No More Commissions
I just got home from a week long vacation in Beech Mountain, NC, and boy do I have a lot of catching up to do! Before I begin reading over the myriad of blogs that I have missed over the past week, I want to post about something I read in Rick Karcher’s Willamette Law Review article: Solving Problems In The Player Representation Business.
Throughout the article, many important facts are presented, and Rick also submits proposals on how to fix the Sports Agent industry, which he believes to be in disarray. While I disagree with many of his conclusions, I think that it is necessary to discuss one of the changes that Mr. Karcher proposes.
The idea is to abolish the idea of an agent taking commissions from his/her clients for services rendered. The system would be replaced by a compensation formula that has been used by LeBron James, Grant Hill, Ray Allen, Raghib (Rocket) Ismael, and Tim Duncan. The change would be to pay Sports Agents and/or attorneys to negotiate contracts and perform their fiduciary duties while being paid an hourly rate.
It is not that this is such a novel idea. I have thought about making a post on this topic before, and I know of at least one other agent who uses such a method with his clients. It sounds like a viable alternative to the standard commission based fee, but does it ever have a chance of being adopted by a majority of Sports Agents, and if so, what would that mean for the profession?
Sports Agent Lon Babby uses this system with his clients, and while he may not make as much money with the same clients if he were to charge a percentage commission, the fact that he bills by the hour may have had an influence on his ability to acquire big names such as Grant Hill. No one knows exactly what Babby charges per hour but Liz Mullen notes that the hourly fee of a D.C.-based lawyer can be around $500 per hour (Babby is based in D.C.) [Babby brings billable hours to baseball]. Babby claims that his practice saves his clients money overall.
It is said that Ray Allen saved himself over $2.8 million by using Johnny Cochran at $500 an hour instead of paying a 4% commission back in 1999 when negotiating his own contract with the Milwaukee Bucks [Allen’s example]. That is $2.8 million that a Sports Agent would normally be acquiring in commission fees.
Ray Allen is quoted as saying “I don’t need somebody skimming millions off the top,” but does that mean that all athletes find themselves in the same situation? Definitely not. A lot of people in the sports industry use the term baby-sitting to describe the day-to-day activities that Sports Agents do for their clients. I’d rather call it brothering. I am in a fraternity at the University of Florida and have heard many times that I am supposedly paying for my friends. Ask anyone in a fraternity if this is true, and they will laugh at you. You are paying for a service that means something to you. In the same way, athletes pay a commission to agents for the services that they offer, which is more than just negotiating a contract every time a player becomes a free-agent. At all times, athletes should be focusing on their game and their families. They should leave the rest to the agents. And if you have a problem and cannot sleep at night, give your agent a call, I am sure he/she will not mind answering the phone under the terms of the representation contract.
I am not saying that an hourly billing system is not a viable alternative to a commission based agreement. What I am saying is that, such a system is probably only smart for a select few individuals who feel that they can handle doing everything outside of the field/court/diamond/etc. Remember that means booking flights, booking hotel rooms, sitting in actual negotiations with the teams who pay you, hearing the teams say things about you that could change your performance on the field, etc. etc. etc.
Is all of the boring, mundane, and time consuming off-the-field work something that a professional athlete should be worrying about? I would contend that an athlete should only be working on improving his/her performance at the sport(s) he/she plays. Without the talent, there is nothing to represent, and no money to be made. It is also good to have someone around (an agent) who will be there after retirement.
Even more information about the use of an hourly wage is mentioned in the Sports Agent bible: The Business of Sports Agents. If you have an opinion on the matter, leave it in the comments section.
p.s. – 2 days until the big 1 year anniversary.