Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we set the odds for Big Law’s performance in 2022 and what’s to come in the year ahead. Sign up to receive this column in your Inbox on Thursday mornings. Programming Note: Big Law Business will be off the next two weeks, returning Jan. 12. Happy New Year!
Step right up and place your bets!
It’s the return of the Big Law Sportsbook, where we set the odds on what’s in store for next year. You get to take a shot at predicting the future, and you don’t even have to put your money where your mouth is.
For BLB Sportsbook newcomers, welcome! Here’s how it works: The number provided for each bet is the “over/under.” It’s what the “house” (me) thinks is the mostly likely outcome for every market. Players can pick the “over” if they think that number is too low, or the “under” for vice versa.
If you want to see how it works, scroll to the bottom for the results of last year’s markets.
Top 100 Firms Reporting Declines in Profits Per Partner: 51
If even a slim majority of firms report that profits decreased in 2022 when the numbers start being made public in the coming months, it would mark a huge shift.
Only three firms in the Top 100 by revenue last year reported a decline in profits per partner—and just six firms the year before that—according to American Lawyer data.
This year is different. Big Law as a group has had a less-profitable stretch in 2022 than a year earlier, when 14 firms topped the $5 million mark in profits per partner.
Citi Private Bank’s law firm survey found that managing partners anticipate law firms to report lower profits compared to a year ago.
We’ve set the over/under for the total number of firms reporting profit at 51—just over half.
This wager is not for the faint of heart. It requires you to get into the psyche of law firms and how they report financial figures.
Firms hate seeing PPP figures decline—and there’s plenty of ways to spin the numbers. If you’re cynical about the veracity of Big Law financials, there’s value in taking the under.
Firms also tend to have a pack mentality. Will more be willing to acknowledge a profits hit in a year when almost every firm is expected to be down?
Largest Percentage Decline in Profits Per Partner: 38%
Here’s another bet that goes beyond simple law firm finances.
Weird stuff happens with PPP figures. Last year, amid the strongest performance for law firms in more than a decade, Crowell & Moring reported a 25% decline in PPP—in part due to equity partner growth and a big contingency fee win that bolstered profits in 2020.
Some of the practices that drove the biggest profit growth during a banner 2021 were down the most in 2022. Think venture capital, private equity, IPOs, and emerging technology practices. Firms that are heavily weighted in those practices could see big declines. We already know how Cooley dealt with declining performance: layoffs.
One executive at a major firm told me there’s “scuttlebutt” that some “great firms” are down 20% to 30% this year. If that’s just the “great firms,” then we’ll kick the over/under line up a notch to 38%, accounting for some of the weirdness that can happen with profits figures from year to year.
Highest Reported Hourly Billing Rate: $2,600
A handful of prominent lawyers surpassed the $2,000-an-hour threshold this year.
Billing rates have been outpacing inflation for years—Thomson Reuters data show rates jumped 40% from 2007 to 2020, while inflation ran at 28%. So, as inflation soars, law firms are preparing to hike rates by more than 8% this year, according to a Wells Fargo report.
The highest billing rate I’ve seen publicly reported is the $2,465 per hour charged by Neal Katyal, the former acting US Solicitor General who is now a Hogan Lovells partner. If Katyal bumps his rate by 8%, he’ll be above the $2,600 hourly mark.
Taking the over? Make sure to send me any documents confirming your win!
Litigation Funding Commitments in the US in 2022: $3.1 billion
Litigation funding has grown into a multi-billion dollar business in the US, attracting the attention of “60 Minutes” this week.
There’s not a lot of data on how much is spent backing lawsuits every year, but the best source to date is a survey of the industry by Westfleet Advisors, an advisory firm. Westfleet found that $2.8 billion was committed to new deals in 2021, an 11% increase from the prior year.
Another year of growth like that would top $3 billion.
A good chunk of cash is likely to flow to Big Law, which is increasingly turning to outside funders. The country’s 200 largest law firms received 41% of the commitments from funders in 2021, according to Westfleet.
Lateral Partner Hires by Top 50 Firms: 1,101
The country’s 50 largest firms have been remarkably steady in their partner hiring over the last two years, despite wildly different market conditions.
They’ve hired right around 1,100 partners in each of the past two years, according to data from Firm Prospects. Hiring has slowed significantly in the second half of this year—about 60% of the moves in 2022 came during the first six months, Adam Oliver, a Firm Prospects managing director, said.
Will the market rebound? The number here assumes it will.
First-Year Starting Salaries at End of 2023: $215,001
The sharps say the associate salary war is officially over. Entry level salaries for Big Law associates will end next year where they began: at $215,000.
The sportsbook is dipping back into this market after getting burned last year (see below). Just weeks after we set the number at $205,001, law firms ratcheted the starting salary level to $215,000—marking an early loss for the sportsbook (most bettors naturally gravitate toward “overs.”)
Last Year’s Results
I don’t necessarily encourage it, but I know some law firm partners still print news stories. So, now it’s time to pull out last year’s Sportsbook column and score your answers. Here are the results from a year ago:
Law Firms With More Than $5 Billion in Revenue in 2021: 1.5
Kirkland & Ellis and Latham & Watkins became the first two law firms to report more than $5 billion in 2021. Kirkland blew past that figure with more than $6 billion.
Highest Profits Per Partner: $9 Million
Wachtell, Lipton, Rosen & Katz reported the highest profits per partner on record, $8.4 million, but was still well below the $9 million mark.
Dentons Combinations in 2022: 8.5
Dentons completed just two combinations in 2022, according to the firm’s website. That’s a significant slowdown from the megafirm’s recent pace. Dentons had completed 7.5 law firm tie-ups per year since 2015, according to AltmanWeil’s Merger Line.
‘True’ Lockstep Firms Remaining by 2023: 1.5
Wachtell and Debevoise remained committed to paying partners on a strict lockstep model.
Lateral Partner Hires by Cravath: 3.5
We’re counting government officials here, which might cause a stir among the betting public. Cravath brought on four former government officials, driven mostly by its expansion into Washington.
Bonus: Cravath to Hire a Kirkland Partner? Yes: +400
Maybe you were enticed by the +400 odds we placed on this market—meaning you’d get $400 for every $100 you bet—still it wasn’t a winner. Kirkland attracted yet another Cravath partner, picking up Allison Wein in May, but Cravath didn’t return the favor.
First Year Starting Salary at End of 2022: $205,001
Big Law associates might not be taking home juicier bonuses this holiday season, but they did get yet another raise in 2022. Starting salaries ended the year at $215,000.
Population of Smallest City Where Kirkland Will Have an Office at End of 2022: 200,000
The question here was whether Kirkland would open in a place smaller than Salt Lake City, which has just over 200,000 residents. It did not.
Worth Your Time
On Crypto Bankruptcies: I profiled Kirkland & Ellis partner Joshua Sussberg, who’s become one of the busiest and arguably most important crypto lawyers amid the digital assets meltdown. He represents three of bankrupt crypto lending platforms and is gunning to advise the creditors committee for FTX.
On Sports Deals: Four Big Law firms are advising the new buyer of the NBA’s Phoenix Suns, Brian Baxter reports. Covington, DLA Piper, McDermott, and Proskauer are working the deal.
On Trump Lawyers: Stefan Passantino has taken a leave of absence from law firm Michael Best & Friedrich, Justin Wise reports. The move follows an allegation that Passantino advised a Trump White House staffer to mislead the House committee investigating the Jan. 6 attack at the US Capitol.
That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.
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