Football managers’ contracts: why clubs should link termination clauses to performance

As usual the world of football is awash with tales of managers removed,¹managers under threat² and compensation payments³. Such disputes in the field of other team sports receive less attention, but raise the same problems. It is worth standing back and asking whether the world of competitive sport is approaching the formation and termination of those contracts in the most sensible way.

It is almost inevitable that a team manager will succeed, or fail, by reference to the efforts of others. That is not to say that he or she has no influence over their efforts. The reverse ought to be true; but do managerial contracts adequately reflect this in their termination provisions? Most managers’ contracts contain bonus provisions (of one kind or another) to reflect success. It would be possible to have provisions that were expressly linked to lack of success. 

Liquidated damages provisions

Many such contracts contain liquidated damages provisions, whereby the parties agree a pre-estimate of the financial loss that the manager will sustain if the contract is terminated early. In other words the parties recognise that the manager may have his contract summarily terminated and agree in advance a sum to reflect the period before he would be likely to get another job. The maximum he could ever get for failure to allow the contract to run its course would be the sums he would be bound to get during the unexpired term, or period of notice. Such an agreed sum will represent a proportion of that and will allow for the possibility of getting another job before what would have been the notice period had expired.