Last month, it was revealed that Manchester United paid Jose Mourinho, and five members of his coaching staff, almost £20m (£15m of which was said to have gone to Mourinho himself) following their dismissal in December 2018. The Club’s half-yearly accounts listed the sum of £19.6m as an “exceptional item relating to compensation to the former manager and certain members of the coaching staff for loss of office”.
Given that Mourinho was dismissed because of United’s underperformance on the pitch in the first half of this season (which has been underscored by the improvement in the team’s results under its new “caretaker” manager Ole Gunnar Solskjaer), it might seem extraordinary that Mourinho and his staff should have been “rewarded” for their failure with such an enormous pay-off.
That this was the case is likely to be down to the fact that Mourinho and his coaches were probably employed on “fixed term” employment contracts that did not include any “break” clauses that would have entitled Manchester United to terminate those contracts “early”, for underperformance or otherwise. Where an employer terminates a fixed-term contract prior to the expiry of that fixed term, this will usually amount to a breach of contract, entitling the employee to compensation equivalent to the value of the remuneration that they would have earned had the contract been allowed to run to its full term. Mourinho, who had taken over at United in May 2016, was on a contract that was due to expire in June 2020, and so the “compensation” paid to him is likely to reflect the value of his remuneration package over the unexpired 18 months or so of that contract.
Clubs will try to include provisions in their contracts that limit such pay-outs. So, for example, when Manchester United dismissed David Moyes in April 2014, just ten months after he took over from Sir Alex Ferguson as the Club’s manager, it was reported that he was paid a relatively modest compensation sum – just one year’s salary – despite being less than a year into a six-year contract of employment. This was apparently due to a clause in Moyes’ contract that entitled United to terminate his employment on payment of a fixed sum (equivalent to 12 months’ pay) in the event that the Club failed to qualify for the Champions League (European football’s premier club competition).
Other clubs appear to include in their contracts an obligation on the dismissed manager to mitigate any loss arising from dismissal by obtaining suitable alternative employment as soon as reasonably possible, and “drip feed” compensation monthly (as opposed to making one lump sum payment) to these former employees, only while they remain out of work. Given that there are only a limited number of managerial roles (particularly at the top level of football), dismissed managers will usually want to get back into work relatively quickly, and thus compensation payments are effectively limited.
Ultimately, the ability of a club to insist on contractual provisions that will enable it to limit the compensation that is paid to a sacked manager will depend on the leverage that exists between the two parties at the time that the contract is entered into. One imagines that Mourinho had considerable bargaining power at the time that his United contract was negotiated, and was therefore able to resist any attempt to include “performance/liquidated damages” clauses in that contract.
But even if Manchester United did not have the benefit of these sort of protections in Mourinho’s contract, one needn’t feel too much sympathy for the third-richest club in the world. Despite the substantial compensation that United had to pay out, its decision to dismiss Mourinho and his staff still appears to have made cold-eyed financial sense. At the time that Mourinho was dismissed, it was widely acknowledged that United were in danger of missing out on qualification for next season’s Champions League (Mourinho himself described United as needing “a miracle” to qualify). Just two months later, Manchester United are a point off fourth place in the Premier League, and thus very much in the mix for Champions League qualification. Given that just qualifying for the Group Stage of that competition this season was worth at least €16m in prize money (plus further performance bonuses, marketing and gate receipt revenues), United will likely cover the payments made to Mourinho and his staff if, as now appears likely, it qualifies for the Champions League next year. Just as importantly, the decision to dismiss Mourinho, and the subsequent success enjoyed under Solskjaer, has seen the Club’s share price increase by 23%, from $17.25 (on 10 December 2018) to $21.21 (on 26 February 2019), thereby prompting a significant increase in the value of the Club.
As a consequence, the Club’s shareholders are happy that the value of their investment has been enhanced, the fans are happy with the improvement in their team’s play, commercial sponsors are happy with Manchester United’s reinvigorated image … and that’s why it made sense to pay six men millions of pounds for nothing!