There has been a recent trend of professional athletes buying partial ownership interests in player management agencies. According to Deadspin, Alex Rodriguez holds an ownership stake in his agents Dan Lozano’s firm. Lozano represents a-Rod, as well as Albert Pujols and many other high profile MLB players. (If you have not read Deadspin’s article on Lozano, do so immediately, it will blow your mind). Similarly, The Sports Business Journal reports that at least one star NBA player has an equity interest in an NBA agency.
So what is the problem? Consider this scenario: Player A, who has a financial interest in recruiting talent to his agent’s firm, uses his influence to persuade Player B, a teammate or friend, to the firm which he holds the interest. Player A is financial rewarded by the agency’s increased profits. Player B’s former agency loses the client, which, depending on the size of the firm, could be a crippling blow. After all, who is a player going to trust more, a fellow player/teammate or just another agent who is pitching him services? In short, this creates an unfair competitive advantage for those agencies with athletes as financial backers.
Until recently, this type of activity, although frowned upon, was not outlawed by collective bargaining agreements. During the NBA’s most recent collective bargaining negotiations, however, NBA owners requested a rule that would outlaw this type of activity. The exact language of the provision is not yet available, although it is believed to disallow players from having any ownership interest in a player management agency.
It will be interesting to see if the new provision has any teeth to it. According to the Sports Business Journal, the provision does not have a policing mechanism. Although if a player is found to hold an equity share in an agency, they will be required to divest their share.
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