Just 21 years old, San Diego star Fernando Tatis, Jr. is one of the game’s most electrifying players, helping his club win its first playoff series since 1998. And though the Padres were swept in the NLDS by the Dodgers, their shortstop is expected to be consoled with a contract extension of at least $100 million. Any extension this off season is likely to be seen as a win for the player, who is already under Padres control through 2024, as well as the club, which needs to secure a fan favorite. It’s also a win for income sharing agreements, a type of financing where people accept monetary support now in exchange for a percentage of their earnings later. Or is it?
Tatis Jr. is the most successful example of income sharing agreements in sports. Always a top-ranked prospect, Tatis Jr. inked a deal with investment firm Big League Advance that provided him with an undisclosed advanced payment as a minor leaguer in exchange for a piece of future earnings if he made it to Major League Baseball. It’s believed dozens of other pro ballplayers have signed similar deals.
It’s an idea that is percolating throughout the U.S. Most notably, Purdue University and dozens of other schools have crafted income sharing agreements for students, where some tuition is covered in exchange for a percentage of earnings after college, however large or small that may be.
“There does seem to be an enthusiasm for the concept, especially in the college space,” said Derek Tharp, a business professor at the University of Southern Maine. “For people at the low end, where things don’t work out as well for them, it gives them some protection and creates more equitable distributions of outcomes.”
Income sharing isn’t a new idea in sports either, Tharp said. Fantex attempted to market player contracts as a type of stock, but has been winding down its operations in recent years. Minor leaguer Randy Newsom tried to sell his upside for cash last decade. Michael Schwimer thought he found a better way. A former Philadelphia Phillies pitcher who saw the difficulties players had in making ends meet while in the minors, Schwimer formed Big League Advance in 2016. His idea: raise capital from Wall Street investors to then give to players to keep whether or not they make The Show, in exchange for a slice of income if they did make it. Schwimer attracted funds from well-regarded investors, such as mutual fund manager Bill Miller, and the participation of Cleveland Browns executive Paul DePodesta, who also took an ownership stake in Big League Advance.
Today the firm has assets of $125.5 million, according to a July regulatory filing with the Securities and Exchange Commission, and is moving ahead in the field, according to its founder. “We have 285 players under contract now and I get dozens of players contacting me every week,” Schwimer said in an interview. The typical deal for about 8% of MLB earnings. In the case of Tatis Jr., that’s at least an $8 million payday – with more if his career stretches into his 30s.
Its possible the tide may be turning against Big League Advance. In 2019, the Delaware legislature handily passed the Professional Athlete Funding Act as an effort to regulate companies like Big League Advance by putting caps on the length and amount of deals. Schwimer reportedly advocated for the law, but Delaware Governor John Carney never signed it. That’s likely because the players association of MLB (which doesn’t represent minor league ballplayers) as well the players unions of the NFL and MLS lobbied Governor Carney forcefully to reject the bill.
The NFLPA reportedly met with the governor in person to argue against it. MLSPA wrote a letter to Carney calling such third-party agreements “exploitative.” MLBPA’s own letter to Carney argued that there was nothing to prevent a company from financing a player while also provide gambling advice to others – a situation that could create leverage over a player’s performance, the players union wrote. That the big leagues have embraced gambling in recent years wasn’t mentioned.
Schwimer said the move was unrelated to BLA and more targeted at a recent effort called Jambos Picks, an algorithm that generated sports betting touts for a subscription fee. “They are completely separate companies with completely different ownership, different all across the board,” Schwimer said.
In Big League Advance’s July Form ADV, which lists investment funds held within a parent investment managing firm for the SEC, a “Jambos Fund” with $13 million in assets is listed along with two BLA funds. It’s not immediately clear if this refers to the Jambos Picks business. Schwimer said Jambos Picks was shuttered in March due to subscription cancellations from the pandemic halting sports. The MLBPA and MLSPA declined to comment. The NFLPA and Gov. Carney’s press officer didn’t respond to requests for comment.
Big League Advance isn’t the only finance company seeking to secure financial arrangements based on a percentage of a players’ salaries – many of those contacted also declined to comment – but BLA is known to be the largest because no other firm has reached the assets threshold requiring regulatory disclosure, like Big League Advance has. While the opposition of players’ unions and the banning of this type of third-party dealings by MLS and FIFA is certainly problematic for income sharing firms, there is potentially a more troubling hurdle: the idea just may not work in sports.
For one, there is the idea of adverse selection: athletes who are skeptical of their ability to make the big leagues are more likely to accept an income sharing deal, while those highly confident in their ability will be less likely. In that view, Tatis Jr. – the son of former big leaguer and always a heralded prospect – is an outlier. Secondly, the idea makes sense from a risk management perspective, which is why there is more enthusiasm on the mathematically driven lender side. But in reality it runs counter to peoples’ preferences, which is why there is less enthusiasm in income sharing in every sector on the borrower side, noted Tharp. Think of it this way: would you buy a lottery ticket if there is one $1 billion grand prize, or if there are 10,000 $100,000 prizes instead?
Lastly, while a student may have no choice but to find a way to pay for college, ballplayers don’t face such a stark dilemma.
“Unlike education, where you have big tuition bills to pay, for athletes there isn’t so much of a capital need,” explained Tharp. “Minor league baseball players may not make a tremendous amount of money, but it’s not like it’s going to keep them from playing – it’s not keeping them from moving their career forward.”
Schwimer disagreed. “I’d like to see him live on $5,000 a year in the minor leagues with no expenses paid,” he said. “People just don’t know if you haven’t lived it.”
(This story has been updated with quotes from Michael Schwimer in the sixth, ninth and final paragraphs.)