How an Agent with Multiple Players Avoids Conflict of Interest

Last week, I wrote about fiduciary relationships in the context of Scott Boras and Jayson Werth, citing the seminal case of Detroit Lions v. Argovitz as a model to better understand an agent’s responsibilities to his client. (If you didn’t read that piece, you should, because it’s the prerequisite for everything which follows.)

Anyway, a number of commenters asked me to look at a slightly different configuration of the sports-agent fiduciary problem: what happens when an agent potentially has a conflict of interest which results from representing more than one player?

Before we answer, a few caveats. First, we are not analyzing actual situations here. This is not a guide on how to avoid disciplinary action by your state’s bar or your league’s player union. Second, this is a bird’s-eye view from about 50,000 feet, which is to say that we are oversimplifying things greatly. There is a lot more to it than what you see here, but submitting 20,000 words to my editor on conflicts of interest in fiduciary relationships (which is surprisingly possible) would likely draw his ire. Third, this is a broad overview based on American law. This is actually an international issue, which means that Canada and Australia, for example, have different rules. Finally, please don’t start a sports agency based on what you see here.

Now, moving on. There’s a couple of different ways to analyze the question posed above. On the surface, it may seem that having a multiple clients is not, in and of itself, a conflict of interest. And while that’s frequently the case, remember that a fiduciary owes a duty of loyalty to the beneficiary — to the exclusion of everyone else. As attorney Robert Kutcher explains,

Whenever one party places trust and confidence in a second person with that second person’s knowledge, it is possible that a fiduciary relationship is created. Such a relationship imposes on the fiduciary the duty to act in the best interest of the person who has placed his or her trust and confidence in the fiduciary. As a result, the fiduciary may not simply deal with that party at arm’s length, guided only by the morals of the marketplace.

It’s also possible to go to the other extreme. Since sports agents are fiduciaries, you could also argue that taking on more than one client is an inherent conflict of interest, because every minute dedicated to one player’s case is a minute not dedicated to another’s, to whom a fiduciary duty is owed. But that can’t be right either, because Scott Boras, for instance, has lots of clients. Most agents have multiple clients.

So our first question, then, has to be to figure out what a conflict of interest is. If you’re looking for a very technical answer, this article by Arthur Laby from the American University Law Review is a good introduction to conflicts of interest in fiduciary relationships generally. But we’re looking for something a bit quicker, so we’ll return to our old friends, the Restatements. For this, we’ll look at a book called the Restatement (Second) of Agency, Section 394, where it says this:

Unless otherwise agreed, an agent is subject to a duty not to act or agree to act during the period of his agency for persons whose interests conflict with those of the principal in matters in which the agent is employed.

That helps! So our first inquiry, then, is whether a player’s interests conflict with those of another player represented by the same agent. The MLBPA has also given us some guidance in its Rules governing player agents:

§5(B)(12) – Actual or Potential Conflicts of Interest – No Player Agent, Expert Agent Advisor or Applicant shall engage in any conduct which, in the MLBPA’s reasonable judgment, may create an actual or potential conflict of interest with the effective representation of players, or the appearance of such a conflict, provided that the simultaneous representation of two or more players on any one Club shall not, standing alone, constitute a per se violation of this provision.

To see how this analysis might work, let’s assume we have two players, Player A and Player B, both represented by Maximillian Moolah. If Player A is Bryce Harper and Player B is Justin Upton, there’s no direct conflict even if both are outfielders. Why? Because Harper is a free agent and Upton isn’t. Moolah doesn’t have to do all that much for Upton; he’s already been paid, he has his contract, and MLB players have limited leverage to ask for trades. It’s unlikely a situation would come up where the interests of Upton and Harper are adverse to each other, because they’re in different free agent markets.

Now, maybe a team goes over to Moolah and says, “We’re signing Upton now, but don’t even think about running Harper by us because we’re using our Harper money to sign Upton.” Might that be a conflict? Maybe, but probably not — after all, Harper’s not a free agent yet, a lot can happen in the meantime, and Harper will probably sign for a lot more than Upton did, plus there are still 29 other teams. This is an example of something which originated in the corporate board context called the business judgment rule. Moolah is allowed to make the reasonable judgment, without a conflict of interest being necessarily imputed (and assuming he doesn’t have a personal stake), that the market will look different in the future than it does now.

