By Joshua Lens
It has become common practice for athlete agents to offer and provide loans and marketing guarantees to prospective and current clients. For individuals who are likely early round NFL draft selections, athlete agents often offer them six figure loan amounts.
Marketing guarantees are a creative alternative by which athlete agents can provide money to athletes. Athlete agents often offer not only contract negotiation services but marketing representation services, too. In this scenario, an athlete agent may offer a potential client a marketing guarantee, which is a sum of money the agent will provide the client that will be offset against future marketing revenue the client earns. For example, the athlete agent may provide a client a marketing guarantee in the amount of $100,000. The agent would then keep the initial $100,000 of marketing income the client generates. Alternatively, if the athlete agent is only able to secure $75,000 in marketing income, the athlete agent assumes the $25,000 difference as a cost of doing business. Marketing guarantee amounts are typically in the tens or hundreds of thousands of dollars but have reached as high as $2 million.[8]
Numerous authorities apply to athlete agents. Athlete agents are likely to concern themselves most with NFLPA regulations and state laws; however, athlete agents who offer loans and marketing guarantees must also consider agency law and, if they are attorneys, ethics regulations.
Application of NFLPA Regulations to Loans and Marketing Guarantees
NFLPA agent regulations include a prohibition against agents “[p]roviding 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.”[9] However, NFLPA regulations explicitly permit agents to provide loans to clients. Section 3(A)(6) requires agents to “file with the NFLPA . . . any other agreement(s) for additional services that the Contract Advisor has executed with the player, including, without limitation, agreements or other relevant documents relating to loans, lines of credit, or pre-combine or pre-draft services or benefits being provided to rookie clients.”[10]
Likewise, the NFLPA does not consider marketing guarantees to constitute impermissible inducements and permits agents to offer them.[11] Marketing guarantees are exempt from the NFLPA’s prohibition on inducements.[12] There has been a good deal of dialogue between agents and the NFLPA in recent years regarding curbing inducements, which could lead to an NFLPA regulation limiting the amount of money agents can recoup from clients.
Application of State Laws to Loans and Marketing Guarantees
The vast majority of states have adopted laws regulating athlete agents, most of which are based on the Uniform Athlete Agents Act or its revised version. Both acts, and most state laws based on them, prohibit an athlete agent, “with the intent of inducing a student athlete to enter into an agency contract,” from “furnishing anything of value to a student athlete or another person before that athlete enters into an agency contract . . . .”[13] Given the prevalence of loans and marketing guarantees in player recruiting, the entities enforcing state athlete agent laws either do not adequately enforce these laws or, like the NFLPA, do not consider loans and marketing guarantees to constitute illicit inducements. Just as with NFLPA regulations, however, it is difficult to see how offering to furnish a sum of money to a prospective client, regardless of whether it is a loan or advance on future marketing income, is not an “item of value” that state laws should prohibit.
Application of Agency Law to Loans and Marketing Guarantees
Under agency law, an agent has a duty not to transact with a principal as an adverse party.[14] The rationale behind this obligation stems from the agent’s duty of undivided loyalty to the principal.[15] It is hard to fathom a court applying agency law principles could uphold a loan that an athlete agent provided to a client that the client later challenged. For example, consider the scenario where an athlete agent provides a loan to an undrafted, rookie free agent client. The transaction may compromise the athlete agent’s guidance when evaluating teams’ contract offers. So the client is better able to repay the loan, the agent may advise his client to accept a short-term contract with a high average annual value as opposed to a longer term, more lucrative offer from another team. In doing so, the agent fails to act loyally in the client’s interests.
Further, agency law would not look favorably on athlete agents providing marketing guarantees to their clients. In the first place, legal scholars have noted that if an agent’s “compensation is a percentage of the client’s endorsement income, there may be a conflict, because the lawyer has a personal interest in the endorsement contract’s outcome.”[16] An endorsement opportunity may be inadvisable for several reasons. However, “an agent’s self-interest in a transaction recommended to a client may systematically bias the quality of the recommendation.”[17] For example, too many simultaneous endorsement endeavors may weaken an athlete’s on-field career or future marketability.[18] Nevertheless, the agent “may advise the client to accept the endorsement so that the [agent] can collect his percentage fee.”[19] Providing a marketing guarantee only increases the likelihood of an athlete agent acting—or being tempted to act—upon his own interest to make up the guarantee amount by advising his client to participate in too many marketing endeavors. Thus, the athlete agent likely fails to uphold his duty of loyalty and to avoid conflicts of interests.
