Overview
This section introduces the sports agent industry. This section talks about the historical developments of the sports agent field, how athletes gained bargaining power with the teams, what the agent’s role is, negotiating and drafting contracts, and agent-client relationships. Although some of the material in this section will be covered more in depth in future sections, you will be given an overview here to see the big picture.
Sports Agent History
While boxing and other related sports have been professional for centuries, most organized professional sports are of modern origin. Professional baseball came into being with the Cincinnati Red Stockings in 1869, professional football with the Latrobe, Pennsylvania YMCA football club in 1895, and professional basketball with the Trenton, New Jersey club in 1896.
During the past 100 years, substantial changes in professional sports have occurred, but the most significant changes have undoubtedly occurred in professional team sports. Creation of the business-oriented franchise and the arrival of the player’s representative are the two events that have most profoundly changed professional sports.
Not too long ago, most professional athletes negotiated their own contracts. The thought of having a sports agent was foreign to professional clubs and athletes. But over the past few years, sports agents had an ever-increasing role in professional sports.
The primary reason for the influence and role of sports agents is that professional team franchises have turned pro sports into a profitable industry, and athletes can now demand increased compensation for their participation.
In just two decades, athletes have seen their salaries rise from the thousands into the millions of dollars. Average players now make the salaries of superstars years ago. With the great increases in salaries and benefits in professional sports, a need is developing for athletes to have sports agents manage their business and personal affairs.
Rise of Free Agency and Arbitration
Option and reserve clauses, which were present in most professional contracts, left athletes with very little bargaining leverage because the clauses precluded athletes from negotiating with other clubs. Since they could not negotiate with other clubs, athletes had to choose between two alternatives: either accept the contract and play or refuse to play and receive no compensation. The players’ bargaining position with a club was, therefore, severely limited. The only threat to the club was that players might elect not to play, or more commonly, that they might in their dissatisfaction, play with a negative attitude. Regardless of which a choice an athlete might make, the overall effect kept the salaries of professional athletes low.
Beginning in the 1960s, however, some countervailing influences ultimately weakened management’s bargaining position relative to option clauses and the reserve system. While such provisions effectively prohibited clubs within the league from negotiating with players under contract with a different club, the option clause or reserve system could not prevent clubs in new leagues from negotiating with players. Thus, competition for players’ services developed between the National Football League and the American, World, and United States Football Leagues; between the National Basketball Association and the American Basketball Association and the World Basketball League; and, between the National Hockey League and the World Hockey Association. This competition for players’ services shifted bargaining power to the athletes. With the rise of rival leagues, athletes had a new and more viable alternative: they could enter into negotiation with a rival league and thereby undermine the reserve system or option clause in their contract. If their club refused to match or at least substantially raise their salaries to the level offered by the rival league, players could go elsewhere and play for increased compensation.
As competition increased for the services of professional athletes, athletes enjoyed the fruits of increased bargaining power in areas other than compensation. They were able to bargain as a group for the actual elimination or weakening of the reserve system and option clauses. Players were also able to bargain for a right of free agency, whereby an experienced athlete whose contract with a club had expired could declare himself a free agent and thereby allow other clubs within the league to negotiate for the athlete’s services. Free agency is ominous for many clubs. Because they risk the loss of their better, experienced players to other teams, clubs have extended the duration of players’ contracts to avoid the threat of losing an athlete whose contract has expired and who, therefore, qualifies for free agency status.
Since free agency is often only available to more experienced players, younger athletes remain at the mercy of the club that drafted and signed them to multiple-year, fixed-term contracts. To help equalize their bargaining power with the club during these initial years, players have increased minimum salaries through collective bargaining. Players have also, in the case of baseball, established mandatory arbitration between the younger players and the club. After three years in the league, baseball players can seek arbitration of their compensation. Arbitration and free agency, together with competition among clubs, contributed to the escalation of players salaries.
Collective Bargaining Agreements
As players gained bargaining power on an individual basis, they likewise recognized that they could gain power by joining collectively in players associations. By presenting a unified front, these associations were able to increase the bargaining power of players regarding salaries, pensions, and other matters. They were particularly successful in increasing minimum salaries for players, in strengthening the position of middle-level and younger athletes, and in assisting even the superstars by stimulating development of free agency.
Media Exposure, Increasing Popularity of Sports, and the Advent of the Agent
First with radio and later with television in its many forms (cable, pay television, network coverage), the popularity of sporting activities and the athletes who participate in them has increased dramatically. Millions of people watch sporting activities on a daily basis. Given the popularity of sporting events, particularly at the professional level, advertising and related commercial activities have converted the sports business into a multi-billion dollar a year industry. Numerous companies spend over $100,00,000 yearly to obtain advertising time during televised sporting events. Public and media attention has clearly contributed to escalating salaries in professional sports. Athletes, like actors in the entertainment industry, have become the focus of much of this media attention, and like their acting counterparts, they have come to expect compensation for their personality status as well as for their athletic performance.
