Islj 2009 3-4 - TMC Asser Instituut

negotiating on behalf of a player with the club and they receive a commission
for the service.
Nowadays, the sports agents are part of the professional sport culture.
They have a significant power in the market, some people even
say that they have too much power. In such a way, that they can influence
the migration flows, transfer fees and wages in the way they want
it. It used to be a two-sided relationship between a player and a club.
Today, the sports agent is the third actor in the market.
So, the two-sided relationship evolved over time towards a threeway
relationship, consisting of the clubs, players and the sports
agents.
There is a principal-agent problem in the three-way relationship,
because the sports agent is negotiating on the behalf of the athlete.
The third party is not involved in the traditional principal agent problem,
but we have to keep the clubs in mind. They can influence the
principal-agent relationship between the player and his sports agent,
by aligning the interests of the clubs more with the sports agents. The
athlete and sports agent have a conflict of interest and there is information
asymmetry, because every actor is trying to maximize his own
profits. A sports agent has more knowhow of the market and he has
more experience in the bargaining process. For the athlete, it is important
to give the right incentives to the sports agent in order to align
the interest of the sports agent and the athlete. If a sports agent is
negotiating a contract in the interest of the player, then this can be
seen as bargaining at arm’s length (Bebchuk and Fried, 2004). The
principal-agent problem and the bargaining at arm’s length will be
discussed in respectively chapter 2.3 and chapter 2.4.
Authorities or private institutions have to set some regulations in
order to constrain the power of a sports agent and the ability to abuse
a player (Sobel, 1987). Without any regulation, the power of a sports
agent or a group of sports agents might become too strong.
Nowadays, there are regulations in the market of sports agents. A
good example is the license, which is needed to be a sports agent in
most sports. If the requirements for such a license are high, the quality
of the sports agent increases.
Furthermore, there is not much research available in the field of
sports agents in Europe, in contrast with the United States of
America. The literature about the sports agents in USA is extensive
and it can be used for sports agents in Europe, but there is still not a
clear guideline how to regulate the market for sports agents.
1.1. Problem statement
In this research, the focus will be on the regulation in the market of
sports agents. When thinking about the regulation in the market of
sports agents, several questions arise. Why is there a need for the market
for sports agents to be regulated? More specifically, which problems
or market failures arise in an unregulated market for sports
agents? Can these problems be solved by regulation, and if so, how?
What can be learned from regulation of the market for sports
agents in the USA for Europe and in particular the Netherlands? In
order to narrow the research, the following problem statement is formulated:
“How does the market for sports agents in football look like in the
Netherlands and is the regulation in place enough to create an efficient
market?”
In order to answer the research question it is necessary to set up some
sub questions. The first would be: What does the academic literature
say about the market of sports agents and what economic theories are
useful for this market? The second question is: What regulations are
3 The players received more bargaining
power during contract negotiations, as
explained in the paragraphs above.
4 Not the same as European football.
5 The highest league in the Netherlands is
the ‘Eredivisie’ and the second league
calls ‘Eerste Divisie’. It used to be the
case that the clubs in the second highest
league could not relegate. This season
the clubs can relegate.
6 The regulations set in the USA on the
clubs are to maintain the competitive
balance within the competition. It is a
reaction on the closed leagues and playoff
system. (Groot, 2008).
7 The functions will be explained in chapter
2.1.
in place in the market of sports agents in the Netherlands? After that,
the question arises: How does the market of sports agents looks like
in the Netherlands? Finally: What experiences do the actors in the
market have with the different regulations in place?
So, I will first start with a theoretical framework of economic theories.
In order to understand the market for sports agents, it is good
to explain shortly how the labor market for players works. Further
examples of theories are moral hazard, adverse selection, principalagent
problem and more. After that, there will be a short review of the
literature on this topic. At this moment, there is not yet a clear
overview of the market for sports agents in the Netherlands. So, after
the literature discussion I will give the view of different actors on the
market. In order to this, I have done interviews as an empirical study.
The actors are the clubs, sports agents and the players. The focus in
the research will be on Dutch football. At last, there will be a conclusion,
with the findings of this study.
1.2. Differences between USA and Europe
In this chapter, some of the important differences and similarities of
USA sports and European sports will be discussed. It is important to
know the differences, because the most of the academic literature is
from the USA.
First, it is important to know which sports are called USA sports or
European sports. In the USA there
are four main sports, which are played on a great scale throughout
USA. The four sports are Ice hockey, Basketball, Baseball and
American Football. 4 In Europe, there is one sport throughout the
continent, which is very popular. This sport is football or like the
English people prefer to say it, it is soccer. In this research, I will use
the name football.
In the leagues in USA there are closed leagues, which are not in
place in Europe. This means that a club cannot relegate to a lower
level. The implication is that the competition at the bottom of the
league is not very exciting. In Europe there are open leagues. It is different
in every country until which level. In the Netherlands, for the
first season, the league became an open league. 5 The clubs in the second
highest level can relegate to a lower league. To determine the
champion in the USA, the clubs have to play playoffs at the end of
the season. In Europe it is determined by playing a competition without
playoffs.
In the USA there are several regulations on the clubs, which
restricts the clubs in buying players. For example, there is a rookie
draft. It means, that the club which ended at the bottom of the league
can choose, as first, a young player (rookie). So, the worst clubs can
choose, in theory, the best player for their squad. Furthermore, there
is the salary cap. The salary cap means that a club has a limitation on
the salary expenditures. It is not possible for the club to get a lot of
star players for a high salary, because that would go beyond the salary
cap. Another example is gate-sharing. 6 In Europe there are no regulations
like these, which limits the clubs.
So, you can conclude that the literature from the USA is written
from another perspective and another landscape, in comparison with
Europe. That is why the literature from the USA cannot be translated
fully to the European market.
1.3. Methodology
The methodology used, in illustrating the market of sports agents, is
interviews. To make a clear picture of the market of sports agents, it
is necessary to speak all different actors within the market.
Due to the lack of time, it is not possible to speak with every sports
agent active in the Netherlands.
There are some companies active in the Netherlands, which are
focused on the monitoring of professional footballers. So, I have spoken
with two sports agents in such a company active. These companies
are trying to offer function one until function five to all the players.
7 There are other actors active, besides the sports agent. The players
and clubs are also part of this market. The players are the clients
of the sports agents and the clubs also can be a client of a sports agent
or they are the negotiating partner, when the sports agent is represent-
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