The Business of Sports Agents

Kenneth L. Shropshire and Timothy Davis, experts in the fields of sports business and law, examine the history of the sports agent business and the rules and laws developed to regulate the profession and consider recommendations for reform.

The Business of Sports Agents

Kenneth L. Shropshire and Timothy Davis

2008 | 224 pages | Cloth $29.95
Business
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Table of Contents

Preface to the Second Edition
Introduction

I. BACKGROUND
1. Historical and Legal Foundations
2. The Business
3. Consolidation: An Evolving Industry

II. PROBLEMS
4. The Basics: Competition for Clients
5. Unscrupulous and Criminal: The Problem Agents
6. Conflicts of Interest
7. Ethics: Attorney Versus Nonattorney Agents
8. Agent Wars
9. The Last Amateurs on Earth: Amateurism and Opportunity

III. SOLUTIONS
10. Knights of Columbus Rules? Private Sports Agent Regulations
11. The Laws
12. A Uniform Approach: The Uniform Athlete Agents Act
13. Conclusion: The Absence of a Panacea

Notes
Index
Acknowledgments


Excerpt [uncorrected, not for citation]

Preface to the Second Edition

The Business of Sports Agents seriously examines one of the most intriguing professions to develop as sport has become big business entertainment. The sports agent industry has been glamorized by motion picture, television, and journalistic accounts. Who would not want to be the businessperson behind the all-star athlete? This text is focused on the business and legal aspects that impact sports agents. This book is the third iteration of a work originally published by one of the current authors, Kenneth Shropshire, in 1990. In the decade and a half that has passed since the publication of that work, Agents of Opportunity: Sports Agents and Corruption in Collegiate Sports, much has occurred. This third work reflects that evolution.

The first three chapters of this book describe what is currently taking place in the sports agent industry. Chapters 1 and 2 examine the history of the sports agent industry, its legal foundations, and what it is that agents do. Chapter 3 considers the status of consolidation occurring among firms in the industry. Chapter 4 begins the book's examination of the problems affecting the sports agent. Focusing on client recruitment, Chapters 5 through 8 examine criminal, ethical, and agent qualification issues. There, particularly in the ethical discussion, many questions yet to be answered by the courts are raised. Chapter 9 looks at long-standing amateurism principles and how they contribute to many of the unethical activities of agents and student athletes. Chapter 10, "Knights of Columbus Rules? Private Sports Agent Regulations," sets forth agent regulations that have been put in place by private organizations such as the National Football League (NFL). Chapter 11, "The Laws," presents an overview of state laws aimed at regulating agents. This chapter also explores legal actions that may be asserted against agents without the aid of these statutes. Chapter 12 addresses the uniform law that regulates agents. The final chapter evaluates where we currently stand and where the industry is headed.

Many of the relevant statutes may be found at www.NCAA.org and elsewhere on the Internet. That site and others have the capability of regular updates that are truly valuable in this field. It should be noted that the book focuses largely, although not exclusively, on United States-based team sports. This is not intended to suggest that the athlete agent industry does not have international dimensions; it certainly does.

With the emphasis on U.S. team sports, we focus on the four major sports leagues and often list them without reference to others, including, for example, the Women's National Basketball Association (WNBA). As competition for clients in the non-major leagues increases, many of the issues impacting the major leagues will impact these emerging leagues as well.

A point of style should be noted. The legally correct name for the individual who represents the athlete is "athlete agent," not "sports agent." The individual is the agent for the athlete, not the sport. The term "sports agent," however, has developed as probably the most commonly recognized and accepted label, so the terms "athlete agent," "sports agent," and "agent" are used liberally and interchangeably throughout.

