The Business of Sports Agents

Kenneth L. Shropshire, Timothy Davis, N. Jeremi Duru

• Publisher: University of Pennsylvania Press
• Year: 2016
• ISBN:
  9780812292794
• Edition: 3
• Topic: Personal Development
• Subtopic: Careers

Successful sports agents are comfortable with high finance and intense competition for the right to represent talented players, and the most respected agents are those who can deal with the pressures of high-stakes negotiations in an honest fashion. But whereas rules and penalties govern the playing field, there are far fewer restrictions on agents. In The Business of Sports Agents, Kenneth L. Shropshire, Timothy Davis, and N. Jeremi Duru, experts in the fields of sports business and law, examine the history of the sports agent business and the rules and laws developed to regulate the profession. They also consider recommendations for reform, including uniform laws that would apply to all agents, redefining amateurism in college sports, and stiffening requirements for licensing agents.This revised and expanded third edition brings the volume up to date on recent changes in the industry, including:
—the emergence and dominance of companies such as Creative Artists Agency and Wasserman Media Group
—high-profile cases of agent misconduct, principally Josh Luchs, whose agent certification was revoked by the NFLPA
—legal challenges against the NCAA that may fundamentally change the definition of amateurism
—changes to agent regulations resulting from new collective bargaining agreements in all of the major professional sports
—evaluation of the effectiveness of the Uniform Athlete Agents Act (2000) to regulate agent conduct
—issues faced by the increasing number of agents representing athletes who work abroad as well as athletes from abroad who work in the United States.Whether aspiring sports agent, lawyer, athlete seeking an agent, or simply interested in understanding the world of sports representation, the reader will find in The Business of Sports Agents the most comprehensive overview of the industry as well as a straightforward analysis of its problems and proposed solutions.

Part I

Background

Chapter 1

Historical and Legal Foundations

A Brief History of the Business

The sports agent profession is not a new one. What is comparatively new are the high finances and intense competition that pervade the profession. Generally credited with being the first sports agent is theatrical promoter, impresario, and showman Charles C. “Cash and Carry” Pyle. Pyle, the agent for many athletes in the early part of the twentieth century, most notably the legendary football star Harold “Red” Grange,¹ nicknamed the “Galloping Ghost,” was a charter member of the NFL Hall of Fame. It was Pyle who negotiated a

3,000-a-game contract for Grange to play professional football with the Chicago Bears in 1925. In addition, he negotiated for Grange to receive more than

300,000 in movie rights for his life story and endorsements including a Red Grange doll, a candy bar, and a cap.² Other Pyle sports clients included tennis stars Mary K. Brown and Suzanne Lenglen.³ Lenglen was the Wimbledon singles champion from 1919 to 1923. She signed with Pyle in 1926 for

50,000 to become the first professional tennis player.⁴ Another example of an early sports agent was cartoonist Christy Walsh. Walsh, according to Sports Illustrated, advised baseball slugger Babe Ruth to invest in annuities prior to the stock market crash of 1929.⁵There is not much in press reports regarding sports agents again until the 1960s.

During the 1960s, the number of sports agents increased, and individuals from diverse backgrounds and professions entered the industry. For example, considerable press coverage was given to Hollywood movie producer J. William Hayes, the agent for actor Vince Edwards (who portrayed television doctor Ben Casey), when Hayes orchestrated a collective

1 million holdout by Los Angeles Dodgers pitching superstars Sandy Koufax and Don Drysdale.⁶ In a holdout, a technique used to gain leverage in negotiations with a team, the athlete holds himself out from playing with a team until the parties negotiate an agreement on the terms of the player’s contract. The Koufax-Drysdale holdout was precipitated by the players’ 1966 demand for a salary of

167,000 per year for each player for three years. This figure represented an amount that was

42,000 more than the salary earned by the highest-paid player of the day, Willie Mays. As part of their negotiating strategy, Koufax and Drysdale signed with Paramount Pictures to act in a movie if their contract demands were not met.

Yet even in the mid-1960s, the use of an agent by an athlete was conspicuous enough to receive coverage in the prominent publication Time magazine.⁷ Before settling the Dodgers’ contract dispute with Koufax and Drysdale, team president Walter O’Malley told Sports Illustrated, “We can’t give in to them. There are too many agents hanging around Hollywood looking for clients.”⁸ O’Malley’s remark was prescient.

The development of the sports agent as a recognized professional has by no means been smooth. A standard anecdote in the industry, disputed by some, is told about the legendary coach of the Green Bay Packers, Vince Lombardi. It was time to negotiate center Jim Ringo’s contract for the 1964 season. The player came into the office with a gentleman wearing a suit. When Lombardi asked the player to identify the other person, Ringo responded that the man had come to help him in the contract negotiation. The story has it that Lombardi excused himself, stepped into the next room, and made a phone call. When he returned, he informed Ringo that he was negotiating with the wrong team because he had just been traded to Philadelphia.

Lombardi was not alone in his view of agents. Another 1960s NFL team executive, Don Klosterman of the Houston Oilers, told Time, “We spend

200,000 a year in evaluating talents and some uninformed agent is going to tell us what a player’s worth? They’re just parasites, in it for a fast buck.”⁹ Many believe that Klosterman’s blunt and early view was fairly accurate.

