Question

What aspects of the time value of money must professional sport organizations and athletes consider when negotiating contracts?

Answer 1

Contracts in sports are no different than contracts in everyday life. Professional athletes are compensated for their services with a paycheck just as anyone else. This section examines the nature of personal services contracts of pro athletes. However, even the amateur athlete deals with important contract-related issues. Amateur athletes often have to make tough choices about changing their status from amateur to professional given the dramatic increase in money that may be available to be earned in their sports. Some professional athletes are paid a lot more money in one year than most people ever earns in their lifetimes.

Sports Agents and Contracts

Sports agents serve a valuable role in terms of securing and negotiating contracts for the professional athlete. Lawyers who represent athletes have generally been trained in the fundamentals of contracts and should be familiar with the current market value of their client relative to other athletes within the same sport.

The agent needs to be aware of the priorities and values of his clients so he can fulfil their goals. Players need to be made introspective so they have self-awareness and can make decisions that result in happy endings, according to the order of their priorities. Too many competing options can induce cognitive dissonance--stress that clouds decision making. In the NFL, the biggest bidders and largest contracts come in the first ten days. Agents need to have a strategy and move quickly. Does a player need a visit to that franchise, talk to incumbent players, spend time with the coach, view the city? Timing is everything, so keeping tabs on other competitive free agents and teams and knowing when an offer may disappear or a new one open is key--this will indicate what the right time is to make a deal. The more familiar an agent is with different management personnel, and the more open the communication, he or she will be able to calculate the timing. Keeping in daily touch with the Players Associations which are storehouses of information is crucial. Make sure to consider the effect of the current prospective contract on future contracts. How much in terms of guarantees, and what future contractual freedom is involved.

When teams compete they adopt the mentality of any other participants in the auction process. Having a player meet with executives and getting them excited is paramount. There is no arbitrator or judge making a decision as to what the fair market value is for free agents. Preparing a presentation which shows why a figure is justified is more impactful than just asking for a number. Sports is an oral profession, your word is your bond. DO NOT LIE to team executives, if you cannot be truthful, do not answer. You will deal with the same executives repetitively. Make sure that an offer turned down is done graciously and do not embarrass teams by excessive crowing over results. The table will inevitably turn.

Make sure to communicate with your client steadily and keep him or her completely up to date. There may be financial planners or family members he desires to have involved, keep them informed. It is dangerous to over-inflate the market potential of a client to sign them or placate them. The market is the market, and you do not want to unrealistically inflate expectations only later to have an angry client. If you have fulfilled the athlete's priorities-remembering that winning, geographical location and non-monetary factors may be compelling--and maximized the compensation, you will have done your job in a quality way.