra­tive ef­fort with Fran­chione’s for­mer agent, Craig Kelly, who rep­re­sented Ur­ban Meyer and TCU’s Gary Patterson, be­fore he died in 2003.

Perner doesn’t re­mem­ber ex­actly how it started, but one of the main rea­sons was to ap­pease those who weren’t thrilled that the foot­ball coach was mak­ing more than prom­i­nent state of­fi­cials.

“The orig­i­nal pur­pose was to split out the com­pen­sa­tion to the uni­ver­sity to show that the pres­i­dent was mak­ing more than the coach or the gover­nor was mak­ing more than the coach,” said Perner, a cer­ti­fied public ac­coun­tant who is a part­ner of an Albuquerqu­e­based firm.

But as the salaries for coaches sky­rock­eted, that be­came un­avoid­able. And one way to soften the re­al­i­ties of col­le­giate ath­let­ics was to split the to­tal salaries into two, a base salary and a sup­ple­men­tal salary. The base pay went di­rectly to the coach, while the lat­ter went to the shell com­pany.

Ac­cord­ing to Fran­chione’s fi­nal con­tract ob­tained through an open records re­quest, he of­fi­cially re­ceived $500,000 in base salary while the re­main­ing $1.5 mil­lion of his an­nual in­come was cat­e­go­rized as a cor­po­rate pay­ment. The larger fig­ure of the to­tal salary was for non­coach­ing tasks such as ap­pear­ances, in­ter­views and re­la­tion­ships with me­dia that reflect “positively on the foot­ball pro­gram.”

The struc­ture was also in­dica­tive of the chang­ing land­scape for coaches. Part of earn­ing checks in­cluded obli­ga­tions to ap­parel com­pa­nies and ap­pear­ances on weekly TV and ra­dio shows that gen­er­ated rev­enue. While those TV and ra­dio ap­pear­ances weren’t nec­es­sar­ily new, the perks as­so­ci­ated with mak­ing those ap­pear­ances con­tin­ued to rise.

“Once you’re suc­cess­ful, your per­sona is worth money and be­ing in com­mer­cials is worth money,” said Solomon, a part­ner at At­lanta­based El­e­ment Sports Group. “It’s a lot of that stuff where you’re not just be­ing paid to coach.”

Le­gal pro­tec­tion

Op­er­at­ing with an LLC or sim­i­lar business can also shield a coach dur­ing po­ten­tial lit­i­ga­tion.

Rogge Dunn, a Dal­las­based at­tor­ney, said he once set up a sim­i­lar com­pany for a coach to op­er­ate sum­mer camps. If some­thing dis­as­trous hap­pened, the cor­po­ra­tion was li­able to get sued, not the coach him­self.

While an in­di­vid­ual could lose mil­lions or other assets in a civil suit, a cor­po­ra­tion gen­er­ally doesn’t have any assets to for­feit, even if a judge rules the camp or its af­fil­i­ates were at fault.

“They just close down the cor­po­ra­tion and start a new one two weeks later un­der a dif­fer­ent name,” Dunn said. “That’s a huge dif­fer­ence.”

LLCs tend to be op­er­ated by those fa­mil­iar with tax law.

Her­man’s LLC, 1­0 Cul­ture, is head­quar­tered in an of­fice park in Hous­ton (Her­man also pur­chased his house through the same LLC, ac­cord­ing to Travis County records).

The reg­is­tered agent for Org­eron’s LLC is Wil­liam Neil­son, a New Orleans­based at­tor­ney who spe­cial­izes in tax­a­tion.

A few years ago, col­lege coaches in Kansas were scru­ti­nized for tak­ing ad­van­tage of a pro­vi­sion that al­lowed LLC money to be ex­empt from state in­come tax. In 2016, KCURFM re­ported that Kansas men’s bas­ket­ball coach Bill Self re­ceived 92% of his salary through a per­sonal LLC. The state eventually closed the loop­hole in 2017.

While coaches are able to put some money away, taxes must still be paid on LLC rev­enue be­cause of reg­u­la­tions about self­em­ploy­ment. But the shell com­pany does pro­vide some ben­e­fits, in­clud­ing dif­fer­ent re­tire­ment plan op­tions in ad­di­tion to what the uni­ver­sity pro­vides.

Not all coaches are us­ing LLCs for their school pay­checks.

Chad O’Don­nell, a bas­ket­ball coach­turned­agent based in up­state New York, rep­re­sents his for­mer peers. He said the ma­jor­ity of his clients are at the Di­vi­sion II level or lower and none uses an LLC.

“At the level I’m deal­ing with, it’s mostly straight­for­ward,” O’Don­nell said.

Just an­other op­tion

And at least one of the rich­est coaches in the coun­try isn’t us­ing an LLC or a sim­i­lar business for in­come.

A&M’s cur­rent coach, Jimbo Fisher, re­ceives all $7.5 mil­lion di­rectly, ac­cord­ing to uni­ver­sity CFO Jeff Toole. But like Fran­chione, Fisher’s base salary is of­fi­cially set at $500,000, with the re­main­der deemed as sup­ple­men­tal in­come. Like all of A&M’s ath­letic ex­penses, Toole said, Fisher’s salary is en­tirely paid by the ath­letic depart­ment.

While the use of the LLCs is le­gal and becoming a more com­mon prac­tice, some are hes­i­tant to use them or even dis­cuss them. Multiple peo­ple as­so­ci­ated with LLCs de­clined to com­ment.

Solomon, who has han­dled coaches dur­ing his en­tire 16year ca­reer, said us­ing the shell com­pa­nies for salaries boils down to com­fort level for schools and coaches alike. And even though the fi­nan­cial ben­e­fits are lim­ited, it’s still worth it for coaches in­volved in one of the most lu­cra­tive and volatile fields in sports.

“The ben­e­fits are there, but it’s not crazy,” Solomon said. “It’s not mil­lion­aires hiding money. It’s just tak­ing ad­van­tage of op­por­tu­ni­ties to put a lit­tle ex­tra away.”

2016 File Photo/Smi­ley N. Pool

LSU’s Ed Org­eron is among the col­lege coaches who re­ceive part of their com­pen­sa­tion through lim­ited li­a­bil­ity com­pa­nies. “It en­ables me to put more money in re­tire­ment,” Org­eron said in May dur­ing the SEC’s spring meet­ings.

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