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Exploiting inefficiencies in the agent business: one agency lowers its commissions

Aug 7, 2014, 12:03 PM EDT

Money Bag

This is interesting. Darren Heitner of Forbes is reporting that one agency which represents a lot of baseball players — Performance Baseball – is cutting its commission fees from the typical 5% to 1.5%:

”We saw a fiercely competitive landscape where everybody looked the same.  The agents basically offer the same services, pretty much the same fee structure whether it is 4% or 5%, and I could literally hear the sound in my ear from a meeting a couple of years ago where a guy was saying ‘you guys are all really the same.’  My partner and I said let’s focus on what we do best and what we really enjoy doing.”

The article notes that, in reality, not all agents are the same, as some provide different services to their clients. Scott Boras, for example, famously has an entire operation of training, personal business management and general hand-holding professionals on staff to be one-stop shopping for clients. Others, like the guys at Performance, are more about doing the deals and that’s it. Yet, for some reason, all still charged the same basic commissions.

Interesting to see some agents go to the budget model (though I doubt they’d call it that). Maybe it will help disrupt the pattern in which some agents do a ton of work for a player between the ages of 18 and 25 or something and then get tossed aside for someone else just before the player hits free agency.

  1. Alex K - Aug 7, 2014 at 1:06 PM

    This seems like a desperation move. If they were making money hand over fist with the traditional structure I doubt they would have gone nuclear with their business model.

    • flosox - Aug 7, 2014 at 2:44 PM

      I would say the exact opposite. It’s truly supply and demand.
      There is a finite supply of possible clients, i.e. there are only 30 teams and each team has a set number of players. Of these players, there may be an infinite number of agents competing, hypothetically.

      Thus, the only way to grow business is by taking business from someone else as the landscape of available clients is the same every year. Henceforth, creating market conditions that allow you to control the demand side of the curve, will allow you to exponentially increase revenue over and above a stats quo market.

      In English, you may have previously earned 4% on $1, now you may earn 1.5% on $100 with far less time engaged in the process.

      • SocraticGadfly - Aug 7, 2014 at 4:58 PM

        Agreed. There’s Dollar General, and there’s Whole Foods. Besides, we’ve seen how successful the Borass Baseball Academy is.

  2. Black Dog - Aug 7, 2014 at 1:38 PM

    Great article. Thanks for linking.

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