Sports Agents

Changing the Compensation Method

Sports Law – Professor Brooks

Version 1 Published: November 22, 2009
Author: RJ Martino (rjmartino@ualr.edu)

Abstract
This document provides information, opinions, and legal background on sports agents and their industry.
Sports agents almost always compensated on a commission-basis. Commission-based compensation is
typical for organizations that provide services as a “brokers.” Other services that are typically provided by
a “broker” include companies such as real estate transactions, financial products (stocks, mutual funds,
etc), billboard advertising, and radio advertising. Recently, a small number of organizations that have
provided broker services have moved away from a fee structure that charges based on the total price
(commission-basis) and toward a fee structure that charges fees for specific types of services (fee-basis).
This document compares the two compensation methods and their effect on the sports agent.
C
Conten
nts
elp .................................................................................................................................iii 
Getting He

ction .............................................................................................................................. 1 
I. Introduc

II. Sports Agents – In General

G .................................................................................................... 1 
II (A) - Regulations of Lawyer Sp ports Agents ....................................................................... 3 
II (B) - Comparing Sports
S Agentss and Brokerss .................................................................... 4 
nts Duties ................................................................................................. 5 
II (C) - Sports Agen

III. Typica al Legal Proble ems ......................................................................................................... 5 

III (A) - Fee Arrange ement ...................................................................................................... 5 
nterest ..................................................................................................... 8 
III (B) - Conflict of In
III (C) - Mismanage ement of Clien nt Property ......................................................................... 9 

nge.................................................................................... 10 
IV. Brokerrages are Poiised for Chan

V. Reason
ns for a Fee-b on ..................................................................................... 11 
based Solutio

VI. Proble
ems with Fee--based Solutio ons .................................................................................. 12 
ble ..................................................................................... 13 
VI (A) - Not Universsally Applicab
VI (B) – Will Not Be es of Players .................................................................... 14 
enefit All Type

VII. Structture of a Fee--based Agenccy ..................................................................................... 14 

clusion ........................................................................................................................ 17 

VIII. Conc

G
Getting
g Help
Every effort ha
as been made
e to ensure the accuracy of this docume
ent.

Note:
ent is also available
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ne, so if you
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oblems you can check fo
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iii
I. Introduction
This document will give a broad overview of the sports agent market beginning with the

history of the sports agents and an explanation on how and why agents have transformed from a

role as an outside advisor, giving advice only on an as-needed basis, into an agent that is

practically inseparable from the business dealings of an athlete.

Then, the document will briefly describe the sports agent’s roles, regulations, and duties.

Given the regulations and duties of a sports agent, we can predict recurring legal issues in the

industry. This document will evaluate the source of those legal issues and attempt to correlate the

legal issues with the compensation method of sports agents.

The commission compensation method creates an inherent conflict of interest and this

paper will show that many of the legal issues (that are common as a sports agent) stem from an

action that was completely legal but ultimately harmed their client. After reviewing these issues,

this document will attempt to answer the question of whether a fee-based compensation method

would serve the players better than the current commission-based compensation method, show

reasons for a fee-based compensation method, discuss potential problems, predict what types of

players would benefit most, and lay out how a fee-based agency would be structured in the

current economic environment.

II. Sports Agents – In General

A sports agent means an individual who enters into an agency contract with a student-

athlete or, directly or indirectly, recruits or solicits a student-athlete to enter into an agency

contract. 1 The term includes an individual who represents to the public that the individual is an

1
H.R. 361, 108th Cong., 2d Sess. §1 (2004).
1
athlete agent.2 The agreement between the player and agent usually includes a “compensation

for service” clause entitling the agent to a certain percentage of the player's compensation in

exchange for the agent's services in negotiating the contract.3

Sports agents have been around for decades but sports agents have not been as

prevalent as they are today. The sports agents profession developed naturally. Owners of the

most popular teams naturally had the most popular stars. Over time the contracts became more

complex and owners/managers attempted to keep a player for a longer term via contract. As the

popularity grew and competing leagues became available, demand for players grew and

owners/managers began paying higher salaries. As the salaries began to rise, the industry saw

an influx of new sports agents. Additionally, player unions began to take more control over the

players and the teams. Although, in general, this worked in the favor of the player, it also

introduced more complexity in the contracts which caused players to feel obligated to hire

professional help.