Obviously, acceptance of the sports agent by management has come a long way since the days of O’Malley, Lombardi, and Klosterman. It is now far more common than not for a player to be represented by an agent. In the book Sports Law, the authors concluded that the evolution of the sports agent profession has not been accidental but a natural response to dramatic developments in sports during the twentieth century.¹⁰ The authors cited several developments that account for agents’ rise to a prominent position in the sports industry.

The first was the demise of the extensive use of reserve and option clauses in standard player contracts through the early 1970s. These clauses bound athletes to teams in perpetuity without an opportunity to have their contracts adjusted via open-market bidding. Beginning in the mid-1970s, however, courts and arbitrators began to invalidate such clauses. In the 1970s, athletes in major team sports—professional football,¹¹ basketball,¹² and hockey¹³ (free agency was late in coming to professional baseball because of judicial decisions that shielded the sport from antitrust laws)—successfully asserted that mechanisms such as the players’ draft and reserve and option clauses constituted improper restraints of trade in that they limited players’ ability to market their services freely. Mackey v. National Football League is illustrative of the judicial response to such legal challenges.¹⁴ The case examined the player compensation rule known as the “Rozelle Rule,” which provided that “when a player’s contractual obligation to a team expire[d] and he signe[d] with a different club, the signing club [had to] provide compensation to the player’s former team.”¹⁵ The Mackey court held that the rule constituted an unreasonable restraint of trade in violation of Section 1 of the Sherman Antitrust Act. In reaching this conclusion, the court stated, “[The Rozelle Rule] operates as a perpetual restriction on a player’s ability to sell his services in an open market throughout his career.”¹⁶ Such favorable rulings opened the way for athletes to obtain increased bargaining power.

Second, competition from newly created leagues in football, hockey, and basketball presented athletes with appealing alternatives to participation in the established leagues. In this environment athletes were able to tell owners that if they were not afforded fair-market compensation, they would take their services to a rival league. This threat led to higher salaries, which were simultaneously inflated by the voracious appetites of the newly formed leagues for players of renown. Examples include the 1965 signing of collegiate all-American Joe Namath by the upstart American Football League and the 1974 signings of NFL veterans Paul Warfield, Larry Csonka, and Jim Kiick by the rival World Football League for what were then astronomical salaries. Economist Roger Noll of Stanford University wrote that interleague competition, like that involving those players, was an important cause of increases in player salaries. During the war between the National Basketball Association (NBA) and the American Basketball Association (ABA) from 1967 to 1972, the average professional basketball player salary increased from

20,000 to

90,000.¹⁷ And when the United States Football League (USFL) and the NFL competed for players between 1982 and 1985, the average salary for players rose from

90,000 to

190,000.¹⁸

The surge in salaries over the last twenty years, due to competing leagues and otherwise, has only fueled the competition by agents for clients. In that period of time, as a result of television contracts, merchandising, and favorable minimum salaries negotiated into collective bargaining agreements, salaries have increased significantly not only for upper-echelon athletes but for non-stars as well. For example, in 1983, the NFL’s top draft pick, quarterback John Elway, received a

1 million signing bonus. In contrast, the top NFL draft pick in 2004, Carson Palmer, also a quarterback, received a signing bonus of

10 million. The top draft pick a year later, quarterback Alex Smith, signed a six-year deal for

49.5 million, of which

24 million was guaranteed money (including bonus income). Even with salary restrictions imposed as a result of collective bargaining, the NFL’s top draft pick in 2014, defensive end Jadeveon Clowney, entered into a four-year

22.27 million fully guaranteed contract with the Houston Texans that included a

14.5 million signing bonus.¹⁹ As noted above, salaries have also increased substantially for non-star players. For example, the minimum salary for a major league baseball (MLB) player in 2014 was

500,000,²⁰ compared to

15,000 in 1973.²¹ Table 1 depicts the increase in average player salaries in the four major U.S. team sports from 1999 to 2013.

TABLE 1
AVERAGE PROFESSIONAL LEAGUE SALARIES 1999–2013

Sources: Liz Mullen & David Broughton, Has MLB Overrun NBA’s Star-Salary System?, SportsBusiness Journal (January 13–19, 2014); MLB Salaries, CBS Sports.com (2014), http://www.cbssports.com/mlb/salaries/avgsalaries.

The third factor Schubert, Smith, and Trentadue cite for the increased prominence of sports agents is the increased power of the players’ unions over the years. Although the major sports unions have varying degrees of strength, they have all had an impact on increasing player salaries, particularly on median salaries. The unions have also been responsible for solidifying the role of agents by leaving the role of salary negotiator to the agents and not retaining it for themselves, as unions traditionally do.

Fourth, higher salaries have made it necessary for athletes to obtain professional guidance in a range of financial matters. Just as with any other highly compensated individual, it is generally wise for the professional athlete to obtain competent tax and other financial advice. The financial advice that the athlete requires is complicated by the fact that a playing career in most sports averages less than five years. With this in mind, the planner may have to take extra precautions to...