Pay to Play
This post from Sports Law Blog reminds me of an issue I have long wondered about: Why do athletes pay their agents so much money? According to the post, baseball uber-agent Scott Boras charges a 5 percent commission. If Boras (or some other agent charging the same commission) obtains a $60 million deal for Carlos Lee, he makes $3 million.
If Lee, however, hired a top corporate/dealmaking lawyer in, say, Chicago and paid him even $1,000 per hour, that lawyer could negotiate for hundreds of hours and receive a fraction of what Boras would get. While I am not certain of it, I have always assumed that Boras-type agents do more than just negotiate the deal for their fee (e.g., tax and accounting services, ongoing help with other issues requiring representation, such as grievances or other aspects of the player-team relationship, etc.). But after paying the Chicago lawyer, Lee would have lots of extra money to hire someone to do that, even assuming that the Chicago lawyer wouldn't or couldn't. In short, I have always thought that athletes were paying "sports agents" for services that experienced lawyers who negotiate deals all the time could provide for a lot less money.
In addition, any athlete paying a commission on the total amount of his contract is foolishly overpaying for agent services. As the Sports Law Blog post notes, Lee is widely expected to land a $60 million contract given the player market for someone of his abilities. If that is true, then I could get him a $50 million contract. Why should Lee pay a big-shot agent much to accomplish that feat? If I were Lee, I would structure my agreement with the agent to pay the agent 1 percent for the first $50 million and 5 percent of any additional amount up to $65 million. If Lee got a $60 million package, the commission would be $1 million. You think there might be some lawyers out there other than "sports agents" who would accept that deal? Then, of course, I would offer the agent a lot more for any amount over $65 million, say, 20 percent. That would mean a $2.25 million commission on a $70 million deal, which is a good deal for Lee and his agent. So paying a first dollar commission equal to a last dollar commission seems nuts to me.
Hey, Carlos, have your people give me a call.
If Lee, however, hired a top corporate/dealmaking lawyer in, say, Chicago and paid him even $1,000 per hour, that lawyer could negotiate for hundreds of hours and receive a fraction of what Boras would get. While I am not certain of it, I have always assumed that Boras-type agents do more than just negotiate the deal for their fee (e.g., tax and accounting services, ongoing help with other issues requiring representation, such as grievances or other aspects of the player-team relationship, etc.). But after paying the Chicago lawyer, Lee would have lots of extra money to hire someone to do that, even assuming that the Chicago lawyer wouldn't or couldn't. In short, I have always thought that athletes were paying "sports agents" for services that experienced lawyers who negotiate deals all the time could provide for a lot less money.
In addition, any athlete paying a commission on the total amount of his contract is foolishly overpaying for agent services. As the Sports Law Blog post notes, Lee is widely expected to land a $60 million contract given the player market for someone of his abilities. If that is true, then I could get him a $50 million contract. Why should Lee pay a big-shot agent much to accomplish that feat? If I were Lee, I would structure my agreement with the agent to pay the agent 1 percent for the first $50 million and 5 percent of any additional amount up to $65 million. If Lee got a $60 million package, the commission would be $1 million. You think there might be some lawyers out there other than "sports agents" who would accept that deal? Then, of course, I would offer the agent a lot more for any amount over $65 million, say, 20 percent. That would mean a $2.25 million commission on a $70 million deal, which is a good deal for Lee and his agent. So paying a first dollar commission equal to a last dollar commission seems nuts to me.
Hey, Carlos, have your people give me a call.
posted by FCB at 12:15 PM
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