Biggest Story of 2013: IMG for Sale

With 2013 slowly winding down, the big story has been the much talked about sale of IMG Worldwide’s sports and entertainment management agency by private-equity owner Forstmann Little. IMG Worldwide, which was founded in Cleveland, is expected to sell for nearly $2 billion. IMG pioneered the marketing of primarily individual sport athletes, which consists of megastars like Tiger Wood, Peyton Manning, Novak Djokovic, and Maria Sharapova. IMG was on the forefront of shaping the professional sports and sports management industries since it was created from a handshake with golf star Arnold Palmer. The sale of its athlete management business doesn’t come by complete surprise as IMG has been moving away from representing athletes in recent years, after the death of the co-founder of Forstmann Little, Theodore Forstmann. Properties owned by IMG Worldwide include IMG Academy, IMG College, IMG Consulting, IMG Media, IMG Fashion, Sports, and Talent.

Initial bids were due by mid-September. A potential deal is expected to be reached sometime before Thanksgiving in 2013. IMG Worldwide may receive attention from buyout firm Bain Capital, private equity firm KKR & Co. and entertainment companies Creative Artists Agency and William Morris Endeavor Entertainment. Numerous other private equity firms have also expressed interest.

This sale will involve a sizable portfolio of athletes in various sports including tennis, golf, and football. While IMG’s list of athletes it represents has decreased in recent years, it still represents megastars Roger Federer, Rafael Nadal, Cam Newton and Sprint Cup driver Danica Patrick. The buyer should still retain a significant level of influence in the sports industry. A buyer such as Creative Artists Agency will likely form a monopoly of the athlete management industry since it already dominates the industry. Entering the holiday season, IMG will likely accept and complete a deal. The story is likely to become one of the biggest sports business stories of 2013 and will likely outshine the sports agency news with rapper Jay-Z and the formation of Roc Nation.

Sports Agent Negotiations

For me, contract negotiations are the most exciting part of being an agent. Agents often have to sit down with the same 30 or so general managers so it is important to maintain relationships while also representing their clients better than other agents. This seems like an uphill battle but three agents (Leigh Steinberg, Scott Boras, Ron Shapiro) have really stood out to me for both their performance and reputations. I managed to find videos of all three talking about negotiations.

In the Steinberg video, Leigh stressed the first step before going into a negotiation is to take an internal inventory and make sure your goals are clear. By having a hierarchy of values to fall back on during a negotiation, he is able to quickly make sensible decisions. One of his most interesting points was to leave your ego at the door. He goes on to tell a story about NFL quarterbacks Ben Roethlisberger and Philip Rivers. He admitted that because he was able to leave his ego at the door, he was able to accept a less desirable deal for Roethlisberger, which eventually turned out well. On the other hand, River’s ego wouldn’t allow him to take a less than desirable deal. During this time, the situation became even less desirable and the ensuing deal was far less lucrative.

In the Boras video, Scott talks about how a negotiation is not about a search for an amount but a search about a truth. He talks about using analytics as objective criteria so both sides can determine a sensible amount to pay an athlete. His focus in a negotiation is using substance over opinions. He also talks about how he restrains from using league standards during negotiations because his clients are typically not needed by most of the league. His clients are typically only needed by a handful of teams so they should be evaluated on more individualistic values.

In the Shapiro video, Ron began by playing the “ten dollar bills” game between two people who had to negotiate how to split ten one-dollar bills. This game was to demonstrate how a win-lose situation could immediately turn in to a lose-lose situation. His point was that both parties needed to have an alternative plan to avoid both parties losing in a negotiation. The most interesting point he made was that this process was called “negotiation” not “EGOtiation”. He stressed taking the egos out of the process so it is no longer a win-lose situation but a win-win outcome. This often times results in the desired mutually beneficial outcome.

All of these agents had similar advice such as leaving your ego at the door, seeking objective criteria over opinions and having some sort of goal or alternative in mind before entering in a negotiation. While I have always looked at agents having huge egos, it seems like the best agents choose to not bring them into a negotiation. This is probably the biggest reason for their successes relative to others in the sports industry.

Steinberg

http://www.youtube.com/watch?v=M8zo0bngWCc

Boras

http://www.youtube.com/watch?v=KEG7gID_h_E

Shapiro

http://www.youtube.com/watch?v=qtU3zrc-kIU

Can Agents Help Prevent Use of Prohibited Substances?

With over a dozen MLB players being suspended and the recent 6-game suspension of the Denver Bronco’s Von Miller for substance abuse, I still find it difficult to not see agents being proactive in discouraging their players from using banned substances. Not only do players lose out financially, agents also fail to earn commissions on lost income due to a player’s suspension. Shouldn’t the financial gain be enough of an incentive for agents to at least attempt to discourage their clients from using these substances?

