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Here's how they do it by Domer84

I wondered also how large state universities, screaming for funds to educate the masses, could justify spending eight million dollars on a football coach. It turns out,the University doesn't pay that amount.

These state schools have an approved amount set aside for coaches salaries, say $2 million. The rest is paid by the booster clubs who agree to come up with the money to get the coach they want. At least that is the way it works down south but I assume that is what the "M Club" does at Michigan. This way, the administrators in the ivory towers can say that they aren't using desperately needed school money to fund football. And the boosters retain a lot of control over the program.