Sports economists may be able to justify the Yankees' decision to pay A-Rod $275M based upon economic formulas that take into account attendance, broadcast fees, concessions, merchandising and other forms of revenue (See, e.g., Jorge L. Ortiz, A-Rod Deal is Still a Revenue Winner for Yanks, USA Today, 11/21/07). But what about the decision of the Yanks and A-Rod to pay $14M to a third party agent who didn't even negotiate the deal? Jerry Crasnick, an ESPN.com reporter and the author of License to Deal, wrote an interesting article last weekend analyzing the Yankees/A-Rod deal as well as the role that Scott Boras played in the process (Boras Took a Hit But He'll Survive, ESPN.com, 11/19/07). Here are some excerpts:
[Boras will] soon receive a commission of $14 million or so for A-Rod's deal with the Yankees, and he didn't even have to pay Kinko's to print and collate a 100-page "homage to Alex" binder.
....
We know that A-Rod, after seeking guidance from investment icon Warren Buffett, got the ball rolling by contacting the Yankees directly. The Steinbrenners, who wanted no part of Boras, are now dealing with him because baseball's labor contract
decrees they do so.
....
For a multitude of reasons, the A-Rod affair will not go down as Boras' crowning achievement. The decision to exercise an opt-out clause during Game 4 of the World Series -- and no matter what Boras says, it came from his end -- was incredibly ill-timed. Then the bidding war that Boras was expecting failed to materialize, to the point that Rodriguez, with the support of his wife, Cynthia, felt the need to reach out personally to the Yankees to achieve détente. What was the ultimate cost to Rodriguez? As ESPN's Buster Olney recently reported, the Yankees were willing to begin talks with Boras with an opening offer of five years and $150 million, in addition to the three years and $81 million remaining on his deal (with $21 million coming from Texas). The Yankees might, indeed, have been willing to go to nine years and $260 million in the end, but we'll never know for sure.
Is Boras entitled to his 5% commission, let alone any commission at all? And even if Boras had negotiated A-Rod's deal with the Yankess, I still couldn't justify the fee. As a starting point, A-Rod is obviously worth at least $25M per year without an ounce of help whatsoever from any agent. Why should an agent take any percentage whatsoever of that first $25M?
This post isn't a criticism of Boras as an individual or anything he did regarding A-Rod's deal; it's a criticism of the third party agent system in general. In the introductory paragraph above, I purposefully posed the question why the Yanks and A-Rod both decided to pay such a large commission to a third party. I say "both" because I fail to understand why the unions and leagues continue to allocate to third parties to the player-contract relationship such a huge chunk of the revenue pie -- Granted, it may have been justifiable 30 years ago but times have certainly changed. I've written about how the system is detrimental to both the players and the clubs in all kinds of ways, and how unions and leagues could collectively bargain for changes that would be mutually beneficial, including unions representing players in individual contract negotiations. In his article, Crasnick quoted a statement made by Nationals president Stan Kasten on XM Radio, who tends to agree: "I used to think of Scott as a necessary evil, and now I've changed, I no longer think he is necessary. He and I are friendly enough personally, but I think the way he conducts himself is perfectly consistent with the job he's given within the system we have. I think the system could be better, and I've talked about this publicly, for all of sports, for all of fans, and for all of players, if the union took over that job, and we had an agent free universe, I think everything would be better."
But Crasnick suggests that the union really needs agents like Boras:
We know for starters that the Players Association has a major stake in Boras' emerging from this saga with his clout intact. You see the union's devotion to Boras every time a younger, less established agent complains that one of Boras' "scouts" in the minor leagues is trying to steal a client. And you see it when Fehr issues a statement saying the union is worried about collusion in regard to A-Rod's contract talks. The union loves and protects Boras because he negotiates the record contracts that set the market for the smaller deals. He creates the rising tide that lifts all boats.
I think Crasnick is overexaggerating the union's dependence on Boras. For starters, the fact that the union has chosen not to proactively discipline Boras for client stealing is not due to a "Boras protectionism" effort as many agents might like to think. It's more a component of the myriad issues surrounding a union's disciplining third party agents for misconduct, which include affording agents sufficient due process, affording each player autonomy in the choice of agent, allocating sufficient resources towards enforcement, lack of sufficient evidence, numerous factual issues, and concerns regarding arbitrary enforcement. I also disagree with Crasnick that Don Fehr's recent statements about collusion associated with A-Rod's contract had anything to do with a "devotion" to Boras.
Indeed, approx. 15 years ago when player salaries were half of what they are today, Fehr even questioned whether a commission-based agent fee is the best system for the players:
[W]e are beginning to get fairly significant pressure from players to consider modifying [the player-agent] relationship. There has to be another way to do this because the fees are getting out of hand. As an athlete begins to earn 3 or 4 or 5 million dollars a year, is the work involved that much more lengthy than it was before? As a matter of fact, the agent's skills may improve and his or her bargaining power may be greater which could mean the process entails less work. Do percentages make any sense? Well, maybe not. (See Donald Fehr, The Second Annual Sports Dollars & Sense Conference: A Symposium On Sports Industry Contracts And Negotiations, Union Views Concerning Agents: With Commentary on the Present Situation in Major League Baseball, 4 MARQ. SPORTS L. J. 71, 81 (1993)).
Maybe the players need to consult a sports economist for a formula to justify the $14M commission paid on A-Rod's deal....
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