Application of Attorney Ethics Regulations to Attorney-Agents Who Offer Loans and Marketing Guarantees
Many attorneys acting as sports agents incorrectly assume their agent activities are not governed by legal ethics rules.[20] However, when admitted to a state bar, an attorney is subject to that state bar’s professional responsibility rules.[21] Further, many courts have held that ethical rules do in fact govern the attorney-agent.[22] Ethics regulations likewise bind attorneys who provide endorsement negotiation services for clients.[23]
Thus, attorney-agents must follow the Model Code of Professional Responsibility or Model Rules of Professional Conduct (“Model Rules”), whichever is applicable in their state.[24] The vast majority of states have adopted the Model Rules.[25]
By providing a loan or marketing guarantee to a client, an attorney-agent implicates, and likely violates, two Model Rules prohibitions: (1) attorneys may not enter business transactions with clients absent certain conditions and (2) except in limited circumstances, attorneys may “not provide financial assistance to a client in connection with pending or contemplated litigation.”[26]
Conclusion
Agency law disfavors athlete agents from providing loans and marketing guarantees. Likewise, attorney ethics regulations disapprove of attorney-agents providing loans and marketing guarantees. Given the sound agency law and ethics regulations principles behind these positions, the NFLPA and individual states should expressly prohibit athlete agents from offering and providing loans and marketing guarantees.
Joshua Lens is Assistant Professor of Recreation and Sport Management at the University of Arkansas (J.D., University of Iowa College of Law). For additional information regarding this topic, please see the full version of this article in Volume 7, Issue 3 of the Texas A&M Law Review.
[8] See Andrew Brandt, An Agent’s Life Isn’t All Glamour, ESPN (Nov. 27, 2012), https://www.espn.com/nfl/story/_/id/8681968/nfl-agent-life-all-glamour; see also Jack Bechta, Sports Agents: Myths & Tactics, Nat’l Football Post, https://nationalfootballpost.com/sports-agents-myths-tactics/.
[9] NFL Players Ass’n, NFLPA Regulations Governing Contract Advisors § 3B(2) (2011) (amended 2016), https://nflpaweb.blob.core.windows.net/media/Default/PDFs/Agents/RegulationsAmendedAugust2016.pdf.
[10] Id. at § 3A(6).
[11] See Timothy Davis, Regulating the Athlete-Agent Industry: Intended and Unintended Consequences, 42 Willamette L. Rev. 781, 790 (2006); see also Liz Mullen, NFLPA to Use Combine to Update Agents on Regs Overhaul, Sports Bus. J. (Feb. 16, 2015), https://www.sportsbusinessdaily.com/Journal/Issues/2015/02/16/Labor-and-Agents/Labor-and-Agents.aspx [https://perma.cc/CC6E-D9AU].
[12] Jason La Canfora, Time to Overhaul (Install?) System of NFL Player-Agent Money Dealings, CBS Sports (June 11, 2014, https://www.cbssports.com/nfl/news/time-to-overhaul-install-system-of-nfl-player-agent-money-dealings/.
[13] Nat’l Conference of Comm’rs on Unif. State Laws, Revised Uniform Athlete Agents Act (2015), at 2, https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=6a97db74-446e-e102-f517-0bd54fbb7ff4&forceDialog=0.
[14] Restatement (Third) of Agency § 8.03 (Am. Law Inst. 2006).
[15] Id. § 8.03 cmt. b.
[16] Robert E. Fraley & F. Russell Harwell, The Sports Lawyer’s Duty to Avoid Differing Interests: A Practical Guide to Responsible Representation, 11 Hastings Comm. & Ent. L.J. 165, 187 (1989) (listing potential conflicts of interest for attorney-agents who handle a client’s marketing).
[17] Restatement (Third) of Agency § 8.01 Reporter’s Notes b (Am. Law Inst. 2006).
[18] See Fraley & Harwell, supra note 9, at 187.
[19] Id.
[20] See Jamie E. Brown, The Battle the Fans Never See: Conflicts of Interest for Sports Lawyers, 7 Geo. J. Legal Ethics 813, 814 (1994).
[21] See Melissa Neiman, Fair Game: Ethical Considerations in Negotiation by Sports Agents, 9 Tex. Rev. Ent. & Sports L. 123, 129 (2007).
[22] Id.
[23] Fraley & Harwell, supra note 9, at 188–89.
[24] Timothy Davis, Regulating the Athlete-Agent Industry: Intended and Unintended Consequences, 42 Willamette L. Rev. 781, 805 (2006).
[25] Scott R. Rosner, Conflicts of Interest and the Shifting Paradigm of Athlete Representation, 11 UCLA Ent. L. Rev. 194, 218 (2004).
[26] See Model Rules of Prof’l Conduct, r. 1.8(a), (e) (Am. Bar Ass’n 2018).
