22 September 2022
Times have been tough for Leicester City. Adding to their current sporting misery, the Foxes are also going through a financial rough patch.
In the aftermath of the humiliating 6–2 defeat against Tottenham, it emerged that the club can’t even afford to sack manager Brendan Rodgers. His severance pay is reported to be north of £10million — currently a luxury expense for Leicester.
In fairness to Leicester, they’re not alone.
“Koeman remains relaxed knowing Barcelona can’t afford the €12m to sack him,” headlines read last year. Similarly, Bayern Munich are said to be patient with Julian Nagelsmann since clauses that limit his pay-off only apply later in his contract.
Severance packages are emerging from the shadows of boardroom negotiations as an important factor to understand when considering a manager’s future.
Why do unsuccessful managers get extra money when they leave?
Severance pay has little to do with rewarding managers but instead is a way to compensate them for contracts that are terminated earlier than due.
It’s hard to believe but football managers have the same employment rights as any other average employee.
In British law that means fixed-term contracts cannot just be ended before they expire. In any case, employees are entitled to at least one week notice. Even in case of poor performance, they usually need to be given a sizeable amount of time to improve things before a dismissal is considered fair.
In practice, most of those rules go out the window when it comes to football, or they’re eliminated through elaborate contracts.
While not required by law, severance pay has emerged as a convention to compensate managers for an unstable work environment. As the alternative would often be a lawsuit — a route that Antonio Conte successfully exploited against Chelsea — and damaged reputations, both sides have tacitly accepted financial compensation as a way to end things smoothly.
What determines the size of severance packages?
Some supporters weren’t too happy seeing Steve Bruce pocket a full £8million after being released from duty by Newcastle despite the abysmal performances of his side.
However, the size of severance packages is not normally related to the manager’s performance but to how much more money they would have received had they fulfilled their contract. Standard severance pay would consist in a manager’s salary multiplied by the time they had left.
This standard worked for as long as coaches weren’t paid sky-high salaries. During the last decade, severance pay-outs have ballooned alongside manager salaries. Chelsea managers such as José Mourinho, Luiz Felipe Scolari, and André Villas-Boas each raked in more than £10million in compensation. By comparison, disgraced Manchester United coach Frank O’Farrell left the Red Devils with £17,000 in 1972.
Contract clauses on early termination now often include sophisticated provisions that protect clubs from having to hand out excessive pay-offs to failing managers.
Reportedly, David Moyes was convinced that Manchester United held off sacking him until a top-four position was mathematically out of reach to reduce severance pay to £4.5million.
Moreover, severance payments often end once a dismissed manager finds a new club.
If pay-offs are so expensive, why do Premier League clubs sack their managers so often?
“It is like living on a volcano,” Arsène Wenger said about being a Premier League manager — meaning, any day could be your last. On average, 10 Premier League teams have fired their manager each season since 1996. This frequency seems surprising considering eye-watering severance payments.
Certainly some owners are awash in cash to the extent that they simply don’t care. Roman Abramovich’s Chelsea, for example, paid over £110million to get rid of managers — an amount worth an entire medium-sized transfer period for the West Londoners.
But more often, the incentive is more money. Relegation from the Premier League to the Championship can punch a hole into a club’s financial planning just like European competitions can lift it to new spheres.
Clubs hope that firing a coach and spending a little money on pay-offs right now will improve short-term performance enough to generate higher amounts of broadcasting and prize money at the end of the season.
But do dismissals improve performances enough to recoup compensation payments?
Changing the manager can give some fresh impulses that improve a team’s short-term performance.
Consider, however, the actual performance-related earnings secured by Premier League teams at the end of the 2021–22 campaign. This includes the domestic prize money and the minimum revenue for the next season from playing in European competitions and either Championship or Premier League.
Only around half of the teams that sacked their manager during the campaign actually ended up in a position that meaningfully increased their short-term earnings compared to an estimated scenario where they would have continued with the sacked coach and his final point average per game. Norwich, for example, were relegated despite the dismissal of Daniel Farke. In fact, due to the added cost of severance, half the teams did worse financially with the dismissal than they would have without it.
Those are obviously not exact values, leaving aside many factors such as specific severance clauses, longer-term performance and the possibility of further deterioration without a dismissal.
Still it is indicative of the fact that the cost of sacking a manager has the potential to sabotage the financial goals it is intended to achieve
So ‘Rodgers in’ instead of ‘Rodgers out’?
A tricky issue. But there is no getting around pricing in severance pay in a way similar to transfer fees — especially so as the highest pay-off (Conte’s £26million from Chelsea) still exceeds the highest manager transfer fee (£21million for Bayern’s Nagelsmann).
The key question is if gains from sacking a coach are worth the severance package. This means that trusting a manager when other factors are primarily responsible for weak performances and timing dismissals to reduce pay-offs can be better than knee-jerk reactions sometimes.
Even £10million may be dearly missed facing a year or two in the Championship.
