Morgan Keegan Loses An ARM and A Leg

The struggling economy caused a serious financial hit in many sectors. Knowing this, some people still seem to believe that the sports industry is immune to the rigid economy.  Others claim that fans will not attend games or watch sports when athlete salaries remain so high. The average NFL salary rose to around $4 million dollars this past season. In the NBA, attendance was actually up this past season. Although numbers were only 1% higher, this was still the third highest attendance numbers in NBA history. Game 6 of the recent playoff series between the Rockets and Lakers was the highest viewed NBA game on ESPN, ever. The NHL continued to rise in popularity and even set new attendance records this year, featuring 21 million viewers league-wide and an average of 17,500 people per game. With those numbers, and other impressive ones I heard at the SLA Conference in Chicago, I can understand why some of these critics would think that the sports industry might be immune to the economy. However, the truth is that the sports industry is taking a hit just like the other areas of our shrinking economy, and although attendance may be up, sports are being used as an escape by many for their financial troubles.

Agents seem to be doing their jobs, keeping player salaries increasing at similar rates in most sports, but many markets are still taking serious hits. The financial burden placed on some people in many industries has shined the spotlight on “cheaters” in athletics and everywhere else. Steroids and performance enhancing drugs are a huge issue of concern in almost every sport now. The most recent financial meltdown has leaked even further into the sports industry, as athletes are a large portion of the clients who have invested their earnings into larger financial institutions.

And after that grand introduction, I would like to bring to attention the connection and pandemonium that has been kept moderately under wraps between Athletic Resource Management (ARM) and Morgan Keegan Investments.

The facts sounds similar to the troubles Scott Boras and his clients had with Stanford Financial. Boras and his investment relationship with Stanford Financials was a big story that made national news after the Madoff scandal was brought to light. The connection here between Morgan Keegan and one of the greatest sports agents, Jimmie Sexton and his agency ARM, is just as relevant. However, the story has not made national headlines like Boras’s incident and seems to have been given the silent treatment, as Sexton and ARM have done a great job of keeping their names disconnected with Morgan Keegan’s financial plunders. The ability of ARM to shield the public from Sexton’s bad investment decisions is one of the underlying reasons people do not believe that athletes and agents are really taking a hit in this economy. From hiding links connecting agents and financial institutions, to loaning multimillion dollars of client’s money, agents like Boras and Sexton just do a great job of handling the tough situations in the current economy.

Athletic Resource Management was founded in 1985 by Kyle Rote Jr. A Professional soccer player who was once named “Greatest All Around Athlete” of all time by ESPN the magazine. The firm was based in Memphis but had offices, agents and much of its operations and contacts located in Dallas, Texas. ARM represents professional basketball, football, baseball players, and has a broad range of coaches as clients as well. The firm represented athletes such as Scottie Pippen, Clarence Weatherspoon, and Reggie White and currently has a list including Frank Beamer, George Sherril, Matt Cain, Lane Kiffin, Rex Ryan, Jason Witten, Nick Saban, Phillip Rives, and recent draftee Michael Oher. ARM had established a great reputation and was recognized by the Chicago Sun Times as one of the top 12 sports agencies in the country.

On June 1 of 1995 Morgan Keegan Financials Inc. officially announced an agreement purchasing Athletic Resource Management, Inc. Under the agreement, Morgan Keegan purchased the stock shares of ARM, while ARM continued to operate under the Athletic Resource Management name acting as a fully owned subsidiary of Morgan Keegan, Inc. From that day forward, ARM chief executive officer, Kyle Rote Jr., and President James Sexton II joined Morgan Keegan along with five other Memphis-based employees and four employees from their Dallas office, all moving to Memphis, Tennessee.

Although the two were technically separate, the close connection between the two companies is where the trouble started. Clearly, ARM was financially intertwined with Morgan Keegan. ARM and its agents would obviously recommend Morgan Keegan Financials expertise to all of their clients. Many agents and financial advisors advocate keeping the two job positions completely separate. Future agents are told to recommend several different financial agencies/advisors to clients in order to avoid potential liability if the recommended financial advisors don’t work out. In this instance it does not sound like ARM remained unbiased or offered its clients many options for investing.

The close relationship between Morgan Keegan and ARM started with the friendship of Sexton and John Wilfong. Wilfong was the financial advisor who handled most of ARM’s client’s and was best friends with Sexton for years. Apparently, they are not even on speaking terms anymore. He was also the one who originally knew of the athletes’ funds crashing. Mr. Wilfong was out the door at Morgan Keegan the very date the Kiplinger article below hit the stands. He now works for UBS and is no longer on the NFLPA registered financial advisors list.

“For years, bond funds run by Morgan Keegan’s Jim Kelsoe soared. Then, like Icarus, Kelsoe strayed too close to the sun and came crashing back to earth with melting wings… The Morgan Keegan disaster is a reminder that investors need to undertake a bit more investigation than usual when they contemplate buying into a bond fund that has delivered abnormally high returns.. That requires some understanding of the assets the fund holds. In general, you shouldn’t invest in what you don’t understand.”

To say it simply, Morgan Keegan lied and told their clients the funds were long term safe retirement funds, when in reality, they were placed in very high risk security funds. Morgan Keegan’s name was taken off ARM’s site immediately. Jimmy Sexton and ARM separated its alliance from Morgan Keegan in the middle of the night, right under a lot of people’s noses. Many people didn’t even realize Morgan Keegan own ARM in the first place.

The situation and transactions that occurred between Morgan Keegan and ARM affected many of ARM’s NFL clients and even caused a hit to future ARM clients. Among those affected by these actions are Donte Stallworth, Gibril Wilson, Jerome Woods and many more.

Woods was Sexton’s first 1st round draft pick and kept Sexton as his agent throughout his ten year NFL career. Mr. Woods and his wife Dana recently won $950,000 in a case against Morgan Keegan for losing nearly all of Wood’s money he placed with Morgan Keegan for retirement funds after his 2007 NFL retirement. This is a big decision, as many more Morgan Keegan cases involving athlete funds are still left on the dockets. Previous litigation against Morgan Keegan has not resulted in much, if any, of investor funds being awarded.

With the stench of Morgan Keegan still lingering around in the ARM offices, the agency has noticeably seen some top athletes chose their competitors. Rashad Johnson of Alabama was one athlete who fired ARM only a few weeks prior to the draft after seeing that ARM had a lot of clients who were unhappy with ARM at this moment.

In conclusion, this story shows how the two businesses should not be connected so closely. The moment Morgan Keegan purchased Athletic Resource Management, the relationship and cooperation between Morgan Keegan and ARM became too much. This clearly led to pretty much all of ARM clients being affected by Morgan Keegan’s bad investing decisions.

This is sadly another circumstance where an agent is involved in an area where he does not belong.