By Christopher R. Deubert, Senior Counsel, Constangy, Brooks, Smith & Prophete, LLP
On September 22, 2022, Opes Capital Fund I, LP, a private equity fund, filed suit against NFL player agent Damarius Bilbo in the United States District Court for the Northern District of Georgia (22-cv-3823). The suit alleges that Bilbo has failed to repay loans totaling $1,325,000 which were intended as “short-term working capital for Mr. Bilbo’s professional sports agency enterprise.”
The lawsuit, regardless of its outcome, speaks to the challenges of the sports agent business. Bilbo is a former NFL player with, according to Spotrac.com, ten clients, including Denver Broncos running back Melvin Gordon and Washington Commanders defensive end Chase Young, both former first round picks. While Bilbo formerly operated independently, according to his LinkedIn profile, he is now the Head of Football for Klutch Sports Group, a sports agency founded by LeBron James and his agent, Rich Paul.
The lawsuit raises questions as to why Bilbo, with such an accomplished resume, would have ever required such a loan. Nevertheless, such loans are common in the NFL agent business.
The annual calendar for a typical NFL agent demonstrates why and also the challenges of the job. Beginning in the summer each year, NFL agents identify and begin to recruit college players across the country. Recruiting begins by developing a relationship through any connection possible and engaging in as many telephone and text conversations as the player is willing to have. As soon as possible, agents will send recruiting books and brochures to the players which summarize the agents’ achievements and capabilities. This is tedious but not terribly costly work.
If the communications are progressing, the agent will want to go and visit the player to make their sales pitch in-person. This aspect of the job requires many agents to be crisscrossing the country all fall, particularly on weekends when the agent can see the player play. Moreover, with the opportunity to represent student-athletes in name, image, and likeness deals, agents are having to recruit younger players, even if they are not yet eligible for the NFL Draft. These aspects of recruiting are bemoaned by many agents, particularly as they get older and have families.
Despite these efforts, agents will only successfully sign representation agreements with a small minority of their recruits. Many agents begin the season with 100 or more players to recruit and end up signing only a few of them, if any. There are many competent and capable agents out there and thus the competition is fierce.
Closing the deal with clients often requires significant amounts of cash. While the NFLPA Regulations governing agents prohibit agents from “providing or offering money or any other thing of value to any player or prospective player to induce or encourage that player to utilize his/her services,” this rule has an enormous loophole.
The loophole requires some background explanation. The NFLPA has the authority to regulate agents due to its status under the National Labor Relations Act as the “exclusive representative” of the players “for the purposes of collective bargaining in respect to rates of pay, wages, hours of employment, and other conditions of employment.” 29 U.S.C. § 159(a). Consequently, agents’ primary responsibility is to negotiate their clients’ contracts with NFL clubs.
Nevertheless, agents often provide a variety of other services in addition to player contract negotiations. Most notable among those other services are securing marketing and endorsement opportunities. Moreover, while the NFLPA Regulations cap an agent’s commission from negotiating a player’s contract with an NFL club at 3%, there is no cap on marketing agreements since such agreements do not concern a player’s terms of employment and thus are not within the NFLPA’s jurisdiction. Consequently, many agents nominally charge between 10 and 20% commissions on marketing agreements they are able to secure for their clients.
The degree to which agents actually collect on their marketing efforts is debatable. Agents often provide their new clients with “marketing advances.” These are advance payments for marketing agreements the agent claims they will be able to secure on behalf of the player. For example, an agent may advance their new client $50,000 and then collect the first $50,000 the player is owed pursuant to apparel or other endorsement agreements. In reality, many agents never actually collect the amounts they advanced. Indeed, many players will never even enter into marketing agreements sufficient to repay the amounts advanced. Consequently, in many cases, the agent has simply provided a prospective client with a large payment for becoming a new client. Nevertheless, the arbitrator responsible for enforcing the NFLPA Regulations has previously ruled that such advances do not constitute impermissible inducements. See, e.g., Rosenhaus v. Jackson, 14-cv-3154, 2016 WL 4592180, at *3 (C.D. Cal. Feb. 26, 2016).
The expenses continue. Agencies pay for their clients to train for the NFL Combine at elite facilities. Such training costs $50,000 or more. Related expenses include housing, coaching, nutritionists, medical specialists, and more.
Consequently, agents frequently spend $100,000 or more on a client before ever collecting a dime. At a 3% commission, a player would need to make at least $3.33 million in his career to owe commissions sufficient to cover those expenses. Yet, intense competition has pushed most commissions down to 2%, which requires $5 million in career earnings for an agent to make more than $100,000 in commissions.
As a result of these enormous upfront expenses, agents do not earn a profit on most of their clients. Agents typically need a client to sign a “second,” free agent contract in order to pay enough in commissions for the agent to recoup their investment in the player. Most NFL players never make it to a second contract.
In addition to the above-described financial challenges, there is the intense competition within the industry, from both reputable agents and questionable characters. For example, in France v. Bernstein, 43 F.4th 367 (3d Cir. 2022), the Third Circuit excoriated Todd France, one of the most successful agents in the business, for what the court believed was a pattern of fraudulent conduct designed to cover up that France had stolen another agent’s client. It is thus not surprising that approximately half of NFL agents have zero or one client.
In an effort to make it in the industry, agents often borrow money to fund their recruiting efforts and to sustain their businesses. Yet if the agent is unable to bring in high-paying clients, they will end up in trouble with their lender, as Bilbo may have.