The NFLPA recently released an alert on a supplement that has likely been taken by several NFL players. The alert insists that a banned substance was found in the supplement and that all players should immediately discontinue use and dispose of any remaining product. This once again reveals how easily a player can unknowingly and unintentionally take a banned substance. Under the NFL/NFLPA drug policy, the lack of knowledge of a banned substance in a product does not excuse a player from using the prohibited substance. A player will still face suspension whether or not they have knowledge of consuming a prohibited substance.

Players need to take every precaution to avoid these substances. Often times, players choose supplements they have been taking since high school or college, what their teammates use, randomly choose a supplement at a local GNC store, or blindly endorse a product without checking the ingredients of the product or the NFL’s prohibited substances list.

Agents deal with many players, have read the collective bargaining agreement and know what substances are banned.  Agents should consider helping players pick out supplements and research any prescription drugs they may be prescribed by doctors to prevent their clients from being suspended by the league. Agents often have the time and knowledge to prevent their clients from getting into trouble, so why are they not taking a proactive approach? Can agents be effective in preventing their clients from taking these substances?

Going Broke

Over the last several years, former (and sometimes current) NFL players’ sob stories hit the newswire about bankruptcies and extreme financial difficulties. According to Sports Illustrated, 78% of NFL players are broke within two years of retiring from the NFL. This alarming rate of players going broke should catch the attention of agents. While agents often don’t have financial backgrounds (or incentives to care about their clients future success after retirement), they do know how money works and how to manage their finances. Often times, agents introduce their clients to knowledgeable financial advisers. However, these young athletes find it difficult to relate to or understand the appointed financial advisers.

Agents need to take note of this dangerous trend and be more proactive in helping their clients learn enough about personal finance to avoid disaster. Since most college athletes are not allowed to work while under scholarship, they are not used to having money to manage. After graduating college, some of these athletes sign multi-million dollar contracts with large signing bonuses. With no real financial management knowledge, these athletes can go from millionaires to being broke within a few months or years.

There are numerous reasons players go broke from overspending, not saving/investing, poor investments, premature retirement (injuries), divorces or not planning for their lives after football. Some athletes do plan for their futures but because contracts are not guaranteed, they find themselves unemployed and not cashing in on their contracts. These athletes need agents to step up and provide them with a financial education as well as post-career planning to ease them into new jobs after retiring from football. Some players become analysts, coaches, or work in the front office of a football team. Others find themselves clueless on what they will be doing upon retirement. If agents had a financial incentive to manage their clients’ lives after they retire from football, we might not have this dangerous trend in bankruptcies. The NFLPA has taken action by proving a financial management education but agents have the ability and responsibility to at least encourage their clients to think about their futures. Will the NFLPA be effective enough or will agents have to get more involved? 

Players' Association Impacting Agents' Discipline

While sports have been around for over a century, the concept of sports agents is relatively new. Decades ago, sports agents became an occupation but not a very glamorous or financially rewarding career. The industry has evolved to be more lucrative for agents and has attracted some very greedy individuals. The industry has recently been overcome with scandals, infractions and agents taking advantage of their athlete clients. Professional sports leagues and the National Collegiate Athletic Association (NCAA) have been passing new rules at an increasing rate to rein in the unwanted behavior of agents.  The federal government has become involved as well as each individual state. It has now become expensive for agents to become registered in numerous states since agents have to register in every state they wish to do business in. It has become even more difficult for agents to learn and abide by the rules and laws of every state. Most states have recently adopted the Uniform Athlete Agents Act (UAAA) making it easier and cheaper for agents. Professional sports leagues and government will continue to pass more uniform laws to help prevent more intentional and unintentional missteps by sports agents but also to make it easier for agents to understand and abide by these laws.

In the last couple of years, it has also become necessary for players’ unions to step in and try to control the epidemic. The NationalFootball League Players’ Association (NFLPA) has even been busy this season discipliningagents for trivial offenses because they are unwilling to truthfully fill out their applications for certification as contract advisers. Agents Ethan Lock, Eric Metz and Vance Malinovic all agreed to pay $5,000 fines before an their appeal hearings due to their alleged offenses. Contract advisor John Rickert was also fined $5,000 and suspended for three months after failing to provide documentation he promised the NFLPA regarding a settlement with another contract advisor in a dispute about fees. As far back as November of 2010, the NFLPA pursued action against contract advisor Ian Greengross for numerous reasons including the actions of his recruiter Kenny Rogers. The NFLPA has been becoming stringent on their actions against agents who do not abide by their rules. This seems to be the new tone of leagues, state and federal legislatures, players’ unions and the NCAA. Dishonest and inappropriate behavior will no longer be accepted from agents and will be attacked from multiple sources and in a variety of ways such as fines, suspensions, and even jail time.