The surge of player salaries continues to grow and continues to fuel the growth of the

number of new sports agents. For instance, Ben Roethlisberger’s (quarterback for the Pittsburg

Steelers) contract was renegotiated in the spring of 2008 and the deal included $25.2 million in

signing bonus and a base wage of $2.5 million.4 His salary goes up to $4.75M next year, to

$8.05M in 2010 and stays at $11.6M each year thereafter through 2014.5 He'll earn $12.1M in

2015.6 Given these large figures, you can see why sports agents have emerged as increasingly

important figures in the negotiation of contracts for professional athletes. Below is a table showing

the high competition between sports agents in each of the largest leagues.

2
Id.
3
Vortex Sports & Entertainment, Inc. v. Ware, 662 S.E.2d 444 (S.C. 2008).
4
USA Today, Section on Sports, NFL, NFL salaries '08: Big Ben smiling as highest-paid player,
2009, available at http://www.usatoday.com/sports/football/nfl/2008-11-05-salaries_N.htm (last
visited November 1, 2009).
5
Id.
6
Id.
2
 Registe
ered Agents Players on Active
A Roster

N
NBA 350 400

N
NHL 150 700

N
NFL 800-1,0
000 1,900

M
MLB 300 1,200 on 40--man rosters

Importantt:
Although sports agents have diffferent educattion levels and a differentt experiencess,
statistics have
h shown th
hat over half of
o the registerred agents in the largest th
hree sports arre
attorneys.8 This paper will
w focus on thet agents tha at are license
ed lawyers.

III (A) - Regulat

R tions off Lawye
er Sporrts Agents
In add
dition to a law
wyer, who is also
a a sportss agent, being
g bound by th
he Model Rules of

Professional Conduct
C (“MRPC”), the age
ent is also sub ation by the players associiation,
bject to regula

th
he federal gov d some state governmentss.9
vernment, and

MRPC
C gives speciffic rules in which
w an attorrney should handle
h confliccts of interesst and

ees.10 Due to
fe o the nature of the professsion and a single agentt representing
g multiple pla
ayers,

co
oncurrent co nterest often occur due to several athletes on
onflicts of in n one team
m and

y representattion. Careful examination

siimultaneously n of these co
onflicts and application of
o the

M
MRPC shows that the conflicts are unlikely to be
e resolved evven with the athlete’s exxpress

7
Timothy Daviis, Regulating
g the Athlete-A
Agent Industrry: Intended and
a Unintende
ed Conseque
ences,
79
93-94 (2006).
8
Robert E. Fra
aley and F. Russell
R Harwe
ell, The Sportts Lawyer's Duty
D to Avoid Differing Inte
erests:
A Practical Gu
uide to Respoonsible Repre
esentation, 111 HASTINGS S COMM. & ENT.
E L.J. 1655, 170
(1
1989).
9
H.R. 361, 108
8th Cong., 2d
d Sess. §5 (20
004).
10
0
MRPC § 1.5
5 (2009).
3
informed consent.11 MRPC also gives specific instruction regarding agents’ fees, particularly

when they are based on a percentage of the value of the contract negotiated by the agent.12

II (B) - Comparing Sports Agents and Brokers

Distinguishing between an agent and a broker is crucial. Typically a broker is a party that

mediates between a buyer and a seller.13 Brokers are found throughout every industry including

real estate, commodities, stocks, etc. There are many business advantages to being a broker.

For instance, a broker avoids carrying cost (the cost of holding inventory), avoids incurring any

costs to protect existing inventory, and avoids having to worry about the management of the

production line. Additionally, a broker may facilitate the transaction but, generally, they are not

given possession of the item intended to be sold.14 Simply stated, a broker finds a buyer and a

seller but has a very limited duty to either.