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Introduction

"It didn't seem so wrong. It seemed as though I worked my whole life to get where I am, and at the same time, when it was presented to me, it was like this was the time I could start to get back some of the fruits of my labor."
—Paul Palmer, former star college football running back, regarding cash payments of more than $5,000 he received from sports agent Norby Walters while a college senior

Many variables impact the still-maturing sports agent business. This book focuses on this evolving industry, the issues affecting it, and how to improve and regulate it. In recent years the key issues and problems associated with sports agents have been visible more at the professional than collegiate level. But no matter the concerns that lie at the center of the sports agent storm, it is a business that captures the attention of many.

In the past, the dominant sports agent images were the imaginary Jerry Maguire and Arli$$. The sports agent image of the new millennium is more likely to be sports agent Drew Rosenhaus speaking on behalf of his client Terrell Owens as he sought to get a better deal for his client. The most vivid moment in that saga was a press conference with Owens in the background and Rosenhaus at the microphones responding to seemingly every query with the response "Next question?" Many observers expressed concern about the strategy the agent employed and its impact on the already tarnished image of his client. Although it generated considerable attention, the Rosenhaus microphone event should be of modest concern to those who want this business to work as it should. At the extremes, agent misconduct and malfeasance, ranging from mismanagement and misappropriation of athlete clients' assets to disparagement of other agents in order to gain a competitive advantage, fuel perceptions of an industry composed of individuals too willing to compromise ethics and competent representation for financial gain. Agent impropriety overlaps with the reality of largely newly or prospectively rich individuals not receiving the counseling they require to duplicate success on the field with success off the field.

Even with the industry focus shifting to the professional level, concerns involving the athlete representation business remain at the collegiate level as well. It is at that level where, no matter how mature we give them credit for being, young men often succumb to the sometimes corrupt actions of mature professionals. Paul Palmer's 1980s dilemma, noted in the epigraph of this chapter, remains with us in this millennium. He is not alone in having received payments that violate National Collegiate Athletic Association (NCAA) no-agent rules and now state and federal laws. Other student athletes have allegedly received inducements such as interest-free loans, automobiles, clothes, concert tickets, airline tickets, insurance policies, and dates with models. In 2000, an Auburn University basketball star admitted to taking $2,500 from Nate Cebrun, a "runner" for a sports agent. The student athlete, Chris Porter, said that he used the money to pay his mother's mortgage. The interaction with Porter was not Cebrun's first controversial contact with student athletes. In 1994, Cebrun, acting on behalf of certain agents, arranged a shopping spree for Florida State student athletes. A recent illustration of alleged improper student athlete/agent interaction involved the benefits allegedly bestowed upon Reggie Bush during his collegiate career.

In 2006, allegations surfaced that New Orleans Saints running back and Heisman Trophy winner Reggie Bush and his family had accepted payments and benefits from marketing agents attempting to entice Bush to sign a representation agreement with them. According to media reports, Bush and his family accepted gifts, money, and other benefits totaling more than $100,000 from two marketing firms while Bush was still playing football for the University of Southern California (USC). Bush's family allegedly failed to pay rent of $54,000 during a year in which they lived in a house owned by the agent, Michael Michaels, with whom Bush did not sign a representation agreement. Bush's family allegedly agreed to repay Michaels after Bush turned professional. Media reports also alleged that Mike Ornstein, head of the agency selected by Bush to provide marketing services, provided the athlete and his family with gifts that included money for hotel expenses, airfare, and car-related expenses. If proved, the allegations could result in the NCAA sanctioning USC. Amid these allegations, it was also revealed that Bush had a summer internship with Mike Ornstein's marketing firm.

The incidents involving Palmer, Cebrun, student athletes from Florida State, and Bush are points along a continuum. In 1979, after receiving $1,000 from agent Mike Trope, former University of Maryland football player Steve Atkins told Sports Illustrated: "I knew I did something wrong. I didn't want the NCAA to do something to Maryland, but I just needed some money to pay some bills. I didn't want to sign with him [Trope], but I just needed some money to pay some bills."

