Hot Stove Coal: Scott Boras Has a Clear Conflict of Interest With Johnny Damon

"And suddenly it was all pretty clear. The answer was fewer clients. Caring for them, caring for ourselves, and the games too. Starting our lives, really." - Jerry Maguire

Johnny Damon is having a bad off-season. Originally looking for a 4-year deal at $10 M+ a year, Damon seems as he will have to settle for a one-year deal at around $5 M. For a guy that made $13 M a season the past 4 seasons, this is a huge drop in earnings. I know most won't feel bad for Damon--he will make over $100 M just from playing baseball, his Sanford investment losses notwithstanding--but the fact is that he should have been paid more this off-season and may have gotten it had he had another agent. Scott Boras may be the best agent in the business, but unless a player is a top free agent, they may get lost in the Boras shuffle. That's why I feel that Damon should not have relied on Scott Boras this past winter and may pay big time for doing so.

Matt Holliday and Johnny Damon were two out of the best three outfielders (and probably in the top-5 of all positional players) on the market. Scott Boras has both OFs as clients. Matt Holliday--like Boras client Mark Teixeira the year before and Alex Rodriguez two years ago--received top dollar to sign. Boras created a market out of no place for both A-Rod and Holliday and made the teams that signed them almost bid against themselves. He walked away with a hefty payday because his best clients got paid. They always seem to get paid. It's his medium- and lower-profile clients that get shafted. As Craig Calcaterra of NBC Sports wrote:

Ultimately I think Boras' biggest mistakes come in the smallest of places, not these high profile affairs. Places like Johnny Damon's contract this year, whatever it will be. In the welfare of his lower-profile clients like Joe Crede and Hank Blalock and Jarrod Washburn who likely have to deal with (a) an aversion on the part of front offices to deal with them because of who their agent is; and (b) the fact that they cannot possibly rate in the top ten of Scott Boras' daily priorities given the other guys he represents, even before taking arguable conflicts of interest into account.

Ah, and how about that conflict of interest? Let's talk a bit about that because I think that's in the heart of the matter. Let's say the Cardinals showed a great interest in signing Damon this winter instead of Holliday. Let's say they offered Damon 3-years and $30 M which is way above what anyone else is offering. Let's say that Damon was happy to go to the Cardinals and he wanted badly to sign. Why wouldn't Boras want to sign this contract for his client? Because it would hurt Holliday which would hurt Boras' wallet. The same would be true if Damon had signed early (pre-Nick Johnson signing) for 2-years and $20 M with the Yankees, a team he seemed to want to return to and had a true fit.

Why is this? Well if Damon would have signed with the Cardinals, who would be offering $120 M for Holliday? Not the Mets who got Jason Bay for about half that. Not the Yankees who weren't in on Holliday at all. Not the Red Sox who seemed to value inexpensive defensive upgrades like Mike Cameron. Not the Tigers, As, Braves, Cubs or any other team looking for a cheap alternative in LF.

And if Damon signed for $10 M a season for two seasons with the Yankees before Holliday signed (a possibility at the time), it may have set the market for leftfielders in the market. The Cardinals may have said: "well, we like Matt, but he's not worth $120 and we know the Yankees aren't going to outbid us. Jason Bay looks like he'll get a maximum of $70 and we believe Holliday is better so we'll offer you $80 M for 5." Can Boras really say no? What leverage does he have in this situation? Maybe he could get it up another $10 M, but that's still $30 M less than what he signed for (and less money dedicated to older years).

Now why does this hurt Scott Boras? It's simple math. Let's say that Boras makes 5% for all his services to his clients (totally made up number). And let's say that he signs Holliday for $120 M but Damon only gets $5 M (a realistic view right now). That's $125 M for his clients so a nice payday of $6.25 M for Boras and co. If Damon signs early for $20 M and Holliday signs for $90 M (the high in our example), that's $110 M for his clients so only $5.5 M for the agency*. That's not even counting the lesser OFs he reps who could have made more money in other places if the jobs had been left open.

*Side Note: Even if Damon had gone back at one-year and $10 M early in the off-season his long-term value may still have been higher. Even though he'd be a year older, he'd potentially be hitting the market after two seasons of hitting homeruns in the rightfield wind tunnel at Yankee Stadium and could hit the market again with those inflated numbers. Damon is subpar fielder but I think here was the ultimate E-7 for Damon and Boras

The truth is that in this environment, I don't blame Boras for steering certain clients to certain teams. I have a Masters in economics but anyone who took Econ 101 will know that this is called "Opportunity Cost". Investopedia defines opportunity cost as: "The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action." The opportunity cost of finding Damon a contract early was that Holliday and Boras would suffer. Boras goes to where the greatest amount of money sits, creates a market for his client, inflates his stats, and finds a way to get his top guys, top dollars. When Damon was a free agent 4 years ago, he did the same thing with him. This year, though, he doesn't have the leverage (because of the economy, Damon's age/defense, the lack of George Steinbrenner, and team's needs) and I don't believe he has the time. That's why I quoted the Jerry Maguire mission statement/memo and mostly this part: The answer was fewer clients. Caring for them.

But a true conflict of interest lies here as well. Jimmy Scott's High and Tight talks about former major league catcher Craig Paquette who switched agents from Boras when he felt he wasn't getting the attention he deserved and felt there was a conflict of interest. Scott says, in the agents defense:

Now the agent is going to deny there's a conflict of interest.  He'll talk about his fiduciary duty to his client, stating he's actually putting the interests of his clients above his own.  And, from his perspective, he's probably trying to do that.  An agent's job is to get his clients jobs, first and foremost.

