Honestly, I can't believe Karen (or her agent, if she has one) allowed her contract to get beyond having 2 years remaining at any time. At that point, I would have demanded a 2-3 year extension based on my most recent job performance (4 consecutive Sweet 16's), or started looking elsewhere.
From a negotiating perspective, she lost all leverage continuing to allow her employment years/months to dwindle with no commitment from her boss(es). And, with her last two seasons being her worst (since her initial year at Texas), she did not make a strong case to get an extension. It's unfortunate for her that it turned out that way; but, CDC played it smarter IMO.
Maybe Karen was a casualty of the transition in ADs between Plonsky and Chris Del Conte. From his perspective, he played it perfectly (other than not moving a week or two faster for our liking in officially announcing she was not being extended). He basically let her "audition" to keep her job, and she didn't produce at a high enough level