Today is my Professional Responsibility and Ethics Final Exam. In its honor, I bring you a post on the topic:
Sports agents often find themselves to be the topic of conversation whenever the media harps on a big contract negotiation. This is rightfully so; agents are the men and women behind the scenes that get the deal done (except for a small number of players who decide to negotiate their own contracts). But lately, certain media persons have raised the issue of whether an agent should be paid a contingency fee or hourly rate [He Works Hard For The Money]. If you click on the article, you will quickly understand that I am a firm believer in charging a contingency (also known as commission) based fee in a majority of situations. However, there may be circumstances where charging the minority-used hourly fee will be more beneficial for the agent and athlete.
That being said, the ABA Model Rules of Professional Conduct (remember that you may be bound by these if you are an attorney-agent) has a lengthy section concerning Fees. The last time I mentioned the Model Rules, I covered potential violations of Rule 1.7, Conflict of Interest: Current Clients.
Anyway, here are the provisions of Model Rule 1.5, Fees:
(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:
- (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
(b) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.
(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
(d) A lawyer shall not enter into an arrangement for, charge, or collect:
- (1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or(2) a contingent fee for representing a defendant in a criminal case.
(e) A division of a fee between lawyers who are not in the same firm may be made only if:
- (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and(3) the total fee is reasonable.
Certain parts of the rule like the clauses dealing with domestic relations and criminal defense cases are obviously not applicable for this discussion. Here are a few parts that may be important:
- Only a contingency fee agreement must be in writing in order to be enforceable. Many deals in the sports industry are made by a simple handshake, but if you want to protect yourself in case the other party ends up defaulting in payment, you better get the contract in writing.
- There is such a thing as charging an unreasonably high percentage in a contingency fee situation. Usually courts establish this as a percentage above 33.3%, which is higher than I have ever heard any agent charge for marketing deals. Agents are bound by the contingency fee limits proscribed by individual professional leagues for team contracts (MLB – none, NHL – none, NBA – 4%, NFL – 3%). See (a)(1-8) for the non-exclusive reasonableness factors.