Yes, that is true, but his job is also to get his client the best deal possible. Andruw Jones and Alex Rodriguez (supposedly) both went around Boras when they felt they needed to speak for themselves and sign with the team with which they wanted to sign. Former Yankee pitcher Brian Boehringer, within that same Scott article says that he's appealed to the MLB Player's Assocaition to regulate or at least look into this issue (he says they have not because he is not a "Alex Rodriguez or Derek Jeter"). And Jack Marshall of Hardball Times says that the legal profession has something to say about it as well:

I regard Boras’ activity as an agent as the practice of law, though this is an unsettled matter and not all legal ethicists agree. A non-lawyer can be an agent, but the role of sports agent is one of several hybrid roles, including lobbying and estate and tax planning, that are often regarded as the practice of law when performed by a lawyer. And if the agent ever gives legal advice—and it strains credulity to believe that Boras does not—then there is no doubt: the agent is, for all intents and purposes, acting as a lawyer. As a lawyer, he is bound by the lawyer’s ethics rules.

As a lawyer, Scott Boras is absolutely violating the conflict of interest rules. He is defying a basic conflict problem called the Zero-Sum Conflict...

The remedy for conflicts of interest is often informed consent. If both clients completely understand the implications of hiring the same lawyer to sue the same client with limited resources, can’t they just decide to trust the lawyer and hire you anyway?

The answer is no. The Model Rules of Professional Conduct for lawyers, specifically Rule 1.7, declare that the waiver of all parties is sufficient to waive the conflict only if the lawyer reasonably believes that the representation of one client won’t interfere with the representation of the other. In this situation, you can’t reasonably believe that, because it is impossible. To the extent that you help one client, you hurt the other. It is an unwaivable conflict.

Marshall draws the conclusion that an obvious conflict of interest exists, but I went to our on-site Legal expert--newly-sworn-in lawyer, Jay--for some clarification and thoughts (his emphasis, not mine):

RPC 1.7 would still apply. In this case, we know that Boras represents both Damon and Holliday. Therefore, this arrangement would qualify as a concurrent conflict of interest under Rule 1.7(a)(2) because "there is a significant risk that the representation of one or more clients [Holliday] will be materially limited by the lawyer's responsibilities to another client [Damon], a former client or a third person . . ."

However, it may or may not be unethical, in light of Rule 1.7(b), which states that "Notwithstanding the existence of a concurrent conflict of interest under subsection (a), a lawyer may represent a client..." if 4 things are established:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or the same proceeding before any tribunal; and
(4) each affected client gives informed consent, confirmed in writing.

It really is a judgment call. Does Boras reasonably believe that he can provide competent and diligent representation to both Damon & Holliday, in this free agent market in 2010? Maybe, maybe not. Have both Damon and Holliday given informed consent in writing to Boras? I have no idea.

All I know is that the law probably doesn't prohibit Boras from representing both ballplayers (that's subsection 2). And I also know that the two clients haven't asserted claims against each other before a tribunal. So it really comes down to RPC 1.7(b)(1) and (4).

Honestly, Andrew? Given the current free agent market, you could make a good argument (both for and against) that Boras is violating the Rules of Professional Conduct.

My thoughts? I can't see how this is not a clear conflict of interest, even if it may be allowed under the Rules of Professional Conduct and it is certainly unethical (I know, amazing, a blogger accused Boras of being unethical). Boras' representation cannot be effective under these circumstances and I think this winter's example of Johnny Damon should be a rallying cry to reform the process (probably-future-Hall-of-Famer Bert Blyleven agreed on NBC Sports). The problem is that Boras' isn't going to rally to change it and as Boehringer ran into, lesser-profile players aren't going to influence the MLBPA to change their rules. But the poster boy for this movement could be Johnny Damon. Damon is a well-known player who has played the past 8 seasons in the bright lights of Boston and New York. His rallying cry could change things.

Or the simpler version is that players may have to be more diligent about changing agents when they see this conflict of interest exist. Players switch agents for a lot of seemingly greedy reasons (see Aroldis Chapman), but this would seem to be a great reason to switch agents. Players have sat out a year under Boras' advice and then blamed him afterward. Pedro Alvarez lost valuable developmental time last year when Boras was negotiating every last dime out of the Pittsburgh Pirates and lost some good-will from fans as well. If I had a lawyer or an advocate of any kind who I believe didn't have my best interest in mind, I would think about kicking them out the door, no matter how many miracles they've done in the past or how much they've promised me I could make. But I fear that the draw of the millions that Boras has brought in for his past clients continues to fuel future clients to follow in the same, treacherous path.

Update: Glenn, our other recently minted lawyer, shares his opinion as well:

I pretty much agree with everything Jay said, but think of this from a more practical perspective. Most players are represented by the same small group of agents and so most agents are, technically-speaking, conflicted out from representing many of their clients. Of course, this system shows no sign of changing.

But, on the same note, when clubs deal with the same agent for multiple players over the years, it makes for a great working relationship between the GM and the agent which, of course, benefits the agent's clients. An agent can advise his client on what GMs or what teams may be a good fit for that client based on the agent's past dealings with those teams for other clients. So, other than the technicality, there can be pros to letting these conflicts exist.

And honestly, although the language of the rule states black and white what is a conflict and how that conflict can be waived, even with law firms, many conflicts are brushed aside.