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Star shortstop Fernando Tatis Jr. signed a massive 14-year, $ 340 million contract Wednesday with the San Diego Padres, the third biggest contract in baseball history.
However, not all of that $ 340 million will go to Tatis, and it has nothing to do with taxes.
When Tatis, 22, was a teenager playing Single-A baseball, he signed a contract with Big League Advance, a company that invests in young athletes. The company spreads its investments over dozens of potential athletes by giving them initial cash in exchange for a percentage of their future income.
According to Big League Advance, the business has grown $ 26 million among 77 minor league baseball players in 2017, including Tatis. Players like Tatis then agree to give up between 1% and 12% of future MLB earnings. The typical deal is for 8% of future profits, but the company has not spelled out details of Tatis’ contract, according to Sportico. The contract applies to MLB income and not to endorsements.
If Tatis’ deal was for 8% of his earnings, that would mean $ 27.2 million from that deal will go to Big League Advance.
A contract like Tatis has just signed is a home run for the company.
“When we signed him he was not considered one of the top 40 prospects,” Michael Schwimer, CEO of Big League Advance, said of Tatis. “Back then, when talking to investors, the amount of money we offered him was a big chunk of our bankroll. But we trusted the model.
Tatis’ father also played professional baseball, totaling more than $ 18 million in career earnings, according to contract data from Spotrac.
Given how difficult it is to reach MLB from the minor leagues, risk mitigation may be worth it for some athletes to take the money quickly – only about 10% of minor leagues make it to the big leagues, according to data from MotherJones.
Big League Advance, which was founded by Schwimer in 2016, has investors including mutual fund manager Bill Miller, former Goldman Sachs GS,
partner Steven Duncker, brother of former President George W. Bush, Marvin Bush, and Cleveland Browns executive, Paul DePodesta.
Athletes are no strangers to inventive contractual structures. A famous example is New York Mets player Bobby Bonilla, who agreed to forgo the $ 5.9 million the Mets owed him in an upfront payment in 2000 in favor of 24-year installment payments with a rate of 8% annual interest.
When all payments to Bonilla come to an end, in 2035, her total payment will be $ 29.8 million; it will be a year after Tatis’ 14-year, $ 340 million contract expires.
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