Heading into the 2020 college football season, Michigan's Jim Harbaugh was the fourth-highest-paid coach in the sport at slightly more than $8 million per year (per USA Today), but he was also the only Power Five coach with less than two years remaining on his contract, according to the Detroit Free Press.
The three highest-paid coaches were Nick Saban, Ed Orgeron and Dabo Swinney, the three men responsible for putting together the only rosters to win national championships since 2015.
Basically, Michigan was paying Harbaugh the going rate for a national champion, even though he hadn't made it to a Big Ten championship game in his first half-decade at the helm.
The Wolverines had to pony up that type of dough to get him to come to Ann Arbor in the first place. He had been making $5 million per year with the San Francisco 49ers, and he was being egregiously underpaid at that price point. To lure him back to college football, Michigan needed to swing big with a seven-year, $52.1 million deal (roughly $7.4 million annually).
It was a major investment, but he had a proven track record of quickly turning teams into title contenders.
In his first head coaching job, he spent three seasons at the University of San Diego, guiding the Toreros to a pair of Pioneer Football League championships. The season before he arrived at Stanford in 2006, the Cardinal were a 1-11 disaster. In just his fourth year there, they went 12-1 and finished No. 4 in the BCS standings. And with the 49ers, he took over a team that hadn't had a winning season in eight years and immediately led it to three consecutive NFC Championship Games and a Super Bowl appearance.
Suffice it to say, Michigan rather hoped Harbaugh would have beaten Ohio State by now.
Hence the expiring contract.
For recruiting purposes, most college football coaches receive contract extension after contract extension. High school kids (and their parents) want to believe that coach is committed to sticking around (and that the school is committed to the coach) at least until they graduate, and it's a lot easier to sell that message on the recruiting trail if you've got a contract through the next half-decade.
In reality, it's all crap—just a little extra red tape that needs to be cut in order to make a change.
Tom Herman had a contract through 2023 with Texas and received a vote of confidence from his athletic director barely three weeks before he got fired. Not coincidentally, that "Herman's our guy!" note came just four days before early signing day.
Gus Malzahn's buyout at Auburn was more than $20 million, but that didn't stop the Tigers from giving him the boot.
But for the schools, it has become an "Everyone else is doing it, so we also have to do it" sort of predicament. Teams keep locking themselves into these ridiculous long-term deals and buyouts because they can't afford the hit they would take on the recruiting trail as the only one sending out coaches who don't have contracts through when those high school recruits would become sophomores in college.
It all left Michigan firmly wedged between a rock and a hard place—during a pandemic that further complicated the finances, no less.
Even if it was an option to tack on a few extra years without any sort of inflation, at Harbaugh's salary, just a four-year extension through 2025 would have been an additional $30 million commitment. And fans and boosters would have been livid with that decision to double down on paying national championship wages to a coach who averaged 9.4 wins per year—and 0.0 wins per year over Ohio State.
Option B was to not make any decision about Harbaugh's contract and hope it didn't negatively impact the team's ability to recruit top talent. Michigan rode that option all the way through its disastrous 2-4 2020 campaign, and it worked out pretty well. The Wolverines don't quite have a top-10 2021 recruiting class, but they did land five of the top 100 overall recruits. That could have been much, much worse with so much uncertainty about the head coach.
It seemed the only other remaining option would have been termination, which is why Harbaugh was one of the first names mentioned in any sort of hot seat rankings article.
The big question, though, is who can you get to replace him? People love to throw Iowa State's Matt Campbell and Cincinnati's Luke Fickell into every conversation when a job opens up, but is there mutual interest? Could Michigan be where Kansas City Chiefs offensive coordinator Eric Bieniemy or Clemson defensive coordinator Brent Venables finally gets a head coaching job?
But Michigan found an unbelievable alternative in which Harbaugh agreed to a drastic pay cut and an extension with an extremely low buyout to boot—so the Wolverines can still easily start over with their next ideal candidate if and when he becomes available.
It's an incentive-laden deal, per the Detroit Free Press, but his base compensation (effective for the 2021 season) went from fourth-highest in the nation to possibly not even top-10 in the Big Ten.
He's only guaranteed $4 million this coming season. If he finally wins the Big Ten's East Division, that would be another $500,000. Win the Big Ten championship and it's an additional $1 million. Playing in a New Year's Six Bowl would put another $200,000 in his pocket—$700,000 if it's a College Football Playoff semifinal. And if the Wolverines win it all, that's worth another $1 million for Harbaugh. Add in some smaller bonuses for Academic Progress Rate (APR) scores or coach of the year honors, and he could make up to $3.475 million in bonuses per year.
Even if all of those things happen, though, that's a maximum compensation of $7.475 million—a figure almost identical to his base pay on the original seven-year deal signed in 2014.
Had Michigan stuck with the "do nothing" plan, Harbaugh would've made around $8 million in 2021 in the final year of his contract.
Michigan essentially still has the option of making that happen.
If the Wolverines don't win the Big Ten or play in a New Year's Six bowl, Harbaugh's pay for the year will be roughly $4 million. From there, they could buy out the remainder of his contract for another $4 million. (That adds up to the aforementioned $8 million, in case you weren't ready for some quick mental math.)
That buyout decreases by $1 million each year, too, so they could give him one last "prove it or lose it" chance in 2022 and then can him for the low price of $3 million—less than one-seventh the amount Auburn paid Malzahn while telling him to kick rocks.
Harbaugh also has an opt-out clause of just $2 million this year, and that amount will decrease by $500,000 annually. In other words, if the constant rumors of wanting to return to the NFL come to fruition in the next 12 months, that TBD NFL franchise would merely need to pay a $2 million "penalty" to get him.
So while he does now have a contract through 2025, there's no additional job security or level of commitment by either side.
Michigan and Jim Harbaugh didn't renew their marriage vows with this extension. They simplified their prenuptial agreement.
Unless/until they negotiate a new contract, Harbaugh is all but guaranteed to remain on the hottest seat in college football.
We've been saying for a couple of years now that Michigan will have a tough decision to make if Harbaugh is yet again unable to defeat the Buckeyes. With this contract, though, it would be truly stunning if he loses that game and gets to stick around for another year.
Kerry Miller covers college football and men's college basketball for Bleacher Report. You can follow him on Twitter, @kerrancejames.