CENTER FOR CONTINUING EDUCATION
Self Study Article and Self Assessment Test
Sports Law
presented by Walter T. Champion, Jr. Houston, Texas.
Chapter 2: Agents
A. Background
With the great increases in salaries and benefits in professional sports, a need developed for athletes to have personal representatives, or agents, to manage their affairs. This representation includes the negotiation of a personal services contract with a professional sports team. There is a fiduciary relationship between agents and athletes; therefore, agents are under an obligation to exercise the utmost care and good faith in their dealings with athletes.
B. Standard Representation Agreements
The main connection between player and agent is the standard representation contract (SRK). This contract establishes the rights and responsibilities between the parties. It only calls for a good faith effort. The actions of the agent do not necessarily have to prove successful. Zinn v. Parrish (1977).
However, the agent does have the obligation to make a full and complete disclosure of all areas of potential conflicts of interest and must receive prior consent from the athlete if representation is continued after this disclosure. Detroit Lions, Inc. v. Argovitz (1984). Like any other contract, the key to an SRK is its particular wording. There are at least four essential clauses within an SRK: notice in writing of potential conflicts, a negotiation in good faith clause, an arbitration provision, and a clause that stipulates which state's law will govern if interpretation of the contract is necessary.
The basic responsibility of an agent is to exercise good faith effort overall and to act as a trustee for his client's money when investing it. Investments must be similar to those that a prudent investor would engage in for his own account, keeping in mind both safety and income.
C. Duties
The most essential part of the SRK is the agent's obligation to negotiate a contract. Implied in this obligation is the understanding that the agent possesses the necessary background, skills, experiences, and expertise to perform this task to a degree that corresponds with the skills and knowledge that are standard to the profession. An agent does not have to secure the best contract, he must only negotiate the contract in good faith using his best abilities.
The responsibilities of the agent will usually include contract negotiation, investments, taxes and public relations. The number of functions that an agent can perform is limited only by the agent's imagination. The list of functions that might be covered include: 1) contracts, 2) taxes, 3) financial planning, 4) money management, 5) investments, 6) income tax preparation, 7) incorporation, 8) estate planning, 9) endorsements, 10) sports medicine consultations, 11) health and physical training consultations, 12) career and personal development counseling, 13) post-career development, 14) insurance and 15) legal consultations.
Zinn v. Parrish (1977), established the obligations that an agent must meet in his effort to satisfy his client. Plaintiff, an agent, brought an action to recover commissions that were allegedly due under an SRK. The agent secured three professional football team contracts for his client and pursuant to the SRK was entitled to a 10% agency fee. The agent was to negotiate contracts, furnish advice on business and tax matters, seek endorsements and assist with off-season employment. The plaintiff performed some of these obligations; he solicited some investment advice and assisted defendant in investing a small amount of his money in buying a house. No jobs, though; no endorsements; no off-season employment and, for tax advice, plaintiff sent his client to H & R Block.
Defendant alleged that his agent acted as an investment advisor under 15 U.S.C.A. Sec. 80(b)-2(a)(11) and since he was not registered, the contract was void. However, the court held that the investment advice was merely an incident to the primary purpose of the management contract which was to negotiate a professional contract. In short, defendant alleged that plaintiff failed to perform his duties competently. However, plaintiff satisfied his obligations by performing these duties in good faith.
D. Conflicts of Interest
The agent must not have any conflicts of interest that might influence or affect his ability to do the best job for his client. The agent must inform the principal of all facts that come to his knowledge which may be material or might affect his principal's rights or interests or influence the actions that the athlete may or may not take. Detroit Lions, Inc. v. Argovitz (1984).
An agent should err on the side of a complete and detailed disclosure of any possible or potential conflicts of interest that might occur between the agent and the athlete.
Avoidance of conflicts of interest is even more important if the agent is also an attorney. Under the rules of professional conduct, an attorney must decline representation if it will be directly adverse to the interests of another client or if the attorney's personal interests materially limit his responsibilities to his client.
An attorney must perform his legal duties with unabated loyalty. This loyalty is necessarily questioned if the agent has conflicting interests that appear to be adverse to the interests of the athlete, e.g., representation of a competing athlete or ties with management. The attorney-agent is under the restriction of the attorney-client privilege of confidentiality. He cannot use confidential information to the athlete's disadvantage.
E. Registration of Agents
Although their relationship is fiduciary in nature, sports agents were unregulated for many years. As a result of this, there were many infamous cases of abuse on the part of the agents. The perceived need for reform created a public outcry that resulted in attempts to regulate agents by both the states and the professional sports unions.
1. State Legislation
Many state legislatures entered into the controversy by enacting legislation that requires that agents register with that state if they are from that state or if they sign an athlete from that state. Registration must occur before they proceed with contract negotiations for an athlete.
The earliest registration model came from California. It requires that any agent who represents an athlete in an attempt to gain an employment contract with a professional sports team must register with the state labor commission. The act does not include "advisors" who do not negotiate contracts nor does it include California attorneys that act as legal counsel. Non-California attorneys are not exempted, they're treated as non-attorney agents. The act requires that agents must register and post a $10,000.00 surety bond to satisfy any damages for misrepresentation or fraud. The labor commissioner acts as an arbitrator for agent-athlete disputes. Any violation of the statute is a criminal misdemeanor. West's Ann.Cal. Labor Code Sec. 1546.