Sports agents are very similar to brokers. Like the broker, they never actually possess

the goods. Like the broker, the sports agent must find a buyer and a seller but because the sports

agent is representing the athlete, the agent has a greater duty to the player (or seller) than that of

the broker.15 Agency is defined as “the fiduciary relation which results from the manifestation of

consent by one person to another that the other shall act on his behalf and subject to his control,

and consent by the other so to act.”16 Thus, the agent owes a fiduciary duty of loyalty, obedience,

and reasonable care to the athlete. 17

11
MRPC § 1.5 (2009).
12
MRPC § 1.5(c) (2009).
13
Black’s Law Dictionary (8th ed. 2004).
14
Id.
15
Wadsworth v. Adams, 11 S.Ct. 303 (1891).
16
RESTATEMENT (SECOND) OF AGENCY, § 1 (1958).
17
RESTATEMENT (SECOND) OF AGENCY, § 1 (1958).
4
II (C) - Sports Agents Duties
The goal of the sports agent is to maximize the wealth of the player and this could require

that the agent understand a multitude of issues including the collective bargaining agreement

(“CBA”) of the league in which the athlete works, salary cap of a particular league, procedure, etc.

In preparing for the negotiation with the team, the agent should know the athletes value in his

present position. Also, the standard representation contract between the athlete and the agent

establishes responsibilities and rights between the both parties, including good faith effort by the

agent on behalf of the athlete, duty to disclose any information that might impede or compromise

the agent’s representation.18 The standard representation contract’s main function is to negotiate

the athlete’s employment contract with the team.19 Agents also may help the athlete obtain

endorsement contracts, speaking engagements, trading card agreements and a number of other

services.20

III. Typical Legal Problems

Typical problems that a sports agent may see are listed in this section. Additionally, this

section will evaluate the source of those problems and attempt to correlate the legal issues with

the compensation method.

III (A) - Fee Arrangement

There are three compensation methods used by sports agent.21 The three methods

include a commission-based fee (also known as a percentage fee), an hourly rate, or a fixed-

based fee (flat fee). 22

18
Orient Mid-East Lines v. Albert E. Bowen, Inc., 458 F.2d 572 (2d Cir. 1972).
19
Jeannie Etter, Representing the Professional Athlete, 37 Wash. St. B. News 12 (1983).
20
Id.
21
Stacey M. Nahrwold, Are Professional Athletes Better Served by a Lawyer-Representative
Than an Agent?, 9 Seton Hall J. Sport L. 431 (1999).
5
 The most common method is the commission-based fee.23 After a successful contract is

agreed to by the player and a team, the sports agent will receive a percentage of the total price

negotiated. The sports agent and the player agree what will be used to determine the total price

negotiated but it may include the salary, bonuses, and another other incentive. Although the rate

varies, the average rate is typically between three and five percent.24 All fees that any attorney

charge, must be tied to the amount and type of work involved and the results obtained.25

Commission-based fees are typically the most expensive but aligns the player’s goal of

securing a high salary with the sports agent goal.26 Although a commission fee arrangement is

sometimes appropriate in the attorney-client relationship, it does not seem appropriate in a

player-agent relationship. For instance, a contingency fee is acceptable in a personal injury case

because a client typically lacks the ability to pay an hourly rate or fixed-price fee. Therefore the

lawyer assumes all of the economic expenses and risks throughout litigation. In exchange for the

upfront costs paid by the lawyer, he will recover a larger fee in the event of a successful

judgment. Sports agents are not in a similar situation as personal injury lawyers, their clients

typically could pay fixed-rate fees or an hourly rate.27 In contrast, this may not be true for players

who are beginning their careers as a professional athlete.

The second method is the hourly rate. This is traditionally used by attorneys. Under this

arrangement, the sports agent will charge the athlete the time spent working for the athlete.

Although this method works well for the sports agent, clients are typically disappointed if a

negotiation fails. If a player has hired a sports agent to successfully negotiate a contract, the

player would be charged for each hour that the sports agent worked. If the sports agent

attempted, but failed, to negotiate the contract, the player would be upset. The sports agent used

22
Id.
23
Id.
24
Walter T. Champion, Jr., Fundamentals of Sports Law § 17:1 (2008).
25
MRPC § 1.5 (2009).
26
Champion, Supra note 24.
27
USA Today, Supra note 4.
6
his best efforts and therefore he is still owed a fee. But you can understand why the player may

be upset when he is forced to pay the agent his fee. Disputes in bills are common in an hourly

rate and the dispute is usually due to nonpayment by the customer (the player in this document).