An illustration from the mid-1990s involving former NFL running back Greg Hill reveals why some athletes take benefits from agents. In responding to the controversy involving agents, Hill stated: "The guys accepting pay or the guys who want to take pay, that mainly falls on you guys—the NCAA. . . . I think that's your fault because of the strict restrictions on how long guys work and how much [financial aid] guys get. Many families are too poor to give that child money. My mom couldn't give me any money. Sometimes your team has functions where you have to dress up. Some guys don't have suits. I didn't have a suit. I had to wear jeans all of the time." The views expressed by Hill are not unique. From the student athletes' perspective, rules perceived as unfair and irrelevant to their life circumstances fail to deter problematic or possibly illegal involvement within the underground economy of college sport.

As reflected in Hill's comments, athletes point to what they perceive as fundamental inequities in intercollegiate athletics in explaining why collegiate athletes should be paid by the colleges and universities for which they play sports. National Basketball Association (NBA) and former Georgia Tech star Stephon Marbury told the New York Times, "When I signed to go to Georgia Tech, we were on ESPN twenty times, instantly. When you make the tournament they just give you money. And then they say a coach can't buy you a winter coat, even if you grew up in the hood and you don't have one." Former college basketball star Eldridge Hudson summarized the attitude of at least some athletes in a Time magazine cover story more than two decades ago: "Once you get out on the floor, it's a job, and you expect to get paid. If a kid is busting his ass on the court, if somebody wants to buy a car, let him have it." Commenting on allegations that Reggie Bush and his family accepted gifts from marketing agents, one commentator expressed similar views: "Almost all the incentives in big-time college sports point toward cheating. First, there's the perception, probably more or less accurate, that everybody else is doing it so you have to do it just to keep up. . . . Second, winning is enormously lucrative for everyone involved except the players, who happen to have the biggest influence over who wins and who loses. If you get a multimillion-dollar producer to work for you without pay, it's a fantastic deal even if you have to slip him a few thousand bucks from time to time."

An affidavit submitted by NFL linebacker Johnny Rutledge focusing on payments he allegedly received during his collegiate career at the University of Florida illustrates the improper transactions between student athletes and agents:

Beginning in 1997, my junior year, I began receiving money from Alfred Twitty, who worked for [then sports agent] Tank Black and his company PMI [Professional Marketing Incorporated] in Columbia, S.C. I initially received $200 per month, but in the summer of 1997 I asked for more. Twitty told me then that the usual amount for players like me was $600 per month. I thereafter received $600 per month through December of 1998. On occasion, I would get more than $600, like in December for Christmas and during my birthday month when I got $1,000 in cash.

Twitty began asking me about what car I wanted during my junior year, when it was possible I would consider turning pro. I decided to play my senior year instead. During my last season in 1998, Twitty again asked me what car I wanted. I eventually told him in December of 1998 that I wanted a Mercedes Benz S420.

I understood while I was receiving cash from Twitty that it was being provided by Tank Black. I met Tank Black in Tampa in the summer of 1998 at an event arranged by Twitty. Present were myself, Jevon Kearse, Fred Taylor and others from Tank's agency. At that time, Tank asked me "Is Tweet taking care of you?" I answered in the affirmative. And he told me that if I ever needed anything, I should contact Tweet.

I also talked with Tank during the balance of 1998 when he would call me by telephone and ask how I was doing. On one such call, I told him I needed money to buy furniture. Soon thereafter, Twitty came with the cash (about $700) and Reggie McGrew and I used it to purchase furniture for our apartment.

I was aware that Jevon Kearse and Reggie McGrew were also receiving monthly cash payments from Twitty. On occasion, the entire amount for all three of us would be delivered to one of us. . . .

I knew all along that it was expected by Twitty and Tank Black that I would sign with PMI when I turned pro. I informed them late in the 1998 season that I would do so. The day I signed with PMI—Jan. 4, 1999—I got the car I told Twitty that I wanted, which was a 1999 Mercedes S420 with all of the equipment I had said I wanted.