A newer, "tougher" approach is represented by a Florida statute which targets both the agent and the athlete for criminal and civil penalties for violations. This act requires registration of all agents who do business in Florida. However, the registration itself is routine and is accompanied by only a minimal fee. The act applies to all agents who communicate with any Florida athlete regardless of whether the athlete is or is not ultimately signed. Failure to register is a third-degree felony with penalties of up to five years incarceration and a $5,000.00 fine. The athlete and the agent must notify the college's athletic director within 72 hours of the signing of an SRK. There are sanctions involved which include voiding the SRK as unenforceable, subjecting both the athlete and the agent to criminal penalties and allowing the school an opportunity to bring a civil suit against the athlete and the agent. West's Fla.St.Ann. Sec. 468.451 et seq.
2. Union Regulations
Another way to curb abuses is through mechanisms provided by the sports unions. Basically, the unions created their own plan so that any agent who wanted to represent a union member must first register with, or be certified by, the union. This gives the union a certain amount of control. They can keep out unsavory would be agents while also mandating continuing education to improve the overall caliber of representation. All major sports unions currently maintain some form of agent registration.
However, the seminal model is from the National Football League Players' Association (NFLPA), which in 1983 established guidelines requiring agents to become certified as contract advisors. To gain certification, an agent must apply, pay a fee and submit an application providing information about education, employment, membership in business and professional associations, criminal history, etc. Two major aspects of the qualification process are 1) full disclosure and 2) an absence of a prior history that reveals incidents of serious misconduct. A procedure such as this, however, only excludes those whose conduct is egregious.
After they are contract advisors, the newly certified agents must use an NFLPA SRK, agree to abide by NFLPA limits to the percentage of the athlete's compensation that the agent can receive for representation, attend annual NFLPA continuing education seminars, agree not to give a player anything of value in exchange for the opportunity to secure representation, fully comply with applicable state and federal rules and regulations, and agree to avoid potential conflicts of interests by not having any financial interest in a professional sports teams. A violation of these rules will subject the agent to fines and penalties along with the possibility of a revocation of his contract advisor status.
The purpose of this type of regulation is to provide quality control in representation and to limit the fees that agents can charge NFLPA members for contract negotiation. However, its protective umbrella will not cover charlatans that might masquerade as financial advisors or publicity consultants or marketing experts, rather than act as contract negotiators. All other union-orchestrated, agent-certification schemes copy to a large extent the NFLPA model.
3. NCAA-Based
The National Collegiate Athletic Association (NCAA), an unincorporated association of individual schools; is the primary regulator of intercollegiate athletics. It also promulgates regulations that attempt to police agents. Athletes will lose their remaining collegiate eligibility if they accept gifts or enter into contracts with agents. In 1984, the NCAA established a voluntary "Player Agent Registration Plan" which urges agents to register with the NCAA. Once the agent chooses to register with the NCAA, the agent must provide information on his employment and education background. In addition he must notify the athlete's coach or athletic director before contacting an athlete who still possesses NCAA eligibility. Through this process, the agent's name is placed on a list of registered agents that is then provided to NCAA schools. An agent is removed from this list if he provides gifts to a still eligible athlete or if he fails to contact the school's athletic director before contacting either the athlete or the athlete's coach.
Many states have designed their regulatory legislation so that it facilitates and corresponds to the NCAA rules. These statutes are considered NCAA-based in that they put teeth into the NCAA eligibility rules. Although these statutes vary greatly, many are similar in that they provide for 1) a written notice regarding the possibility of losing eligibility upon the signing of an SRK and 2) a cooling off period which allows the athlete an opportunity to rescind the contract. Usually an SRK which violates the statute is void. Also, an agent must notify the school of a potential contract. Some statutes require that notice be given to the university prior to the proposed signing. Other statutes simply prohibit the signing of an athlete before the expiration of his NCAA eligibility.
F. Criminal Liability
Some state statutes regulate the conduct of professional sports agents by the imposition of criminal sanctions. For example, in Alabama, an agent can be prosecuted under a statute that prohibits tampering with a sporting event. Ala.Code Sec. 13A-11-143 (1982). Criminal sanctions are applicable. Ala.Code Sec. 8-26-1 to 8-26-41 (Supp.1989). The penalty provisions of the Alabama act establish that all offenses under the act are felony violations. These offenses range from failure to properly register to failure to provide a ten-point type on the face of the SRK warning that the athlete's amateur standing might be jeopardized by entering into the contract.
G. Representing the Athlete
The agent-athlete agreement typically demands that the agent will be the exclusive representative for the athlete. The fee for these services can range from 5% to 50% of the athlete's contract; the specific share will depend on the agent's responsibilities, the sport, etc. The athlete should expect that the agent's results will be comparable to the results of other agents. The agent has an affirmative duty to be aware of the customs and practices that are relevant to that particular professional sport. Also, as regards publicity, the agent must use his best efforts in a good faith attempt to find employment opportunities outside of the sporting arena.
As regards negotiating a contract, it is essential to acquire the necessary background and then map the most appropriate strategies. One must also possess the flexibility to counter management's negotiation thrusts.
Other aspects of representation may include counseling, managing the athlete's assets, marketing his image through personal appearances and commercial endorsements, assisting the athlete to resolve his disciplinary or salary disputes through mediation or arbitration, and planning life-time strategies that will guarantee the athlete financial, mental and emotional security at the time of the athlete's retirement from the work force.
The goal is to spread income from a short period of time so that it extends through a long period of time, and/or to create employment and business opportunities after retirement from the playing field in order to continue the athlete's standard of living past his days as an athlete.