Additionally, in an hourly-based rate, players may be more likely to be uninformed after a

negotiation and sports agents may be less prepared before negotiations. This is typical because

players may not fully communicate with the sports agent. The player realizes that the agent is “on

the clock” and the player may hope to limit the sports agent costs by reducing the amount of time

the player and agent spend with one another. Although the player does not realize the effect, this

will usually have an adverse effect on the player. After the shortened meeting, the player has not

communicated his goals properly and therefore the agent is less prepared.

The third method is the fixed–based fee. This is traditionally used by professionals that

have a clear understanding of the scope of work.28 This is usually preferred by the client because

the ability to plan for the expense. With a fixed-based fee, a client will expect the expense even if

the negotiation fails. Unlike the hourly rate, fixed-based fees are disputed due to a sports agent

not making a good faith effort. A typical response from the sports agent is that he could not

foresee the time requirement and grossly underestimated the fixed-based fee. A player could

force the sports agent to do a lot of unnecessary work even though the negotiation has already

failed. A fixed-based fee is only fair to use if you can properly determine the scope of work.

Unfortunately, due to the nature of negotiating, it is difficult to foresee the scope of work.

Below is a table that highlights the three types of compensation methods and states

which of the parties (Sports Agent or Player) assumes the most risk.

Sports Agent Player

Commission-based Less Risk than Player More Risk than Sports Agent

Hourly-based Less Risk than Player More Risk than Sports Agent

Fee-based More Risk than Player Less Risk than Sports Agent

28
Nahrwold, Supra note 21.
7
III (B) - Conflict of Interest
A sports agent may run into a series of legal problems but the most common type of legal

issues is a conflict of interest between current, prior, and prospective clients. Most sport agents

represent multiple athletes in the same sport. Since consolidation of the sports agent industry has

been a common theme, sports agents take on more clients and the problem will continues to

grow. This conflict is a serious concern but one that does not have an easy solution. Advocates of

the commission-based compensation model would argue that since the limited number of players,

positions, teams, and coaches, it is almost impossible to relieve all conflicts of interest unless the

players are willing to employ a single agent for each player in the league. This would be

financially unreasonable for players and agents.

Although elimination of this conflict may continue, a change in the compensation method

from commission-based to fee-based would mitigate some of the conflicts that are currently seen

all too often. Since almost all compensation is commission-based, a sports agent naturally will

choose to work for a client based on the marketability of the player. For instance, assume two

players (A and B) are renegotiating a contract before a final trade deadline but A has a one

million dollar contract and B has a thirty million dollar contract. Also, assume A is only offered the

one million dollar contract if he agrees to that same contract for 15 years. The total contract for A

is fifteen million dollars over fifteen years. A has just entered into the professional league from

college and has no negotiating skills. The total contract for B is a thirty million dollar contract for

one year. B has been in the league for 10 years and has represented himself in many contact

negotiations. As you can see, A is in much more need of a sports agent because the term of the

contract and his limited knowledge of negotiation. But, the sports agent would be sacrificing one

million, five hundred thousand dollars to represent A over B. It is natural for a sports agent to

assist B, regardless of the injustice fallen on A.

8
III (C) - Mismanagement of Client Property
The mismanagement of an athlete's income, client interest, and client expenses also

constitute a common problem caused by sports agents.29 In People v. Sorkin a sports agent

flagrantly misappropriated funds.30 Richard Sorkin, the sports agent, was supposed to invest his

clients money in a trust account but instead Sorkin funded an unwise stock purchase and began

gambling because of an uncontrollable gambling habit.31 Two of Sorkin’s clients lost $145,000

and $86,000 and Sorkin failed to pay the money back to his clients.32 Sorkin was charged with

grand larceny and he was sentenced to three years in jail.33

Mismanagement of client property is typically a crime committed out of ignorance or

negligence. Many times athletes request services from a sports agent whether his expertise is

aligned with the need of the player or not. If the sports agent is paid on a commission basis, it is

in his pecuniary interest to have his hand in as many transactions as possible regardless of his

experience, knowledge, or passion for the transaction. If the sports agent was charging a fee-

based compensation then the sports agent would accept work if he believed that he was

competent (or could become competent).

Although the commission-based compensation method does not directly create more

ignorant or negligent sports agents, the commission-based compensation does attract sports

agents into areas of practice that they are not and should not be able to serve because of their

lack of education and lack of experience.

