Opportunity, Leverage, and The Road to the Majors

Last month, Fernando Tatís Jr. signed a record-setting contract with the San Diego Padres. However, this post doesn’t have much to do with the Padres or even their relationship with Fernando Tatís Jr. Rather, it briefly considers the contract between Tatís and Big League Advance, which will be owed a portion of Tatís’ 340-million dollar deal.

For those interested in some background on BLA, Ken Rosenthal of The Athletic (subscription required) covered Big League Advance in the wake of the Tatís deal in February; prior to that, the Athletic also covered BLA in 2018. Additionally, the Associated Press did a thorough background on BLA in February as well.

The “too long, didn’t read” version of those pieces might be summarized like this: While still in the minor leagues, FTJ agreed to accept an undisclosed amount of money in return for a percentage of his potential MLB earnings, regardless of whatever his future earnings might be. Of course, that is a gross oversimplification of the situation, but it serves here as a preface. Now, given the landmark deal just signed, Tatís’ relationship with BLA is back in the limelight.

I: Opportunity

When a player signs with a Major League team to become a professional ballplayer, money is surely a considerable factor in that decision, but what most players are primarily signing for is an opportunity. That opportunity entails growing their skillset, playing against increasingly talented competition, earning the chance to play in the Major Leagues, and, yes, playing for the chance to make still more money.

However, the reality is that opportunities are not all created equal. A player’s background can either enhance or suppress their own particular opportunity. Highly sought-after players generally sign for more money to support themselves or their families and are sometimes correspondingly granted a longer time horizon to succeed or fail. Players from relatively wealthier backgrounds might make the most of their opportunity by spurning potential work in order to play in low-paid winter leagues or train during the offseason.

Making it to the Major Leagues is a journey littered with pitfalls, and breaking into the game’s highest level doesn’t alone ensure financial security. Those facts, in tandem with the notoriously low pay in the minor leagues, must make Big League Advance a palatable (or even rather attractive) option for young professional players early in their careers. For Tatís Jr., who has said he used his money from BLA as an investment in himself (training, nutrition, etc.), that money may well have been game-changing; there is no counterfactual to ever say for sure. Still, it is the very precarious nature of MiLB players’ chances, in concert with the wide-ranging financial statuses of those who earn them, that makes for a disparity of opportunity.

For BLA, where there is disparity in opportunity, there is an opportunity to apply leverage.

II: Leverage

From the outside looking in, Big League Advance’s business model is both simple and elegant. Essentially, players receive a cash sum that corresponds to a percentage of any future MLB earnings. Should that player fail to reach the Major Leagues, they are not obligated to pay BLA any money whatsoever. Put a bunch of those contracts together, and enough players make it big for BLA to subsidize their losses on those players who didn’t. BLA has crucially developed a pretty performant algorithm for predicting the MLB earnings of young professional players. The AP News article cited above states that, “The company’s first $26 million fund, which closed in 2018, invested in 77 players… of those 77 players, he said 45 had reached the major leagues…”. In short, BLA has successfully established a novel way to monetize predicting player outcomes.

They have done so though with the help of leverage. For minor league players, financial leverage is all but non-existent; that fact has given rise to BLA, which may very well provide crucial financial help to players, but nonetheless does so with the upper hand.

According to BLA’s FAQ page, $50,000 from BLA gets the company 1% of a player’s big league earnings, $100,000 corresponds to 2%, $150k corresponds to 3%, and on and on until BLA’s stake in a player’s future earnings is capped at 10%, at the cost of 500k.

The chart below indicates that BLA’s break even point for investments, regardless of the amount given to a player, is 5 million in player earnings (1% of 5 million is 50,000, 2% is 100,000, etc.). For every dollar a player makes after 5 million, BLA makes a profit; for every dollar a player falls short of that figure, BLA takes a loss.

It should be noted, though, that there appear to be exceptions to this structure. in 2018, Francisco Mejía of the Cleveland Indians (now with the Tampa Bay Rays) sued BLA over their practices (read more in the AP news article linked above for information on this). Mejia was said to have received $340k for 10% of his future earnings, so that $50,000:1% ratio may not be set in stone.

BLA’s relationship with players is one that features disproportionate leverage though, which makes the chart above misleading. At the heart of the matter is that BLA offers a fixed value for what is a variable return. Of course, that return could very simply be a loss, but some players (i.e. Tatís) help BLA leverage the variable nature of their returns. The illustration above capped player earnings at 10 million; this one below caps earnings at 50 million (still a far cry from Tatís’ contract value).

For those who prefer a chart, below is a table of theoretical earning and loss scenarios for BLA. You’ll notice the increasingly lopsided nature of BLA’s returns and losses.

It is leverage that enables BLA to promote this business model. Of course, that leverage was not of BLA’s own creation: MLB itself has given rise to BLA, given its refusal to provide adequate financial support for minor league athletes.

III: The Road to the Majors

As aforementioned, different players simply have different opportunities. A key component of the variance in opportunity arises from players’ countries of origin. The way that player drafting/acquisition is presently constructed, players from Latin America are at a clear disadvantage.

Upcoming labor agreement talks might offer some systemic changes, but for now (and for a long while) Latin America in a lot of ways provides teams with their most efficient means of player acquisition. In what is still sometimes referred to as the “wild west,” teams can sign talented players for seemingly considerable discounts. Some players sign for large seven-figure bonuses, sure, but they are the exceptions. It remains to be seen what those players might demand in a more formalized process/draft, but it goes without saying that taking less money at the outset of one’s professional career diminishes their opportunity in various ways. For players who must additionally navigate linguistic and cultural hurdles all the while playing far from home, taking less money to begin with can undercut their chances. Given these factors, it doesn’t come as much of a surprise that multiple sources from the AP News article suggest BLA “targets the Latin market.”

As teams are increasingly unwilling to part with established Top-100 prospects in trades, young toolsy players who have either recently been taken in the domestic draft or have limited playing time stateside after being signed internationally are increasingly sought after in trades, as teams bet on those tools translating to performance. BLA seemingly targets similar players. FTJ might not have been a top prospect when he signed his contract with BLA, but he did just finish slashing a .900+ OPS in A-ball, playing competition >3 years older than he was on average. In short, he fit this mold.

I have no verdict (nor am I likely qualified to offer one) on the morality of BLA in connecting with players based on these aspects of their opportunity and thus making use of leverage native to the financial landscape Major League Baseball has created. Most player agents don’t seem to like it, nor does the Players Association, and overall there is something that feels exploitative, to me at least. Still, it is maybe somewhat easy to squint and see the value of offering players potentially game-changing money with no expectations that it be repaid in the event of unfortunate outcomes. Offering payment to less-advantaged players could passably fit a loose definition of utilitarian ethics as “the greatest amount of good for the greatest number of people.” Whatever the case, BLA seems to simply be a symptom of a flawed system for minor league player compensation more broadly. In a perfect world, there would be no opportunity for their business model, nor so much leverage to apply.