The large amounts of money involved in the sports industry have contributed to escalating player salaries and have lured agents into the professional sports industry. With many athletes commanding annual salaries in excess of $1,000,000, and with average salaries in the millions of dollars, players recognize that they need professional assistance, not only in negotiating their contracts but also in managing their financial affairs. Agents perform some or all of these services, and are often compensated well for their services.
By the mid-1970s, however, excesses on the part of some agents in representing athletes became a matter of common knowledge and some commentators began to assert that competent and honest agents were the exception rather than the rule. This sobering assessment led to regulatory efforts to control agents and their excesses. Many entities, including the NCAA and the players associations, have sought to regulate agents, limiting the likelihood of an unscrupulous agent preying on a talented young and financially naive athlete. The relationship between agents and players must, therefore, be examined, not only to point out excesses but also to establish how athletes can best protect themselves.
The Role of an Agent
An agent is someone who is given authority to transact business for another. A contract between a sports agent and an athlete forms the basis of agreement regarding both compensation for the agent and the nature and extent of the agent’s authority to act on behalf of the athlete. The nature of compensation and scope of authority varies, depending on the particular contract.
Definition for athlete agent for Alabama:
Athlete Agent -Athlete agent is anyone who, as an independent contractor, directly or indirectly solicits or recruits an athlete to enter into an athlete agent contract or professional sports services contract, or, for a fee procures, promises, or attempts to obtain employment for an athlete with a professional sports team or as a professional athlete.
Selecting an Agent
Prior to entering into a contract with an agent, the athlete must select one. The athlete and the agent should be comfortable with one another – not every agent and every athlete will be compatible. They need not be best friends, but their aims and their views as to how those aims or goals can be best achieved should be compatible. Both the player and the agent should understand and be comfortable with their respective roles. Their relationship should engender faith and trust on the part of both parties.
The agent should also be competent to perform the agreed tasks. Competence, along with basic honesty, is a major concern in selecting an agent. Similarly, the agent should be able to expect that the athlete will merit trust. Competence on the part of an agent includes more than a general educational background – it requires an understanding of the sport, its management, and its business aspects.
Once a player has selected an agent and the agent has agreed to be employed, the parties generally enter into an agreement.
Contract with the Club
Once the player and the agent have entered into an agreement, the agent must negotiate with the club. Negotiations with the club, however, should not commence until the agent is prepared. Adequate preparation includes knowing the needs of the client and that of the interested professional teams, as well as a basic understanding of the negotiations process itself.
In evaluating the value of a client’s services, the agent should be aware of what similar players have received and are receiving for their services. For instance, if the player is a linebacker drafted in the first part of the second round of the draft, the agent needs to know what other players who play similar positions and are drafted at a similar point have received. Players associations are often a very fruitful source of such information.
An agent should accumulate any other information that might enhance the value of the player such as the athlete’s skills and personality and the needs of the club. The agent must be gathering as well as packaging information about his or her client in preparation for the negotiations. The value of a professional athlete’s services and presence on a team are necessarily subjective, but the agent must endeavor to cast these somewhat subjective factors in an objective form – a form that translates into specific contractual terms.
To be effective, an agent must determine the needs of the client. To do so, the agent must look at issues other than how much money the club is willing to pay for the client’s services. An agent must be concerned not only with the client’s economic future, but must also be concerned with the player’s other needs. Thus, although the agent might determine that holding out of it might ultimately hurt the player by foreclosing the opportunity to get in shape or to prepare for the season. Similarly, the agent must often be willing to balance a client’s economic interest with other non-economic interests, such as the athlete’s need for privacy. The club should be encouraged to respect a player’s rights in this regard. Unfortunately, sometimes the economic interest of the agent conflicts with the interests, economic and otherwise, of the client. When this happens, the agent must be aware of the client’s interests and must respect them.
After ascertaining the value of the client’s services and the client’s needs, the agent must next determine the needs of the club. Knowledge regarding this triad – the value of the player’s services, the needs of the player, and the needs of the club that can be met by signing the player – is crucial in preparing for negotiation. The agent should, however, avoid trying to make management decisions such as the position at which a client should play and how much the client should play. Nevertheless, suggestions and even firm requests may occasionally be in order when the client’s needs could be substantially enhanced, particularly if it can be done without harming the club.
To adequately convince the club of the client’s value, the agent must know as much as possible about the negotiations process. The negotiation style and position of the club’s representatives and owner are particularly helpful aspects to know. The club should likewise familiarize itself with the style and position of the player’s representative. Being prepared in this sense enables the agent and management to increase the likelihood that an agreement will be reached.
