Sports Law Blog
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Saturday, November 24, 2007
 
Players and Clubs: Quit Paying Agents Huge Commissions!

Sports economists may be able to justify the Yankees' decision to pay A-Rod $275M based upon economic formulas that take into account attendance, broadcast fees, concessions, merchandising and other forms of revenue (See, e.g., Jorge L. Ortiz, A-Rod Deal is Still a Revenue Winner for Yanks, USA Today, 11/21/07). But what about the decision of the Yanks and A-Rod to pay $14M to a third party agent who didn't even negotiate the deal? Jerry Crasnick, an ESPN.com reporter and the author of License to Deal, wrote an interesting article last weekend analyzing the Yankees/A-Rod deal as well as the role that Scott Boras played in the process (Boras Took a Hit But He'll Survive, ESPN.com, 11/19/07). Here are some excerpts:
[Boras will] soon receive a commission of $14 million or so for A-Rod's deal with the Yankees, and he didn't even have to pay Kinko's to print and collate a 100-page "homage to Alex" binder.
....
We know that A-Rod, after seeking guidance from investment icon Warren Buffett, got the ball rolling by contacting the Yankees directly. The Steinbrenners, who wanted no part of Boras, are now dealing with him because baseball's labor contract
decrees they do so.
....
For a multitude of reasons, the A-Rod affair will not go down as Boras' crowning achievement. The decision to exercise an opt-out clause during Game 4 of the World Series -- and no matter what Boras says, it came from his end -- was incredibly ill-timed. Then the bidding war that Boras was expecting failed to materialize, to the point that Rodriguez, with the support of his wife, Cynthia, felt the need to reach out personally to the Yankees to achieve détente. What was the ultimate cost to Rodriguez? As ESPN's Buster Olney recently reported, the Yankees were willing to begin talks with Boras with an opening offer of five years and $150 million, in addition to the three years and $81 million remaining on his deal (with $21 million coming from Texas). The Yankees might, indeed, have been willing to go to nine years and $260 million in the end, but we'll never know for sure.
Is Boras entitled to his 5% commission, let alone any commission at all? And even if Boras had negotiated A-Rod's deal with the Yankess, I still couldn't justify the fee. As a starting point, A-Rod is obviously worth at least $25M per year without an ounce of help whatsoever from any agent. Why should an agent take any percentage whatsoever of that first $25M?
This post isn't a criticism of Boras as an individual or anything he did regarding A-Rod's deal; it's a criticism of the third party agent system in general. In the introductory paragraph above, I purposefully posed the question why the Yanks and A-Rod both decided to pay such a large commission to a third party. I say "both" because I fail to understand why the unions and leagues continue to allocate to third parties to the player-contract relationship such a huge chunk of the revenue pie -- Granted, it may have been justifiable 30 years ago but times have certainly changed. I've written about how the system is detrimental to both the players and the clubs in all kinds of ways, and how unions and leagues could collectively bargain for changes that would be mutually beneficial, including unions representing players in individual contract negotiations. In his article, Crasnick quoted a statement made by Nationals president Stan Kasten on XM Radio, who tends to agree: "I used to think of Scott as a necessary evil, and now I've changed, I no longer think he is necessary. He and I are friendly enough personally, but I think the way he conducts himself is perfectly consistent with the job he's given within the system we have. I think the system could be better, and I've talked about this publicly, for all of sports, for all of fans, and for all of players, if the union took over that job, and we had an agent free universe, I think everything would be better."
But Crasnick suggests that the union really needs agents like Boras:
We know for starters that the Players Association has a major stake in Boras' emerging from this saga with his clout intact. You see the union's devotion to Boras every time a younger, less established agent complains that one of Boras' "scouts" in the minor leagues is trying to steal a client. And you see it when Fehr issues a statement saying the union is worried about collusion in regard to A-Rod's contract talks. The union loves and protects Boras because he negotiates the record contracts that set the market for the smaller deals. He creates the rising tide that lifts all boats.
I think Crasnick is overexaggerating the union's dependence on Boras. For starters, the fact that the union has chosen not to proactively discipline Boras for client stealing is not due to a "Boras protectionism" effort as many agents might like to think. It's more a component of the myriad issues surrounding a union's disciplining third party agents for misconduct, which include affording agents sufficient due process, affording each player autonomy in the choice of agent, allocating sufficient resources towards enforcement, lack of sufficient evidence, numerous factual issues, and concerns regarding arbitrary enforcement. I also disagree with Crasnick that Don Fehr's recent statements about collusion associated with A-Rod's contract had anything to do with a "devotion" to Boras.
Indeed, approx. 15 years ago when player salaries were half of what they are today, Fehr even questioned whether a commission-based agent fee is the best system for the players:
[W]e are beginning to get fairly significant pressure from players to consider modifying [the player-agent] relationship. There has to be another way to do this because the fees are getting out of hand. As an athlete begins to earn 3 or 4 or 5 million dollars a year, is the work involved that much more lengthy than it was before? As a matter of fact, the agent's skills may improve and his or her bargaining power may be greater which could mean the process entails less work. Do percentages make any sense? Well, maybe not. (See Donald Fehr, The Second Annual Sports Dollars & Sense Conference: A Symposium On Sports Industry Contracts And Negotiations, Union Views Concerning Agents: With Commentary on the Present Situation in Major League Baseball, 4 MARQ. SPORTS L. J. 71, 81 (1993)).
Maybe the players need to consult a sports economist for a formula to justify the $14M commission paid on A-Rod's deal....





