He Works Hard For The Money

Hopefully it is clear to you by now that the public gets its image of the sports agent industry from a few events per year which involve the “big name” agents in the business. In the past, people viewed agents as Tom Cruise’s character in Jerry Maguire. Then they were left with the image of a guy with slicked back hair standing in front of Terrell Owens saying, “Next Question“. Now, the American public thinks that we are all a bunch of Scott Boras’s, looking for as much money we can squeeze out of owners’ pockets no matter how ruthless we must be in the process. In fact, people are beginning to think that a commission based agent is no longer necessary based on the recent cloudy event leading up to A-Rod’s re-signing with the New York Yankees.

Brian Berger of Sports Business Radio recently decided to make a case for doing away with full-time agents. The first question he asks, is:

Do pro athletes really need full-time agents?

I think I answered that question pretty clearly in my response to Curt Schilling’s recent post. If you do not want to read the reasoning why and just want to know my answer, it is: YES. But would you honestly think otherwise?

Brian Berger goes on to ask that even if the answer is yes, should agents be working off of a contingency fee relationship (making a percentage based on the deals they secure for their clients)? Instead, he suggests maybe hiring an agent by the hour (an hourly fee) for all services or hiring a contractual agent by the hour to negotiate team deals and hire a separate marketing agent to pay on a contingent basis.

Berger does not present a novel idea. In fact, I discussed the idea of switching over to an hourly fee on this blog almost a year ago. Here is a little bit of reasoning on why I was hesitant about the hourly fee idea a year ago:

Athletes pay a commission to agents for the services that they offer, which is more than just negotiating a contract every time a player becomes a free-agent. At all times, athletes should be focusing on their game and their families. They should leave the rest to the agents.

[An hourly fee] system is probably only smart for a select few individuals who feel that they can handle doing everything outside of the field/court/diamond/etc. Remember that means booking flights, booking hotel rooms, sitting in actual negotiations with the teams who pay you, hearing the teams say things about you that could change your performance on the field, etc. etc. etc.

If you are A-Rod, LeBron, or D-Wade, maybe you decide to go the hourly fee route and only pay commissions to a marketing agent. But let’s remember that players afforded this opportunity where it may work out to their benefit instead of their detriment are few and far between. I hope that the majority of players looking to go pro do not take Berger’s advice as a general statement to all athletes. These types of pieces are meant for a select few individuals who have reached a ceiling (although there are no caps in baseball) and do not need an experienced negotiator brokering deals with organizations.

And last, if you think that our commissions are so enormous, you are out of your mind. Take a look at what a standard contingent fee is in the legal world (depends on the case, but often around 33.3%). In basketball, agents are capped at taking a whopping 4%. The NFL limits it at 3%. This small fee should not be breaking an athlete’s bank.

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http://golfsolutions.com JM

Darren, my comments below are mainly to spur discussion….

First of all, on this subject of contingent / success fees, I think each situation is different. You can’t cover this subject in general and make this subject be for all sports. Each sport is different (i.e. team sport — football, basketball, etc. vs. individual sport — golf, tennis, etc.). Each player is different (i.e. rookie vs veteran, goals of the player, first time player contract negotiations vs. multiple time player contract negotiations, etc.). Each deal should be structured differently between athlete and agent, with a combination of hourly fees and contingent / success fees, depending on the goal of the athlete and the goal of the agent.

Also, 4-5% of a $100,000 contract is $4,000-$5,000. Whereas, 4-5% of a $10,000,000 contract is $400,000-$500,000. I would suspect only about 5% of the athletes get the $10,000,000 contracts. However, those athletes are the ones that need agents. The other 95% of the athletes don’t need agents as many times they can handle their own business activities via consultants and service providers (i.e. administrative assistants, accountants, financial managers, etc.) at a much lower cost than agents. That said, why would an established athlete want to stick with someone that is taking $400,000-$500,000 when they can hire consultants and service providers to do the same job for less?

My feeling is that based upon the contingent / success fee structure, agents earn their worth in building non-established players into established players. They don’t earn their worth in keeping an established players as established players.

