SBJ/August 8 - 14, 2005/Opinion

To cure agent misdeeds, cut their fees

Don Fehr has publicly stated his concerns about improper agent conduct, including stealing clients, lying about other agents and giving players improper inducements. The baseball union chief is unsure whether to take a “really heavy” regulatory approach, but he feels an immediate need to make some modifications to the current MLBPA agent regulations.

With all of the existing “belt and suspender” rules and regulations that govern the improper conduct of agents — union regulations, ethics rules governing lawyer-agents, and state laws — heavier regulation and stiffer sanctions would not solve the problem. The MLBPA need look no further than the current framework in which agents are compensated.

While current MLBPA agent regulations do not impose any requirements regarding player-agent fee arrangements, the overwhelming majority of agents are paid a percentage of the player’s contract, anywhere from 3 percent to 5 percent (even higher for endorsements). The combined payroll for the 2005 season for all major league baseball clubs as reported by USA Today is approximately $2.2 billion. Multiply that by 3 percent, and you have $66 million being paid to agents for just the 2005 season, which roughly equals the total payrolls of the Kansas City Royals and Tampa Bay Devil Rays combined!

With such a high commission at stake, the agent has a huge incentive to invest a substantial amount of time, money and resources in aggressively soliciting and recruiting players, which fosters agent misconduct. As player salaries and endorsement income keep increasing from year to year, so do the agents’ fees, and so does the investment in solicitation and recruitment.

When you look purely at the economics of the current agent fee system, the union and the owners — whose labor negotiations and ultimate resolutions essentially revolve around how to split up the revenue pie — are effectively shifting $66 million of the pie to the agents this year. Indeed, the agents’ piece of the pie keeps growing each year. This year it’s up 30 percent from just five years ago. Thus, it would logically seem that (if the union supported the idea) players and owners would concede to an alternative fee structure that substantially curbs agent fees and reduces agent misconduct.

There are a variety of ways the union could structure an alternative fee arrangement. Lon Babby, for example, successfully represents a number of satisfied high-profile professional athletes on an hourly rate basis. Maybe a defined flat fee amount for all contracts would work, or even a flat fee that is scaled to the value of the contract. The NFLPA limits agents to 3 percent. How about a percentage limit (for example, 2 percent) with a not-to-exceed dollar amount?

While a modification to the union’s agent regulations imposing an alternative fee arrangement would assuredly invoke antitrust challenges as an illegal restraint on trade, the non-statutory labor exemption to the antitrust laws would most likely protect the union, especially if the regulation arises out of collective bargaining between the union and the owners. Courts have also applied the exemption to collective-bargaining agreement provisions that regulate agents even though the agents are not a party to the labor negotiations on the ground that the agents’ interrelationship with players and the union demonstrates that (1) agents implicitly consent to be bound by the CBA and (2) agents enjoy significant and ongoing economic benefits flowing directly from the CBA.

Don’t misunderstand me: Agents serve a necessary and important role in working on behalf of individual players to assure that players’ best interests are served during the contract negotiation process. But something needs to be done about unethical and improper agent conduct. Mr. Fehr has effectively put the agents on notice that if they can’t fix the problem, the union will.

Rick Karcher is director of the Center for Law and Sports at Florida Coastal School of Law.

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Baseball, Kansas City Royals, MLB, NFL, Opinion

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