Let’s go to a harder scenario. Let’s say an agent represents both Bryce Harper and Curtis Granderson, who both (a) play the outfield and (b) are likely to be free agents this winter. Isn’t this a conflict of interest? Probably not. It’s hard to say Harper and Granderson are direct competitors, after all. The former might get a $400 million contract as a franchise player, while the other is a platoon outfielder likely to get a one-year deal. In all likelihood, while teams may look at Granderson as a contingency plan for failing to sign Harper, it’s unlikely they’ll view Harper and Granderson as substitutes for each other, or as direct competitors for the same roster spot. In fact, Moolah representing both may actually improve Granderson’s standing as a contingency plan to Harper without harming Harper’s market at all. This probably isn’t a conflict of interest, either.

Here’s an even harder one: Bryce Harper and Clayton Kershaw. Both clients, both free agents at the same time. At first glance, you might think that because they don’t play the same position, there’s no conflict here — but be careful. After all, it’s pretty unlikely that a team could sign both Harper and Kershaw, which means they may be direct competitors for the same dollars. So if Harper tells Moolah, “I want to play for the Dodgers,” and then the Dodgers go to Moolah and want to sign Kershaw instead of Harper, Moolah may well have a conflict here because finalizing a deal for Kershaw could breach his duty of loyalty to Harper. The same could be true if only one team could afford to pay $30 million per year: all of a sudden, an agent has two clients for the same spot.

And an even harder one: Bryce Harper and Mike Trout, both free agents at the same time (just go with it). And it can get harder still: what if Moolah represents both, say, Youngus Prospectus and Veteran Presents, and both play the same position. If the MLB team keeps Prospectus in the minor leagues to manipulate his service time, and Presents is only a placeholder until that happens, filing a grievance for Prospectus could hasten the end of Presents’ career.

So as you can see, there are a whole bunch of scenarios where conflicts of interest can occur, and in many of them, even the most careful fiduciary might not see them coming ahead of time, thanks to trades, injuries, ownership changes, and non-tenders, among other circumstances. Attorneys can have conflicts between clients. Brokers can have conflicts between properties or investors. Agents can have conflicts between players. In fact, it’s been a significant problem in the NBA, where, among other things, agents have routinely represented both the players and coaches on the same team. What’s a fiduciary to do?

Enter the conflict waiver.

Remember up at the top when the Restatement said “Unless otherwise agreed”? Similar language pops up throughout the MLBPA rules, where they’re referred to throughout Section 5 as “e.g., notice to clients, client waivers, etc.” A conflict waiver — that is, a waiver of a conflict of interest — is a document which (a) discloses a potential conflict to a beneficiary, (b) discloses why it’s a potential conflict, and (c) grants the beneficiary’s permission to the fiduciary to maintain the representation. The general rule, from cases like Cooper v. Parsky, is that you can’t “sue upon a duty that was expressly excluded from the agreement.”

To see how this might work, let’s go back to Maximillian Moolah above. If he’s representing Kershaw and Harper, he can ask that they waive any conflicts of interest arising from his dual representation, provided he sufficiently discloses their existence. That’s what is known as “informed consent.” But still, waivers only go so far, because a waiver (especially if the agent is a lawyer) doesn’t permit an agent to do a less than competent job for one player because of the representation of another player. So what’s the answer here?

This:

That is, of course, the Great Wall of China. And yes, that’s the answer. Not the literal Great Wall of China — that would be both absurd and strange — but rather a figurative Chinese Wall. (“Chinese walls” are also, amusingly enough, called cones of silence.) A Chinese Wall is a barrier created between employees of a firm to prevent the sharing of information and thus prevent conflicts of interest. So Moolah could represent Harper, and his employee, String Beanfellow, could represent Kershaw, and the two of them could have a policy in place to prohibit them from sharing information about their clients’ free-agent negotiations.

Chinese Walls can be effective, but they’re also quite controversial, both because of the appearance of a conflict which can be created by one firm representing two directly competing players, and because one agent may well be an employee of the other, which creates a whole different set of conflicts. Further, whilst the MLBPA Rules of Agents expressly include conflict waivers, they don’t actually mention Chinese Walls. So over the past few years, Chinese Walls have begun to fall out of favor in a variety of contexts, from law firms to sports agencies. The American Bar Association went so far as to state in 2010 that “The time of the Chinese Wall has passed,” and courts are increasingly unimpressed with their use. In short, the wise agent will use a Chinese Wall and a conflict waiver, and decline representation where the conflict is such that they cannot competently represent both players.

Now, there will still be instances where, even with both a Chinese Wall and a conflict waiver, the agent or their firm would still have a conflict of interest which precludes representing a player entirely. But generally, this is how sports agents can represent multiple players lawfully.