Other Services; Dealing with the Media
During the course of contract negotiations, the player may need access to many other services. The player may, for instance, need tax counseling to evaluate the tax ramifications of given proposals and to help with initial planning of tax and investment matters. Occasionally, an agent will be competent in these other areas, but the agent must be careful to secure competent advice for the player on matters the agent cannot handle. As an ethical consideration, the athlete’s consent should be obtained whenever possible before the expenses of such services are incurred.
Dealing with the Media
An effective agent cannot disregard matters that might be affected by the negotiations process, such as coping with the stress caused by prolonged negotiations. If the agent is insensitive to these matters, the client’s performance and attitude may suffer. The effective agent may serve as a buffer, protecting both the club and the player from the acrimony that sometimes accompanies negotiations, thus ensuring a productive working relationship between the club and the player after the contract is signed.
Negotiating and Drafting the Agreement Between Player and Club
Nearly all professional team sports are governed by a collective bargaining agreement between players and management. In collective bargaining, the players’ union and management can agree to a standardized contract covering all terms of the player-club relationship, leaving nothing to future negotiation. However, while the parties begin with a standardized agreement, substantial latitude for supplementing this standard contract exists in a number of areas.
The term or length of the contract is an open issue. Players often threaten arbitration, free agency, or in some cases, jumping to another league, giving clubs good reasons for extending the length of the contract. Many other factors such as health, age, marketability, and the nature of the player’s skills make the duration of the contract a significant issue from the athlete’s perspective. For example, the Kansas City Royals and three of their top players agreed to long-term contracts in 1985. The creative contracts were designed to keep the players in Kansas City, to facilitate economic planning, thereby enabling the club to avoid free agency in the future, and to prevent disruption of the nucleus of a very successful team.
A signing bonus is also subject to negotiation. The amount of the signing bonus is typically based on the player’s position in the draft, though other factors may be taken into account. Of course, the signing bonus does not stand alone – it is related to other forms of compensation. The form of the bonus is always open to negotiation. Some signing bonuses may take the form of money payable on signing, or may come in the form of an automobile, property, or investment opportunities. Timing the receipt of the bonus is a proper subject of negotiation. The player may want to defer the bonus payment for tax or economic reasons. The variety of bonuses available is limited only by the imagination of the negotiators and the needs of the parties.
The base salary is similarly negotiable, subject to a minimum that players must be paid pursuant to the collective bargaining agreement between management and the players’ association.
Incentives or bonus provisions are open to negotiation too. Incentive bonuses frequently depend on performance, such as touchdowns, tackles, points scored, shooting percentages, goals, and games or minutes played. Incentive bonuses may be structured in a manner to reflect the statistics the club would like to see the player amass.
Not all incentive bonuses are tied to statistical performance. Clubs are sometimes willing to give educational bonuses to encourage a player to complete or continue his or her formal education. This clause is particularly effective when a player turns professional before completing college, despite pressure from family to finish school.
Negotiating a player’s contract is much more than just agreeing on a base price for the player’s services. Both the player’s agent and the club must be aware of each other’s needs. As is true in most contract negotiations, there is no substitute for careful preparation. The players associations recognize this and try to provide agents with helpful information, but this does not replace the need for additional work by an agent to learn the unique needs of the client and the club.
Problems Arising After Negotiation of the Contract
A number of post-negotiation problems often arise and must be dealt with during the term of the contract. These include protecting the player’s interest under the contract, counseling the player about post career security and negotiating a contract during its term or preparing for subsequent free agency, arbitration, or negotiation with another club.
Renegotiating a contract during its term often engenders an emotional response on the part of team management. Some clubs stubbornly resist efforts by players to renegotiate a contract during its term. Under the pressure of the possibility of free agency and the intense competition between leagues, however, most teams are willing to consider renegotiating a contract in exchange for an extension in its duration.
Other matters that the agent should cover in the post-contract state include: (1) protecting and asserting the player’s rights under the contract with the club and the collective bargaining agreement; (2) assisting the client in efforts to obtain wider media exposure if desired; (3) assisting the player in efforts to obtain endorsements and to earn extra income by virtue of the client’s status as a professional athlete; and (4) advising the player about the effect of personal actions on the professional career. If the agent is an attorney, the agent may have to provide legal advice to the client in matters totally unrelated to athletics. An agent should realize, however, that when undertaking to give advice to an athlete, the agent owes the player a duty to perform each task with the same expertise or competence as is generally possessed by those who are in that trade or business. In addition to concern about malpractice, an agent must be concerned with ethical constraints and conflicts of interest that arise out of representing a player in many differing areas.
If an agent undertakes to represent an athlete in areas other than contract negotiations (such as helping the athlete obtain commercial endorsements) the agent has a duty to use his or her best efforts in promoting the athlete. The agent may, therefore, have to establish by documentation that such efforts were made. As a practical matter, an agent can often avoid these problems by consistently communicating with the client about the nature and extent of the agent’s efforts.