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This isn't surprising news, but it's unfortunate. McNeal has a lot of ability and though the new offense doesn't have a clear role for him at TE or WR, his athletic ability was such that he could have found a number of ways to make an impact in his Longhorn career.
Bottom line: Charles is in Charge in Austin. If you're not doing the right things on and off the field, he's not going to compromise his values.