Additionally, automobiles and cash payments may be supplemented by promises of the even more unsavory, such as drugs or prostitutes. Illustrative is the courtship of former University of Massachusetts basketball star Marcus Camby by agents John Lounsbury and Wesley Spears. The agents supplied Camby with prostitutes, cash payments, stereo equipment, jewelry, and rental cars in the hope that they would represent Camby once he turned pro. In addition, Lounsbury and Spears, an attorney, followed another course of action often pursued by agents. They attempted to gain favor with Camby by ingratiating themselves with his family, friends, and other associates, oftentimes by providing them with gifts. Despite the agents' efforts, Camby signed with neither Lounsbury nor Spears, but with the ProServ athlete representation firm.

Criminally culpable conduct by agents also occurs. In 1987, a federal investigation of agents began after the alleged slashing and beating of an agent's associate by a rival agent. The investigation revealed that agents had threatened to "break the legs" of athletes who would not sign with them. Although there is no evidence to suggest that threats and acts of violence are employed today, other criminal acts are being committed. In 2000, sophisticated stock market scams and money laundering became the crimes of the day.

Why do agents engage in illegal and unethical conduct? Why do payments by agents to athletes and other improprieties persist? Economists refer to such actions by agents as "opportunism." Oliver Williamson, in his work Markets and Hierarchies, defines opportunism as "self-interest seeking with guile." The self-interest of sports agents is the right to receive approximately 2 to 5 percent of multimillion-dollar athlete contracts coupled with up to 30 percent of multimillion-dollar endorsement deals. As a result of this income opportunity, a wide range of techniques have been developed to secure student athletes as clients. For example, payments to athletes have become standard practice for some agents. Agent Jim Abernethy told USA Today back in 1987, "Everyone is being paid and signed. If anyone says otherwise, they're really stupid, blind or they're lying." There is no indication that the environment has dramatically improved, as indicated by the following statement: "It is the wild, wild west out there. . . . The things agents are doing to each other, to their clients is worse than I can remember. The reason is pretty simple: there is more big money, but few hard-core punishments to serve as a deterrent to an agent who breaks the rules or breaks the law." There is nothing to indicate that these payments have ceased. If anything, they are being made with a higher level of sophistication that inhibits efforts to detect the wrongdoing. The business is now much more mature, and the best understand both the hurdles they will encounter and how to circumvent them.

The absence of meaningful improvement is attributable, in part, to heightened competition for getting the rewards of representing an athlete. As will be discussed in greater detail in Chapter 3, the trend toward consolidation of sports agency firms typically affords the larger athlete representation firms advantages in securing clients. Thus, structural changes in the industry exacerbate problems derived from competition for a limited number of athletes. In the late 1980s and 1990s, industry consolidation produced deep-pocketed representation firms such as SFX, Assante, IMG, and Octagon that had the resources to spend considerable amounts to obtain and retain clients. Although certain of these firms have either lost their prominence in the agency representation business or no longer exist, consolidation persists with new players such as Creative Artists Agency (CAA) and Wasserman Media Group (WMG).

SFX Sports (SFX), a firm that at one time was one of the largest as a result of consolidation, exemplified the advantages reaped by size and resources. It reportedly advanced Peter Warrick a $500,000 line of credit on the bonus he was to receive from the Cincinnati Bengals upon signing his initial contract. The firm spent more in attempting to recapture Warrick as a client when he fired them days following the draft. Competitors are not averse to turning to illegal conduct as a way of leveling what may be perceived as an un-level playing field in their efforts to sign clients. As discussed above, agents Lounsbury and Spears not only spent significant sums of money but also were willing to take risks that exposed them to criminal liability in their respective attempts to sign a representation agreement with Marcus Camby.

