- Big League Advance has raised $150 million to invest in the careers of minor league baseball players.
- They pay players up front for a stake in their eventual MLB earnings.
- The model is similar to venture capital, says founder Michael Schwimer, a former major league pitcher.
While the stock market may be facing volatile times and investors can't run away from so many assets moving down together, there's a creative way to find uncorrelated returns.
Investing in baseball players.
A company called Big League Advance has raised more than $150 million to buy equity stakes in minor league baseball players.
The idea is simple. The players get an upfront payment, but it's not a loan. They can keep the money forever.
In return, Big League Advance gets a percentage of any eventual Major League Baseball earnings.
Michael Schwimer, a former major league pitcher, founded the company.
"The players get to choose the equity they give up in return for the money they receive," explains Schwimer. "We might have a scale of a $1 million for 10 percent, or $100,000 for every one percent, and the player can say we will do $300,000 for 3 percent. Our average deal is in the $300,000 to $500,000 range."
A typical minor league player might make less than $10,000 a year, so getting an upfront payment of $300,000 could be a life-changing amount of money.
As superstar free agents Bryce Harper and Manny Machado are expected to soon sign contracts each worth over $300 million, earning even a small percentage of a contract like that would be big money, and a big win for Schwimer's investors.
The company's model is akin to classic venture capital, losing a small amount of money on most investments, with hopes that a few superstars can make up for all the rest.
Schwimer says Big League Advance will lose money on 80 percent of their invested players, but "if you invest in 10 tech startups and one or two become Facebook or Google, you are going to do very well. That's how we do it, just with baseball instead of tech stocks."
One benefit of this type of investing is that baseball player salaries aren't correlated to the whims of the stock market. The big catch? There are no quick returns, and investors have to be patient.
"It's a very long-term investment," says Schwimer. "You aren't a free agent until six years with a major league team. On an individual player investment, we aren't expecting a return for six to seven years."
Some current players who have signed up with Big League Advance include Fernando Tatis, Jr. and Jose Osuna, two highly regarded up-and-coming players. The company has invested in over 130 players, and deals are typically confidential.
This week Major League Baseball announced plans to open up the Cuban player market. If that ends up going through government approval, it will mean an even bigger supply of players for Schwimer's company to invest in.