After compiling a 111–70 record in eight seasons at Punxsutawney High School, Daly moved on to the college level in 1963 as an assistant coach under Vic Bubas at Duke University. During his six seasons at Duke, the Blue Devils won the Atlantic Coast Conference championship and advanced to the Final Four, both in 1964 and 1966. Daly then replaced Bob Cousy as head coach at Boston College in 1969. The Eagles recorded an 11–13 record in Daly's first year at the school, and improved to 15–11 in 1971. Daly became the head coach at the University of Pennsylvania in 1971, succeeding Dick Harter. Penn won 20 or more games and captured the Ivy League title in each of its first four seasons with Daly at the helm. The most successful campaign was his first in 1972, when the Quakers recorded a 25–3 record overall, and advanced to the NCAA East Regional Final, eventually losing to North Carolina. An additional significant success for Daly was in 1979, when all five starters on Pennsylvania's Final Four team had initially been recruited by Daly. His overall record after six seasons at Penn was 125–38.
In 1978, Daly joined the NBA's Philadelphia 76ers as an assistant coach. During the 1981 season, the Cleveland Cavaliers hired him as the third head coach that season, but he was fired with a 9–32 record before the season ended. He then returned to the 76ers as a broadcaster until he was hired in 1983 by the Detroit Pistons. The Pistons, a club that had never recorded back-to-back winning seasons before Daly's tenure, made the NBA playoffs each year he was head coach, as well as reaching the NBA finals three times, winning two consecutive NBA championships in 1989 and 1990. While serving as the Pistons coach, Daly was also a color commentator for TBS's NBA Playoff coverage. Daly was named head coach of the U.S. Dream Team that won the gold medal at the 1992 Olympics, before moving his NBA career onto the New Jersey Nets for the 1992–93 season. Daly stayed with the Nets for two seasons, before resigning over frustration over the immaturity of some of the players on his team. Daly again took up a role as color commentator for TNT's NBA coverage during the mid-1990s. Daly rejected an offer to coach the New York Knicks over the summer of 1995 after deciding he was not ready for the NBA coaching grind. He would return to coaching with the Orlando Magicat the beginning of the 1997–98 season. Daly stayed two seasons with the Magic and then retired permanently.
