But you grossly misunderstand the way that endowments work. They are not intended as simple repositories of cash. They generate annual cash flow by way of interest yield. Moreover, endowments generally do not go to pay athletic department salaries; rather, they are intended for an institution's core academic pursuits. Athletic salaries are much more contained within an athletic department's separate budget, which generally derives from income from revenue sports (nearly everywhere, this means basketball and football). Added into this are booster donations, something that especially shouldn't be discounted at a place like Tennessee.
You're right that, at first blush, it seems that Duke can far better afford to pay a football coach $3 million or more than can Tennessee. However, you're really talking apples and oranges here.
Lastly, we pay Coach K something on the order of $2.2 million a year. There is no way we will ever pay a football coach more than Coach K. Ever. Thus, to pay a new football coach, say, $3.5 million, would actually cost something like $4 million additional: a $2 million increase over Cut's current salary, plus another $2 million or so for K (I theorize that K would still have to be a marked step above the football coach salary-wise...even the prospect of paying him and the football coach the same amount just ain't ever gonna wash in Durham).
Of course, $4 million is still just a drop in Duke's endowment bucket. But again, your read of the situation is based on misconception.