29
MRPC § 1.15 (2009).
30
People v. Sorkin, 407 N.Y.S.2d 772 (1978 N.Y.).
31
Id.
32
Id.
33
Id.
9
IV. Brokerages are Poised for Change
Looking at the graph listed in Note 7 under “II. Sports Agents – In General”, we can

easily predict that the numbers of agents are beginning to exceed the total number of players. If

the leagues do not plan to expand then where are all of the agents going to get new players? Are

they going to be more niche? Are new leagues going to have to open? Where are these new

customers going to come from?

Sports agents are almost always compensated on a commission-basis. Commission-

based compensation is typical for organizations that provide services as “brokers.” Other services

that are typically provided by a “broker” include companies such as real estate transactions,

financial products (stocks, mutual funds, etc), billboard advertising, and radio advertising.

Recently, a number of organizations that have provided broker services have differentiated

themselves by moving away from a fee structure that charges based on the total price

(commission-basis) and toward a fee structure that charges fees for specific types of services

(fee-basis). This niche has become extremely popular to the customers and could have a

substantial effect on the sports agent market.

The most obvious change can be seen on the internet. The role of agent is to connect a

buyer and a seller. Many web sites have been created to connect buyers and sellers over the last

ten years. Since an agent never takes ownership of the product and can easily service his

customer remotely, a virtual environment, like an internet website, provides a lot of advantages

over a traditional agent/broker. An internet web site can integrate audio, video, relevant news,

historical/analytical information, and electronic data. Over the last 10 years, we have seen this in

a number of large industries. For instance, less than 10 years ago, if you wanted to trade baseball

cards you would go to a local baseball card shop or swap-meet. eBay has practically removed the

need for baseball card shops. They have efficiently brought buyers and sellers together without

the need of paying a broker. The auto industry has seen the used car market shrink as a result of

sites like autotrader.com to attract a larger number of buyers and sellers, organizing the data, and

transact easier than ever before. Even the financial industry has seen a major change in

10
transaction fees. Investors can now enter orders directly online instead of requiring the assistance

of a financial agent. Orders that are placed online are still routed through agents to protect the

buyers and the sellers.34 Online agents are usually referred to as discount brokers, because they

have lower fees than full service brokers who also give advice to clients. Although fees are lower,

users of a discount broker incur risks by trading without the help of a trained advisor.

Although access to all of the data that sports agents require would be helpful, it would not

remove the need for a sports agent. But, an organization that harnessed this data could

significantly reduce costs and serve the player better. Even if a web site compiled and organized

all data in a way that a player and a team could easily translate, there would still be a need for a

professional negotiator. A sports agent’s main tool is his negotiation skills. And although this tool

is extremely valuable, it is utilized for a very short time period when compared to the term of the

contract. It is unfair that a player is required to pay for a service throughout the life of a contract.

V. Reasons for a Fee-based Solution

The commission-based compensation system creates an intense competition among

sports agents and ultimately does not serve the best interests of the players. Although there is an

obvious need for a sports agent, one could argue that a fee-based compensation would better

serve the players, the teams, and the sport. Additionally, if sports agents would begin accepting a

fee-based system, they could offer players the same in-person service as traditional agents but at

a marginally lower price.

The first of many problems with the current commission-based compensation method is

that it assumes that the player’s best interest is always the same. That is, a player should always

obtain the most money as quickly as possible. This assumption may be true in some player’s

careers but it is not true for a large number of players.

34
Securities and Exchange Commission, On-Line Brokerage: Keeping Apace of Cyberspace,
2009, available at http://www.sec.gov/pdf/cybrtrnd.pdf (last visited November 22, 2009).
11
 For instance, assume a player is an offensive tackle in the NFL and has been playing

with the same team for four years. He and his family wish for him to stay with the same team.

Additionally, the team would like to resign him to a similar contract. For our example, let’s say that

the team has offered $1M per year (a total of $4M over four years). By all standards, this is a fair

deal. Assuming a 4% commission rate, the agent would receive $40,000 each year (a total of

$160,000 over four years). In this example, it is hard to make an argument that an agent should

be involved. Even if one could argue that an agent should be involved, it would be difficult to

argue that an agent has “earned” his fee. This player would be a likely customer for a fee-based

compensation system. This is the reason why a fee-based solution is needed.