As for the NBA (4%) and the NFL (3%) caps for a contingent / success fee, why did they put those caps in to existence in the first place? I don’t know the answer as I was not directly privy to the discussions when the NBA and NFL put the caps in place. But if I had to take a guess why they put those caps in place, it was because the contingent / success fee was taking away from the benefit of the league as a whole — not just to protect the teams, and not just to protect the players, but both. The larger contingent fees were probably hurting the teams as the player eventually felt deprived of what they thought they should be getting after they learn what other players received in net compensation (players talk).

In any event, I have a suspicion that agents find creative means to get around the caps either ethically or unethically. That is the nature of the personality of agents….to be creative, as that is how they work for their athlete clients.

As for lawyers getting 33% contingent / success fees, they have much more skin in the game than sports agents. A trial takes a lot longer to settle than does a one off contract. Those same lawyers many times are only working on one trial for several years. Whereas an agent normally has multiple clients they are working for. Plus, I know many lawyers would love to negotiate contracts for athletes for a lot less. So that is a poor comparison.

- JM
http://www.sportsagentblog.com Darren Heitner

First of all, I agree that you should be able to change your fee billing depending on the case. Some cases you will charge a higher contingent fee than others. In others, you may agree with your client that an hourly fee is more beneficial. Sometimes, you have a combination. There is no reason that as an agent, you have to stick to one type of fee billing.

Agents often do get around the league imposed caps. Sometimes legally and sometimes illegally, as you stated. You may think that the lawyer comparison is off, but I can tell you from first hand experience that working on a client’s marketing campaign can take just as long as representing a client in a trial. I see your point, though.
http://www.jasonfpeck.com Jason Peck

I think this statement is debatable:

“The other 95% of the athletes don’t need agents as many times they can handle their own business activities via consultants and service providers (i.e. administrative assistants, accountants, financial managers, etc.) at a much lower cost than agents.”

I would wager that most athletes in the major sports leagues know hardly anything (or nothing) about business or even hiring people to run these types of things for them. They are paid to be athletes not business people, so it makes more sense for them to pay someone to handle these things than for them to take time to learn how to do them, if they want to maximize their athletic success.

I’m sure there are some athletes out there who don’t fit this bill but for the majority, I think it’d be easier for them to just have one person (an agent) take care of everything, rather than hire various service providers and consultants.
http://www.sportsagentblog.com Paul Schackman

I agree with Darren on the fee situation. An agent not only negoiates deals for you but he can also be the backbone for all of your needs in regards to legal, financial, business and PR situations. It would be a pain in the ass for athletes to deal with all these issues on his own. He is paid to play a sport and that should be the only thing on his mind.

Plus in regards to the overall perception of agents, lets keep in mind that only a handful make the news. Most of the big-time successful agents in the business never make the news nor do they draw attention to themselves. Thats the way its supposed to be.
http://sportsbusinessdigest.com Emmett Jones

“A trial takes a lot longer to settle than does a one off contract. Those same lawyers many times are only working on one trial for several years. Whereas an agent normally has multiple clients they are working for.”
@JM — I dont know who the lawyers are that you hang around, but I will tell you right now that I’m working on about 4 personal injury cases at the same time. As a lawyer you can’t just work on one case because (1. from day-to-day you might not have something to do and 2. you never know how much money you’ll make off a case, or if you’ll make anything at all)

As for the fee arrangement, I think I agree with Darren’s point as well. Hourly fees only work if the athlete is with a full-service agency (i.e. contract negotiation/financial planning/estate planning/marketing). Otherwise, its not beneficial to the athlete for that setup.

Furthermore, I’d argue just the opposite regarding who needs an agent. It is those players who are not top-tier that need agents. Everybody knows Alex Rodriguez is good, and deserves a bunch of money. How many people are as willing to pay a lot of money to a cliff floyd, or somebody like that? The agent is that person who is using that aforementioned creativity to explain to a team why cliff floyd deserves to get a decent contract as well.
http://thenumber24.blogspot.com sugarshane024

I don’t know if you’ve come across this or not, but Sports Law Blog takes the opposite stance, focusing solely on the recent negotiations between ARod and the Yankees as an example.
http://www.sportsagentblog.com Darren Heitner

I have come across it and have archives it in case I wish to hit it sometime this week. Thanks for the heads up!
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He Works Hard For The Money

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