Changes occurring in the business of sports agency converge with the uniquely American sacred cow: collegiate amateur sports. Collegiate sport, although slowly evolving, is the last field in the world in which athletes are supposed to receive absolutely no direct monetary compensation for their athletic prowess. All the athlete may accept under NCAA rules in exchange for athletic participation is room, board, tuition, and educational fees. This concept of amateurism becomes more problematic when one understands that the Greek amateurism that many perceive American collegiate sports to be founded on may have actually allowed amateur athletes to receive compensation. Classicist David C. Young maintains that amateur athletes in ancient Greece won prizes worth as much as the value of ten years' wages. If this is the case, then why is so much energy expended to ensure that collegiate athletes receive no compensation? And even if the Greeks were not compensated, why is it so important to retain this limitation today? And what of the fact that many of the athletes generating these huge collegiate athlete dollars are African Americans from lower economic backgrounds? These issues are key elements in the present agent-regulation problem.

What is being done to stop undesirable agent activities? First, state and federal prosecutors are taking action. For example, beginning in 1999, the agent most aggressively pursued by state and federal forces was William "Tank" Black. His premier client was NBA star Vince Carter. Carter fired Black as the details of the evidence alleged against Black unfolded. High-profile prosecutorial action goes back as far as 1989 when sports agents Norby Walters and Lloyd Bloom were convicted and sentenced for racketeering, conspiracy, mail fraud, wire fraud, and extortion after a trial that showcased sports and entertainment figures such as then University of Michigan head football coach Bo Schembechler and singer Dionne Warwick. That conviction, ironically, was ultimately overturned. In addition to prosecutorial action, colleges and universities are taking direct action against agents. In 1999, the University of Southern California sued Robert Caron, attorney and unregistered agent, alleging that he improperly induced certain of its student athletes to violate NCAA rules.

Second, twenty-nine states, prior to 2001, had passed or were contemplating some sort of legislation to regulate athlete agents. As addressed in Chapter 11, these laws focus on regulating illegal activities of agents. Unfortunately, legislation that has been either enacted or proposed has done little to ensure agent competency. In fact, except for the higher price tag, registering to be a sports agent is often as simple as obtaining a license to fish: complete a form, pay a fee, and you're a "licensed" sports agent. It is the exception for states to require applicants to pass a competency exam. The number of states that have enacted athlete agent legislation has increased with the promulgation of the Uniform Athlete Agents Act (UAAA) in August 2000. As of February 27, 2007, the UAAA had been adopted in thirty-five states, the District of Columbia, and the U.S. Virgin Islands. During 2007, the UAAA was introduced in three additional states. A principal goal of this act, which was prepared by the National Conference of Commissioners on Uniform State Laws, is to create uniform standards for regulating athlete agents. Proponents of the act hope that uniform standards will curtail the noncompliance with existing state legislation.

Third, the NCAA is is now clearly conscious of some of its more antiquated concepts of amateurism and has made a number of revisions of the rules in recent years. In addition, the sports agent question is an important element in the NCAA's ongoing regulatory review process. For example, the NCAA continues to be focused on steps to address the increasing influence and threat of corruption posed by "street agents," individuals who serve as the intermediaries between sports agents and athletes before and after they enter college. Beyond that there is also a movement afoot to develop basketball academies for stellar high school basketball players, an anticipated impact of which is a reduction in the power and influence of street agents and Amateur Athletic Union (AAU) coaches. Interestingly, individuals as juxtaposed as NBA Commissioner David Stern and former athletic shoe executive Sonny Vaccaro support the idea, whereas superagent Arn Tellem of WMG opposes it.

What can be done to stop the corruption associated with sports agents? Improprieties occur because the opportunity exists to make money. The solution, in the broadest terms, is simple: remove the opportunity to prosper by "cheating." As the following discussion reveals, layers of regulatory mechanisms will help to stymie the improprieties that are so prevalent in the sports agent industry. At the collegiate level, these mechanisms can be combined with efforts aimed at eliminating the opportunity for agents to benefit from improper conduct by implementing reforms that recognize the economic, social, and structural realities of college sports. Once the focus goes beyond college sports, the reform emphasis must be on agent competency and honesty. As you will read, this is much more simply said than done. The reality is that the system may always have major flaws.