VI. Problems with Fee-based Solutions

Although a strong argument has been made to change the compensation method toward

fee-based compensation, there are some problems with a fee-based compensation method.

The most obvious argument is to claim that agents in a fee-based compensation method

lack the same assertiveness as commission-based compensation. The lack of assertiveness

could lead to a conflict of interest between the agent and the player. Organizations that are paid

on a commission basis are paid for results; and, although they are typically paid high

commissions, they are not paid until they deliver results. An agent that is paid for any dollar that is

paid to the player is always searching for a new way to get the player paid. That means that

typically, the agent’s goals and the player’s goals are aligned. A fee-based compensation

method does not bare the same risk. The fee-based agent is paid to do a specific task and

typically will not work unless he is paid for his time and effort. Since it is in the agent’s pecuniary

interest to charge more fees, he or she may be less interested in collecting more fees and less

interested in getting the player paid.

Secondly, a fee-based compensation method has a problem similar to the problem in the

commission-based compensation method. As stated above, a commission-based system

assumes that the player’s best interest is always obtaining the most money as quickly as

12
possible. This assumption fails in some situations. Similarly, the assumption in the fee-based

solution is that the player knows his or her value and the agents are hired to tie-up loose ends.

This assumption fails when the player is not aware of his value. A player that does not know his

true value can seriously injure his earning capacity.

Fee-based compensation method would also fail to meet the needs of a customer that

requires a lot of personalized service. A traditional agent is a very personal service. Players and

agents typically speak directly to one another and communicate often. The communication is

started by both the player and agent because both are seeking new ways to obtain revenue for

the player. A player that requires this level of communication will more than likely not be the

customer of the fee-based agent. A fee-based agent will likely focus on volume and, rather than

initiate communication from players, respond to requests of players.

Lastly, the idea of an organization that does not employ traditional commission-based

agents is a radically different service. A new, fee-based organization can expect a competitive,

even combative, reception from current sports agents. A fee-based organization may see a lot of

resistance from agents and players currently in the industry. Similar organizations in different

industries have reported threats of harm from competing agents, intimidation because of the new

methods, and attempts to block future contracts by competing agents. Commission-based agents

will try to project a stigma onto fee-based agents as being unfit. These stigmas will follow players

that employ fee-based agents. Although many advantages exist for players, a fee-based

compensation method may not be feasible since players may refuse to employ these fee-based

agents due to the stigma.

VI (A) - Not Universally Applicable

Although a fee-based compensation method would allow many advantages, it would not

better serve all players. For instance, premium players that are early in their professional career,

are in high demand, and willing to play with any team may need a traditional agent. In addition to

negotiating proper salaries, the tradition agent’s goals are aligned with the player’s goal. Both

13
want the player to obtain the highest compensation. Even late stage premium players would

utilize traditional agents over fee-based agents for this same reason.

VI (B) – Will Not Benefit All Types of Players

The players that would benefit the most from a fee-based compensation system are

those with limited options. Traditional agents are most helpful when there are a number of

variables such as which state would the player like to live in, which position is best suited for the

player, how badly does the team need to fill that position, what other players are available for that

position, what is the demand for the player, how badly does the player need to secure his

contract, and many others. But, as these variables are reduced, the need for an agent becomes

more difficult to justify. Although the average quality of talent is higher than ever before, most

professional athletes are “average” due to the definition of “average.” Although “average player”

has a negative connotation in professional sports, the truth is that majority players are average.

That said, average players are less marketable, less in demand, and therefore paid the average

salary. For a large number of players, especially players in the mid-to-late stages of their careers,

variables do not exist. Many mid-to-late stage players are paid an average salary for their

respective sport and position. They are happy at the position, happy with the salary, happy with

the team that employs them, and happy to remain in their career with little or no change.

VII. Structure of a Fee-based Agency

Fee-based agencies are significantly different than traditional commission-based

agencies. As shown below, it is likely that a fee-based agency will need to focus on a large

volume of players (as opposed to high value players) and founders will be required to invest

significantly more capital. These differences make the structure of the fee-based agency very

different from the commission-based agency.

