As part of my research, I contacted lawyer and agent Darren A. Heitner with a series of questions about the mechanics of how Major League Baseball player agents receive their compensation. It was important that I fully understood exactly how agent commissions flow, as it is a key element of the allegations made against Lozano.
Even though it was over the holiday weekend and he had no idea how I would be using the information, Heitner was gracious with his time, providing a very clear explanation of the process. That helped drive home my contention that Lozano did nothing obvious to sell his client Pujols short for quick commissions and in fact, the contract seemed to be oriented in the opposite direction.
This subject is topical for several reasons. First, the Lozano allegations were made public just last week. Second, and more importantly, the agent is in the midst of negotiating Pujols' next contract - a deal that could approach ten years in duration with a value of over $200 million.
For those interested in learning more about how MLB players are paid and consequently how agents receive their cut, Heitner has allowed me to publish our question and answer session in its entirety.
This first question was the most important, with the answer establishing the fact that the timing of the signing of a contract is not connected to the standard procedure for when agents receive their compensation.
Brian Walton: When an MLB player signs a multi-year contract, how do his agent's commissions flow? Specifically, are they tied directly to the payment of salary to the player over the years or is there more or less provided to the agent up front?
Darren Heitner: Players do not pay their agents up-front on their salaries. Agents will earn their commissions as their clients receive their salary; however, players and agents are permitted to agree to a structure whereby agents are compensated at some later time. It is good practice for agents to send invoices to players at the middle of the season and again towards the completion of the season.
Here, I wanted to emphasize the contradiction that the contract was not structured in a way that would be consistent with Lozano's alleged primary goal of immediate personal financial relief. (Reminder: Pujols did not receive a signing bonus as a part of his 2004 contract.)
BW: For example, assume the multi-year deal has a signing bonus and a salary that escalates each subsequent year of the contract. Does the agent receive the same x percent of all moneys as they flow - x percent of any signing bonus paid up front, plus the same x percent of the growing salary each season? Or is it done another way?
DH: The agent is entitled to his commission as the player is compensated based on the contract that was negotiated by the agent. However, agents may not take a commission on a player's earnings from playoffs and World Series participation.
Further, agents are prohibited from charging a commission on a player's salary if that player is making the minimum amount ($480,000 in 2012). It is not uncommon for agents to invoice their players on their signing bonuses upon receipt of same.
This next question was simply intended to help understand exactly how much money we were talking about. In 2004, for example, Lozano received five percent of Pujols' $7 million salary, or $350,000.
BW: What is a typical "x" in the x percent commission for agents of Major League Baseball players today and was it different in 2004?
DH: The typical amount of commission that an agent receives on contracts negotiated between players and teams has remained the same since I started studying the industry roughly a decade ago. The standard take is 5% on those deals. Certain agents have a policy of charging less.
Agents who also negotiate contracts for clients outside of the game (i.e. a contract to endorse a particular brand of baseball mitts) take a larger cut off of those deals. The standard commission on marketing deals ranges from 10-25%.
Here, I wanted to try to understand if Lozano may have received significant incremental compensation from his employer in 2004, the Beverly Hills Sports Council. While it seems that was possible, the amount and timing of any payments are unknown except by employer and employee.
BW: If an agent is employed by an agency (rather than being self-employed), might he receive an additional up-front bonus from his firm when landing the multi-year contract? If so, any feeling in general terms for the size of this in relation to the commission to be received from the contract itself?
DH: Agents are certainly "taken care of" by their employers when they are able to successfully recruit a talented player and then negotiate a mega deal on his behalf. Many agencies pay their employee agents a commission on deals procured for their clients in addition to a base salary. These payments are often accounted for in the agent's employment agreement with the agency. It is not rare for agents who hit the jackpot on a deal to get a little something special in their Christmas stocking.
I moved my questioning to the actual handling of a player's salary. Though it seemed obvious, I wanted the expert witness to point out that a player's agent is a different role from his financial manager. It would be foolish for any player to combine those two important support jobs into one. In other words, it is unlikely that Lozano is involved in the management of Pujols' finances.
BW: Who actually receives the player's salary from his team? Does the club forward the player's pay to his agent directly or does the team pay the player, who then gives the agent his share?
DH: Players are paid directly. In MLB, players get paid on the 1st and 15th of every month during the regular season. Players have the choice of either being cut a check or having the money directly deposited into their accounts.
The latter seems to be the method of choice not only for players, but also their financial advisors, accountants, and agents. If the financial advisor is managing the account, the agent could earn his commissions without the player taking any affirmative action.
This response once again reinforces the flow of money. The player is paid by his club in bi-monthly installments. The agent is paid by the player's financial advisor later on, typically after invoicing the player at mid-season and the end of the season.
BW: Over the course of the year, when does the actual money flow to the agent? Does the agent get his annual cut up front or does it come in multiple payments just as the player receives his salary from the club over the course of the year?
DH: The agent typically receives his money in multiple payments. If anything, players may not pay their agents as soon as they receive checks or direct deposits from the team. It all depends on who is managing the players' disbursements and whether that person is on top of all necessary expenditures.
As the detail here reinforces, the Deadspin allegations that Lozano rushed to sign a below-market deal for Pujols in February 2004 for immediate personal financial relief do not hold together.
One of, if not the most social media-aware agents in the business, Darren A. Heitner, Esq. is, in his words, a lawyer, educator, journalist, athlete and advocate. Since 2007, Heitner has served as Chief Executive Officer of Dynasty Athlete Representation, a sports and talent agency serving professional athletes. He is licensed in the state of Florida and is employed as an Attorney at Law with the firm Wolfe Law Miami, PA. Heitner teaches Sport Agency Management in the School of Health, Physical Education, and Recreation of the University of Indiana at Bloomington. Active in numerous areas of his industry, he serves as editor of the Sports Agent Blog and his industry-related articles have been featured by a number of professional journals. Follow Heitner on Twitter.
Brian Walton can be reached via email at firstname.lastname@example.org. Also catch his Cardinals commentary daily at The Cardinal Nation blog. Look for his weekly minor league column during the season at FOXSportsMidwest.com. Follow Brian on Twitter.
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