GO
Loading...

New Exotic Investment: Latin Baseball Futures

Investors from the United States believe they have found an exotic new prospect: Latin American baseball players, some as young as 13 and many from impoverished families.

Recognizing that major league teams are offering multimillion-dollar contracts to some teenage prospects, the investors are either financing upstart Dominican trainers, known as buscones, or building their own academies. In exchange, the investors are guaranteed significant returns — sometimes as much as 50 percent of their players’ bonuses — when they sign with major league teams. Agents in the United States typically receive 5 percent.

The investors include Brian Shapiro, a New York hedge fund manager who, along with Reggie Jackson, tried to buy the Oakland Athletics several years ago; Steve Swindal, the former general partner of the Yankees; Abel Guerra, a former White House official under President George W. Bush; and Hans Hertell, a former United States ambassador to the Dominican Republic.

Other, less prominent investors have had no previous connections to baseball or the Dominican Republic. Those investors include a real estate lawyer from New Jersey, a dentist from California and a computer salesman from upstate New York.

Educators and Major League Baseball officials worry because there is no oversight of the investors’ academies, and they question why the investors want to be part of a system that takes teenagers out of school and has been involved in scandals over steroid use and players lying about their ages.

“If the investment is benefiting the player in some way and improving his circumstances, providing, as I said, educational opportunities, etc., then it can be a good thing,” said Sandy Alderson, who oversaw the revamping of baseball’s operations in the Dominican Republic until he was named the Mets’ general manager last month. “But generally speaking, there is no assurance that is happening.”

At academies run by investors from the United States, the players are typically 13 to 19 years old and forgo formal schooling to train. Several of the players said they would return to school if they were not signed to a professional contract.

The conditions of the academies vary from less than desirable to impeccable — like the one run and financed by Mr. Swindal, Mr. Guerra and Mr. Hertell.

Gary Goodman, a real estate lawyer from Cranford, N.J., opened his academy with a former Dominican minor league player in 2009.

“Are we there to make a profit? Absolutely,” said Mr. Goodman, who, like many investors, wires thousands of dollars a month to feed, clothe, house and train the prospects, many who cannot read and do not attend school.

Mr. Goodman and several other investors said their money helped to improve the lives of prospects and their families. They also take a smaller percentage of the players’ contracts than other trainers typically do, they said.

Some of these investors have gained a foothold in the market by lending money directly to prospects’ families, who agree to repay the loans and give the investors a significant portion of the prospects’ signing bonuses.

These practices are worrisome for critics like David P. Fidler, a professor of international law at Indiana University.

“Buscones in the Dominican Republic are in the business of selling children,” he said. “And it’s very disturbing that American investors would come in to profit from a system that exploits and discriminates against young children.” An hour and a half by car from Santo Domingo, at the end of a dirt road in the town of Don Gregorio, a piece of the Dominican baseball system can be found in a small house surrounded by concrete walls and metal fences topped with shiny barbed wire. The entrances are locked.

Inside is a pensión, a dormitory for about a dozen prospects as young as 14. They are trained by California Sports Management of Sacramento, a firm run by the agent Greg J. Maroni and financed by his father, Greg G. Maroni, a dentist who owns several fast-food franchises.

Along with using the academy to produce teenage Dominican players they can represent, the younger Mr. Maroni represents Neftali Feliz, the Texas Rangers’ closer.

The dormitory, which was built in 2007, contains one large bedroom with bunk beds and a small bathroom with two showers. The barbed wire was installed a few months ago, after a player hopped the fence to look for girls in town, said Carlos Paulino, a Dominican trainer who runs the dormitory for California Sports Management.

Although one coach supervises the dormitory at night, two other prospects had gone over the fence earlier this year, Mr. Paulino said in September. “It’s to make sure they don’t get out,” he said.

A few weeks later, though, the younger Mr. Maroni and Mr. Paulino said that Mr. Paulino’s characterization of the barbed wire was incorrect and that it had been installed to prevent break-ins.

“We’re not running a concentration camp,” Mr. Maroni said.

Mr. Maroni’s father said that he had invested about $200,000 in the academy since 2007 and that he wired about $2,000 a month to the Dominican Republic to operate it. When a prospect signs a contract with a major league team, the Maronis take 10 percent to 30 percent of the bonus and split the profit with their Dominican trainers.

The elder Mr. Maroni said he did not know whether his players went to school. “It would be a sure nice goal in the long term,” he said. “Maybe we can give them some English and basic arithmetic classes so they know what a Social Security number is and know a checkbook.”

The academy property features an outdoor weight lifting area, a batting cage, a pitcher’s mound and space to park a midsize school bus, which shuttles players to a field for practice.

A loan to a player’s family led Mr. Goodman, the real estate lawyer from New Jersey, to start his academy. He traveled to the Dominican Republic in 2008 with Alfredo Arias, a former Dominican minor leaguer, to explore investment opportunities. Around that time Jose Canó, an independent trainer and the father of Robinson Canó, the Yankees’ second baseman, said he had a business opportunity for Mr. Goodman and Mr. Arias, his longtime friend. The family of Jorge Martínez, one of Mr. Canó’s players, needed money for food and equipment for the boy, who would be eligible to sign with a major league team later that year.

Mr. Goodman and Mr. Arias lent $15,000 to Mr. Canó to give to the Martínez family. In return, they were allowed to represent him and promised 7 percent of his signing bonus.

“Ultimately, the young man signed with the Indians and received a significant signing bonus of $790,000,” Mr. Goodman said. “We got our percentage, and Canó got his percentage, and the player got his.”

Mr. Goodman and Mr. Arias said that they received $50,000 from the signing bonus along with the $15,000 they had lent, and that Mr. Canó received $200,000.

By 2009, Mr. Goodman and Mr. Arias had founded their own academy, Arias y Goodman in San Pedro de Macorís.

Mr. Arias, who makes his home in a gated community several miles from the dormitory, said he believed the academy would make a profit of about $1 million in signing bonuses this year. He said that he, Mr. Goodman and another investor each put about $400,000 into the venture.

At their dormitory, about a dozen players live in a house with small bedrooms, the players jammed in as if on a ship. In one, three bunk beds line a wall. At one point, Mr. Arias said, 30 players lived there.

“We need to upgrade the facility,” Mr. Goodman said. “I mean, we functioned this year without air-conditioning in the dormitory.”

Mr. Alderson said he hoped the American investors realized their investments were teenagers, many who will never reach the major leagues.

“These are people who have given up other possibilities, forgone other opportunities, have not gone to school,” Mr. Alderson said.

“It’s not just mailing in a check to some mutual fund and hoping that you’re going to get a return.”

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video