Since profit margins in fee-based agencies will be significantly lower than traditional

commission-based agencies, the fee-based agency will focus its revenue efforts on volume. High

14
volume organizations typically require a more complex infrastructure to support specific

processes. The more complex infrastructure will include more niche positions such as analyst to

research average salaries, team inform, and other similar information, custom support

professionals to quickly accept and delegate customer requests, and sales people to obtain or

retain new customers. The agent that speaks to the player may be a completely different agent

that negotiates the contract with the team. Although the employees in a fee-based agency may

be highly trained for their specific task, they may have a low level of expertise in any other area of

the agency. For instance, it would be unlikely that a research specialist presents information

directly to the customer. A professional trained in negotiating is likely to focus on negotiating and

never required to deal with obtaining new customers because obtaining new customers is a role

handled by another professional. The highly trained professionals may not be highly educated.

Other than the agents, many of the roles are handled by low-pay professionals.

Because of the complex infrastructure found in a typical fee-based agency, a fee-based

agency would likely need to raise significant capital to launch successfully. A fee-based agency

would need to staff, house, and train multiple departments before effectively serving professional

athletes. Additionally, the fee-based agency will likely burn through cash as it attempts to gain the

customers required to offset these expenses. To assist with any capital expenditure

requirements, private bankers and venture capitalist have expressed a lot of interest in

companies that can “shrink markets.”35 Venture capitalist Josh Kopelman has stated, “We love

investing in business models that are able to shrink existing markets. If your company can take

$5 of revenue from a competitor for every $1 you earn – let’s talk!”36

Pricing of services is the most obvious change. Instead of a commission rate (such as a

4% of the first year salary), you would see something similar to an ala-carte menu. Although ala-

carte menu of prices may be bundled, pricing would not deviate based solely on the negotiated

35
Redeye VC, Shrink a Market!, available at http://redeye.firstround.com/2006/04 (last visited
November 1, 2009).
36
Id.
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salary. The price may vary based on the education of the negotiator, current work load of the

agency, the profession of the player, or a number of other things. Pricing may also vary based on

the level of service a player requires, but the player will always know what price to expect after

the service is completed. For instance, a player who has been in the league five to seven years

may pay a flat rate of $10,000 to renew his contract but be limited to 5 personal visits with the

lead negotiator.

Traditional agents focus their efforts on the players with the highest pay. Although low-

pay players are not ignored, they are given less attention than higher paid players. Because the

fee-based agency values all players (whether paid high or low salaries) the same, players with

lower salaries would be targeted by the fee-based agency. Additionally, the fee-based agency will

focus on mid-to-late career players who are paid on a standard pay scale. These players have a

small need for agents because whether they use an agent or not, their salary is not drastically

changed. These players know their value and understand that an agent has little control over the

change salary.

Negotiating is done a much more civilized manner. Although the fee-based agent still

represents the player’s best interest, they work more as a mediator between the player and the

team. Since the fee-based agent is paid a fixed fee, he is focused on finding a solution that is

acceptable to the player and the team. Players understand that they are negotiating a contract

and feel comfortable to have a professional on their side and the owners/managers feel more

comfortable speaking openly because they understand that the agent does not have an agenda

that is directly adverse to their own. This would usually result in a much quicker negotiating

period, higher player loyalty because of the promptness of the team to offer a fair deal, and team

owners will most likely prefer a fee-based agent over a commission-based agent.

Research would be focused differently in a fee-based agency. Since the typical player is

in the mid-to-late stages of their careers and they do not have many variables, the research

would focus on aggregating data and finding comparable players. Research systems used by fee-

based agencies would focus on finding similar player contracts by associating past contracts,

team information, and other relevant data. Sharing information related to the player information is
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crucial during the negotiation period, between individuals in the fee-based agency and after a

successful negotiation.

VIII. Conclusion
The sports agent marketplace is changing and there is an obvious hole in the

commission-based compensation method. This hole could be filled by a fee-based agency and in

the future, it is likely that new organizations will attempt to launch fee-based services. Although

commission-based agencies will lose clients as a result of these new agencies, it is very unlikely

that the entire market will change compensation methods. Although the fee-based agencies and

commission-based agencies provide similar services, they serve different needs, target different

types of players, and will ultimately work well together.

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