Fernando Tatis Jr. signed a $340 million deal with the San Diego Padres this week.
The interesting part?
An investment firm made ~$30M off the deal also.
The details are fascinating.
Time for a thread 👇👇👇
The interesting part?
An investment firm made ~$30M off the deal also.
The details are fascinating.
Time for a thread 👇👇👇
1) First, some history.
Outside of a few players lucky enough to receive large signing bonuses, 99% of minor league baseball players make poverty-level wages.
In 2019, the average minor league player was paid less than $10,000...in a year.
The result?
Creativity.
Outside of a few players lucky enough to receive large signing bonuses, 99% of minor league baseball players make poverty-level wages.
In 2019, the average minor league player was paid less than $10,000...in a year.
The result?
Creativity.
2) Michael Schwimer, a former Philadelphia Phillies pitcher who spent three years riding busses in the minor leagues, came up with a solution after retiring in 2016.
His idea?
Income sharing agreements.
Let's run through the details…
His idea?
Income sharing agreements.
Let's run through the details…
3) Michael Schwimer founded Big League Advance in 2016, an investment firm with a simple concept:
They pay MiLB players an upfront payment in exchange for a % of their future MLB earnings.
Investors
— Bill Miller (Legg Mason)
— Steven Duncker (Goldman)
— Paul DePodesta (Browns)
They pay MiLB players an upfront payment in exchange for a % of their future MLB earnings.
Investors
— Bill Miller (Legg Mason)
— Steven Duncker (Goldman)
— Paul DePodesta (Browns)
4) Big League Advance pays minor league players, but since it's not a loan & most won't make it to the MLB, they know they'll lose money on 80% of the deals.
Instead, they hunt for big fish.
"If you invest in 10 startups & 1 or 2 become Facebook or Google, you are doing well.”
Instead, they hunt for big fish.
"If you invest in 10 startups & 1 or 2 become Facebook or Google, you are doing well.”
5) The average Big League Advance deal looks like this:
— $350,000 payment
— 8% of future earnings
In total, they've raised over $150M and invested in hundreds of minor league baseball players.
The interesting part?
Their "big fish" was Fernando Tatis Jr.
— $350,000 payment
— 8% of future earnings
In total, they've raised over $150M and invested in hundreds of minor league baseball players.
The interesting part?
Their "big fish" was Fernando Tatis Jr.
6) In 2016, when Fernando Tatis Jr. was 17 playing in Single-A, Big League Advance invested $26M in 77 players.
Now, just 5 years later, with Tatis signing a $340M deal, Big League Advance has made all their money back and some.
At ~8% of his contract, they'll take home $27.2M.
Now, just 5 years later, with Tatis signing a $340M deal, Big League Advance has made all their money back and some.
At ~8% of his contract, they'll take home $27.2M.
7) When it comes to income-sharing agreements, baseball players aren't the only ones signing deals.
The NFL's Allen Robinson signed a deal with Fantex in 2016, which provided him $4.6M for 12% of his earnings.
Unfortunately, they don't all end well.
The NFL's Allen Robinson signed a deal with Fantex in 2016, which provided him $4.6M for 12% of his earnings.
Unfortunately, they don't all end well.
8) In 2018, Francisco Mejia claimed he was taken advantage of in a deal that gave him $360k for 10% of his MLB earnings.
Even more interesting?
He's made $1.2M in his career, meaning it was a profitable deal.
Meija apologized & dropped the lawsuit, but the damage was done.
Even more interesting?
He's made $1.2M in his career, meaning it was a profitable deal.
Meija apologized & dropped the lawsuit, but the damage was done.
9) Opinions vary on whether these agreements should even be allowed, but one thing is certain:
If the MLB worked with Minor League Baseball to reform their pay structure, they might not be needed at all.
The unfortunate reality?
Who knows if that will ever happen.
If the MLB worked with Minor League Baseball to reform their pay structure, they might not be needed at all.
The unfortunate reality?
Who knows if that will ever happen.
10) Michael Schwimer played in the minor leagues, understood the struggle, got creative, and built a business to solve the problem.
In the end, that's what all great entrepreneurs do.
In the end, that's what all great entrepreneurs do.
11) Enjoyed this thread?
You should follow me @JoePompliano.
I tweet interesting stories about the money and business behind sports every day.
You should follow me @JoePompliano.
I tweet interesting stories about the money and business behind sports every day.
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Don't worry, it's free :)
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