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At the end of February, Fernando Tatis Jr. signed a contract with the San Diego Padres that ensures he will never need to worry about money again in his lifetime. The deal is worth $340 million over 14 years and it is a lot of cash even after considering his expenses, which include the typical payment of taxes and agent commissions; however, Tatis Jr. has another entity he will be paying for the duration of the agreement.
A few years ago, Tatis Jr. entered into a contractual arrangement with a company called Big League Advance. The corporate entity which sounds like it inherently belongs in baseball was created by a former professional baseball player named Michael Schwimer. He was a 14th round pick in the 2008 MLB Draft and received a whopping $5,000. Ultimately, Schwimer would tear his labrum and call it quits in 2013. That is when he began to work on building the business model that would turn into Big League Advance.
On the latest episode of the How to Play the Game podcast (Apple/Spotify), I spoke with Schwimer all about the Big League Advance model that took him roughly 13 months to develop between establishing an algorithm that serves as the basis for the enterprise and then beginning to raise money to support the venture. To date, Schwimer has raised a total of $156 million since officially launching Big League Advance at the end of 2016.
But what exactly is Big League Advance? At its core, Big League Advance invests in baseball players. The aforesaid algorithm establishes an internal valuation for professional baseball players so that Big League Advance can offer a proposal where a player gives up anywhere between 1% and 10% of equity in his future professional baseball contracts to Big League Advance in exchange for an up-front sum of money. It is not a loan. If a player never earns a dollar from a Major League Baseball team, then he owes Big League Advance nothing in return. While Schwimer initially toyed with the idea of attaching a player’s off-field income to the equation, that was ultimately dropped from the formula, which means that Big League Advance’s only source of revenue is based on players enjoying a career at the highest level of professional baseball.
Big League Advance will not invest in players who have yet to be drafted by a professional baseball team. Schwimer says that his algorithm only works when a player has logged at least 1 season and that he has brokered deals with players as young at 18-years-old and as old as 27. The average age of a player who signs with Big League Advance is 21-years-old.
Thus far, a total of 344 players have signed deals with Big League Advance. Schwimer says that is despite the Major League Baseball Players Association (MLBPA) and player agents largely being against the product he is pushing. He believes that the MLBPA’s disdain for Big League Advance is that the union only cares about the players who are part of the bargaining unit, which does not include Minor Leaguers who have yet to make a 40-man roster, and that the MLBPA only looks at the relationship from the perspective of the money that is being lost by players (through promised payments to Big League Advance) who make it to the highest level. Schwimer poses that the union should actually like these deals since it could entice players to not accept team-friendly offers, as they know that they have Big League Advance to pay as part of any agreement.
Schwimer says that he has found that agents do not want to be realistic with their clients about the likelihood that they will never make it to free agency at the highest level of professional baseball. Worse, if an agent approves the deal when a player is in Minor League Baseball but the player exceeds his expectations, then the player will likely blame the agent. Players seem to love it and the proof is that 344 of them have signed up with much more likely to follow.
One can look at the Tatis Jr. situation and come to the conclusion that Big League Advance is making a killing. However, as of today, the company is only making money on 2 of the 344 players it has under contract. A total of roughly $3 million has been paid back to investors who have funneled in $156 million. These investors have taken on considerable risk given the fact that there is less than a 10% chance that any Minor Leaguer will play even 1 day in Major League Baseball and that a player generally needs to be in the Major Leagues for 4-6 years just for Big League Advance to break even on that individual.
Schwimer says the main reason why he started this business is based on his own experience of witnessing talented baseball players living in 1 bedroom, 600 square feet suites lined with 6 air mattresses when he was in the Minor League Baseball system. He says that, on average, a player will spend 5.5 years in the Minor Leagues before he makes it to the highest level if he ever makes it at all. Big League Advance provides that player with desperately coveted funds when he needs it most.
Schwimer is certainly not complaining. Instead, he is pointing to the fact that of the 77 players Big League Advance invested in with its first fund of $26 million, 45 of them have reached the Major League Baseball level and he is expecting at least 5 more of them to get there. Big League Advance is either getting very lucky or its algorithm is really good. Perhaps the deal with Tatis Jr. provides the likely answer.
When Big League Advance made its offer to Tatis Jr. it was one of the scariest offers for the young company, says Schwimer. The market did not think he was very good, but Big League Advance’s algorithm had him as the second-best prospect in the last fifteen years, which put him above names like Mike Trout and Giancarlo Stanton. The offer was a substantial amount of Big League Advance’s initial fund. Schwimer would not state what percentage of equity Big League Advance holds in Tatis Jr., but it is somewhere between 1% and 10% of his future salary.