9 Comments:

I'm not sure union representation is the best way to go. As much criticism as agents get for supposedly ignoring the wishes of their clients and instead shoving the highest-dollar deal down their throats, imagine the potential situation with union negotiation: they not only have the same incentives as agents (get this player as much as possible), but the player doesn't have the protection they currently have with agents, the potential to fire (as Kenny Rogers recently did with Scott Boras) if it is not adequately representing the player's interests.

Besides, what happens if the baseball union turns into the football or basketball one (i.e. a meek entity, practically powerless to do anything to stand up to the owners)? Then union representation would start to look really shaky.

Blogger Jason Wojciechowski -- 11/24/2007 2:23 PM  


what's stopping the players from hiring agents on a per-hour basis?

maybe not Scott Boras, but i'm sure a player can find an attorney to negotiate his contract for $1,000 an hour. It's a lot cheaper than Boras's $14 million cut.

Anonymous aaron -- 11/24/2007 9:47 PM  


Jason and Aaron,

Thanks for your comments. I'm not suggesting that players be stripped of their autonomy to decide who represents them in contract negotiations. Players should always have the ability to hire and fire whomever they please, whether it's a union-employed agent, Warren Buffett, Boras or an "attorney friend". And Aaron, you make a good point that nothing is preventing players right now from hiring somebody at an hourly rate.

But I do think that a union-employed representative system would solve many of the problems associated with agent misconduct, much of which, I believe, is a product of the financial incentives created by the current commission-based system. The two primary arguments against having union-employed agents are that (1) while it might be good for the "rank and file type" non-free agents, it would not be good for the marquee free agent players and (2) there is a conflict of interest in having the union represent both the collective and individual interests of the players.

Even if the first argument has any merit (which is highly questionable as A-Rod and Kenny Rogers have just demonstrated), why not at least make it an option for all of the rank and file type players? Regarding the conflict of interest argument, there are many conflicts that currently exist in the 3rd party system that could actually be alleviated if the unions represented players (e.g. agents representing both management and players, and an agent who represents multiple clients in the same position). I'm also not persuaded that the collective/individual interest conflict can't be adequately addressed through various screening mechanisms, as are commonplace within law firms dealing with analogous conflicts.

Blogger Rick Karcher -- 11/25/2007 9:43 AM  


don't necessarily run Boras under the bus until all the smoke has cleared years from now. I wouldn't be shocked if the whole "blame Boras" and make him the bad guy to get a better outcome for his client (and in the end himself) was actually Boras' idea. He did screw up with the timing of the announcement (unless that was part of the plan too) and then disappeared and made Alex look like a big boy who can think on his own because it allowed the Yankees to relent on the we won't deal with ARod statements from before.

I think years from now it will be shown that Boras played this big time (for the biggest deal in sports) by setting himself up as the fall guy. Kind of like an attorney who gets reprimanded in court for saying things he shouldn't but it makes his client look better or gets something before the jury that otherwise might not have gotten there.

Blogger B Squared -- 11/25/2007 8:34 PM  


So what happens when Kenny Rogers (who fired Boras) signs for the same $8 Million that Boras had negotiated for with the Tigers?

Anonymous Anonymous -- 11/27/2007 8:53 AM  


Let's see now: Alex Rodriguez is getting a $275 million contract, with gusts to $305 million, with no other team bidding for him. This from a team that said it wouldn't re-sign him if he opted out. Boras, already the most hated guy in baseball, draws some more bad press. So what? His client ended up yet again with the richest contract in baseball history. How, exactly, did Boras screw up?

Anonymous Anonymous -- 11/27/2007 8:57 AM  


A couple points.

First, Boras will not be getting his 14 M fee up front -- the usual arrangement is for the agent to get the 5% commission as the player himself gets paid, so the 14 M will be paid over the course of the relationship. That still works out to over 1 M per year, though.

Second, with regard to Rogers, if Rogers signs the exact deal that Boras had negotiated for him, Boras will likely file a Complaint for Arbitration against Rogers pursuant to the MLBPA player agent regulations and unless the claim is settled, Boras would have a good claim to receive at least some amount of commission from the MLBPA arbitrator (based on previous rulings).

Anonymous B -- 11/27/2007 10:39 AM  


What is missed in this argument to derail agents commissions is the fact that in many cases, actually most cases, these agents are financially invested in the players from their minor league days before Nike or any other equipment company started sending free equipment to them. In many cases, the agents are the ones footing the bill for extra equipment, cleats, clothing, etc...Plus, the agent sometimes assists in other living expenses, as well as training expenses, not to mention guidance through life of being a young professional. Agents can work on behalf of the player for years and not see a dime in return as the player climbs the ranks of the minor leagues and his first few years in the major leagues. Why shouldn't the agent get that financial windfall to compensate for the money he's invested as an adviser to the player during that time? Would a union employee be that invested in representing younger players?

Anonymous Chris G -- 11/29/2007 3:01 PM  


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