In business contract negotiations, we’re sometimes tempted to break the mold and do things in a new and entirely different way. But if our strategies aren’t supported by sound analysis and advice, we risk winding up with regrets.
Take the case of star running back Ricky Williams, now retired, and the sports agency he worked with as a rookie, No Limit Sports. When negotiating the terms of Williams’s first National Football League (NFL) contract back in 1999, they threw out the playbook—but unfortunately failed to replace it with a winning formula, the blog FiveThirtyEight reported in an analysis of this failed professional sports business contract.
In the 1990s, the rapper Master P—formerly Percy Miller—built on his musical success by launching a successful record label. The Baton Rouge, La.–based No Limit Records became the home of Snoop Dogg, Mia X, Mystikal, and a stable of other popular rappers.
As the company branched beyond music into clothing and movies, Master P began considering adding a sports agency to the lineup, according to an article by Adam Figman on the website VICE Sports. Professional athletes had been hanging around No Limit’s offices, and many were interested in exploring entertainment opportunities that their sports agents knew nothing about. They also liked Master P’s goal of “making sure black people had the opportunity to excel,” former National Basketball Association (NBA) player Derek Anderson told FiveThirtyEight.
Launching No Limit Sports in 1998, Master P reassigned one of the company’s lawyers and its COO as agents and hired a couple of experienced sports agents as well. Anderson and another NBA player, Ron Mercer, signed on as the agency’s first clients, and a slew of NBA and NFL players and prospects followed.
No Limit’s first big deal
No Limit scored a coup by luring running back Ricky Williams, the reigning Heisman Trophy winner from the University of Texas, away from his more traditional sports agents as he approached the 1999 draft. When Williams was chosen number five overall by the New Orleans Saints in the draft, No Limit faced its first big business contract negotiation.
One of Williams’s main goals for his contract was to help his family escape poverty. “[Master P] went from rags to riches, and that’s what I’m about to do,” he told ESPN at the time.
At first, Master P assigned the Williams negotiation to an experienced sports agent he had hired, Andy Curtin. But to Curtin’s surprise, the negotiation was turned over to another man, Leland Hardy. Hardy been a financial adviser to tennis stars Venus and Serena Williams but did not have experience negotiating big-time sports contracts, according to Ebony.
The seven-year, $68 million business contract Hardy negotiated with the Saints on behalf of Williams “was like no other deal the NFL had ever seen,” according to FiveThirtyEight. Because players’ contracts with the NFL are not guaranteed, agents typically bargain hard for high up-front payments and only then look for ways to win their clients income on the back end. By contrast, Williams’s contract was highly incentive based. Ultimately, it was widely judged to be disastrous for Williams and an embarrassment to No Limit.
At first, Williams saw it otherwise. “I’m getting a nice bonus up front, and the rest I have to work for,” he said at a press conference at the time. “And that’s the way it should be.” His salary would be just $175,000 per year, the league minimum. He received a signing bonus of $8.8 million. But the bulk of the $68 million came in the form of incentives that Williams would have to hit to earn.
One section of the Williams contract listed 26 incentives that the running back was promised $50,000 each for meeting. Some of the incentives were not difficult to achieve. Others, such as earning Super Bowl MVP or catching 12 touchdowns in a season—the latter a feat never before achieved by a running back in modern football history—seemed highly unlikely. Moreover, the contract capped Williams’s incentive earnings at $500,000 per season, meaning he had no incentive to meet more than 10 of the 26 milestones each year.
The contract also promised Williams heftier bonuses for breaking rushing thresholds that FiveThirtyEight said were “practically unachievable,” such as Eric Dickerson’s 1984 rushing record. And the deal took a page from the contract of star running back Terrell Davis—quite literally, Curtin told FiveThirtyEight: Sections of Davis’s contract appeared to have been cut and pasted into Williams’s contract in a sometimes nonsensical manner. Williams would have had to match three out of four of Davis’s recent milestones to earn up to $39 million over his final three seasons.
“Only a fraction” of the $68 million contract “was achievable at all, even to the greatest running backs in recent memory,” FiveThirtyEight concluded from its recent in-depth analysis.
A losing streak
Williams’s contract virtually set him up for failure. Injured early in his first season with the Saints, he was unable to match his collegiate performance. Making matters worse, the Saints were a struggling team that had to rely on passing rather than rushing to gain ground on the field. Given few opportunities to run, Williams couldn’t hit many of his incentives.
In 2000, Williams left No Limit Sports and signed with a more established agent, Leigh Steinberg. After the Saints traded Williams to the Miami Dolphins in 2002, “we renegotiated his contract instantly,” according to Steinberg. Williams had earned only about $14 million of his $68 million contract with the Saints.
No Limit’s disastrous negotiation on behalf of Williams prompted many of the new agency’s other clients to defect. Soon after, Master P pulled the plug on his sports business altogether. (No Limit’s record business was also faltering; the company declared bankruptcy and shut down in 2003.) ESPN has called Williams’s contract the worst one for a player in NFL history.
3 takeaways for a better business contract
1. Craft incentives with care.
Incentive-based contracts can be a great way to get to yes when parties have different predictions about how the future will unfold, but the devil is in the details. Try to negotiate incentives that are within your reach or that would offer a challenging but reasonable stretch. When contemplating very difficult incentives, think hard about whether you would be comfortable falling short and forgoing the financial rewards attached to them.
2. Take the long view.
As he entered his first NFL business contract negotiations, Ricky Williams understandably had a strong desire to improve his family’s financial situation immediately. But this pressing concern may have caused him to overlook how his contract could set him up for disappointment over the long term. When your immediate needs are urgent, it’s all the more important to take time to consider how a deal could play out down the line.
3. Vet agents thoroughly.
There are a variety of qualities you should look for in an agent, including rapport, common interests, and connections to new opportunities. But when it comes to choosing someone to represent you in a negotiation, there’s no substitute for experience and reputation. If you are tempted to hire an agent who has certain traits you value highly but who lacks knowledge in a given realm, have that agent team up with a more experienced one.
What kind of contracts have you made that successfully broke the mold?