You are young and poor and talented. You have a shot at success, and with it a big payday, but success is not guaranteed and your rent is due now, not five years from now.
Someone offers you a deal: I’ll write you a check today for, say, $400,000. If you fail, you owe me nothing. If you succeed, I’m taking 10% of your future earnings.
Do you take the deal?
This is the dilemma confronting some baseball prospects. Many, especially international players, come from extreme poverty and will spend some number of years making their way through a minor league system in which, at least at the lower levels, their pay barely equals minimum wage.
Former MLB pitcher Michael Schwimer has created Big League Advance, an investment fund that upfronts capital to prospects – we’re talking about six figure advances – in return for which these players promise BLA a percentage, often in the 5-10% range, of future earnings. The amount received upfront and the amount to be paid back later are negotiable – the more upfront money, the higher the payback percentage. A proprietary algorithm helps BLA determine whom to fund and at what amount. The money is not a loan, and if a player fails to earn a salary in baseball he is not obligated to pay it back.
Client list, contract details are private, but lawsuit has revealed some information
Focus turned to BLA in April, when then-Indians prospect Francisco Mejia, a BLA client, filed suit against the company, claiming that their contract arrangements were “unconscionable” and their tactics to induce players to sign with them predatory. In response to Mejia’s suit, such baseball analysts as Ken Rosenthal and Sheryl Ring wrote about BLA’s practices.
We learned, for example, that BLA began its operations in 2016 but started raising funds earlier. According to Schwimer the company has raised over $100 million and signed 100 players. BLA isn’t the first company to try this approach: Fantex, a publicly traded company, also allows athletes to get upfront cash infusions in return for future earnings; there are other companies that specialize in investments or loans for athletes in other fields. BLA seems to be the first to specialize in minor league baseball players.
The client list, and the details of all deals, are private. Schwimer claims many clients are outside the top 300 prospects but some are highly ranked. Fernando Tatis Jr., a top-ranked prospect with a $800,000 signing bonus has acknowledged he is a client, but no doubt many others are less heralded and do not have the benefit of a large bonus (Mejia originally signed for $100,000).
As per Rosenthal, some are critical of BLA, concerned that they try to bypass agents and pressure players, and that they target Latin American players, who may be most vulnerable and likely to sign bad deals for upfront money. Schwimer acknowledges that Latin American prospects may well be overrepresented among their clients, but he insists that simply speaks to the greater need among these players, who may have fewer family resources to sustain them until they get a big league paycheck.
Rosenthal also quotes some agents who speak highly of BLA and their professionalism.
Interestingly, Mejia withdrew his lawsuit just a few days ago, and made an extraordinary statement recanting most of his claims:
Padres catching prospect Francisco Mejia is dropping his lawsuit against Big League Advance (https://t.co/IhgxwK3tDe). Statement here: pic.twitter.com/ZtgvewomGp— Jack Dickey (@jackdickey) August 30, 2018
Mejia, then, seems to have resolved his issues with BLA, but does that mean this particular model that “invests” in young players is not problematic?
Silicon Valley venture fund or corner loan shark?
A quick look at some of the commentary following the filing of Mejia’s lawsuit makes it clear that for many, there is something disturbing about BLA’s business model, which seems to take advantage of young players whose options are limited. That the investors are well-heeled credentialed white guys while so many of the clients are young, poor, brown, and lacking formal education serves to reinforce a concern that these are business relationships built on a large power imbalance.
Schwimer, however, says that this model is much like that found among Silicon Valley start-ups.
Our model, while new to baseball, is like many venture capital funds in Silicon Valley. Big League Advance expects to take a loss on its investments in most players, while benefitting on the players who play a long time in the Major Leagues. It is the same as technology venture funds that make numerous investments in start-ups that fail in hopes of finding the next Amazon or Google.
The company also insists that they take great pains to ensure that a player understands what he is signing, the contracts can be written in the player’s native language and that all players have legal representation. It is not, Schwimer insists, at all like the predatory practices associated with payday loans or “rent to buy” options that charge poor people usurious rates to cover the costs of life’s necessities.
The venture capital/Silicon Valley analogies may be a little off base, however. The entrepreneurs vying for investments are likely to be older, better educated, and more sophisticated than, say, the 16- to 18-year-olds who may be signing Schwimer’s contracts. Tech industry entrepreneurs usually have many options for making a living and raising capital. Those looking to make a living in baseball have only one place to play and a very short window in which to translate talent into income.
But anyone who knows that prospects will break your heart also knows that Schwimer’s arrangement would need to build in expectations of a lot of misses; the millions his firm may earn should a Tatis, Jr. or a Mejia sign a big free agent contract one day will offset the eight to ten prospects who never got past Triple A.
Labor Day Reflections: Is BLA bad for players?
Some of the criticism of BLA has been the concern that it takes advantage of a system that fails to pay minor leaguers a living, or even minimum wage. The response to this situation should be better pay for these players, not a potentially exploitative system that profits on their potential.
They are right, but while we all debate this issue there may be a 20-year-old who needs money now in order to continue training in the off season. As long as BLA behaves as responsibly as Schwimer claims, I don’t see why that player should not consider this sort of arrangement.
I would hope that the MLBPA and MLB would replace their hand-wringing over BLA contracts with real conversation about the plight of minor leaguers and their (owners and players) responsibility to address it. Their refusal to invest in players throughout the system creates this need and, for better or worse, opens up this market opportunity. The MLBPA has insisted it doesn’t represent minor league players, but that doesn’t mean that owners and players can’t agree, in the next CBA, to take up issues relevant to the well being of the young men who are essentially the system’s apprentices. Perhaps both MLB and the MLBPA could agree that a part of their share of baseball revenues could be dedicated to improved salaries and conditions across the minor leagues.
There might still, of course, be players who would take a deal such as that offered by BLA but they would be more likely to do so based on a considered cost benefit analysis and not because they are desperate to feed their families.