Investing in Baseball’s Rising Stars
Spring Training is here. The crack of the bat and the scent of freshly cut grass signal the renewal of hope and anticipation for baseball fans everywhere.
While Major League Baseball (MLB) superstar players and proven commodities like Aaron Judge are the main attraction for the crowds of fans who descend on Arizona for Spring Training, investment firms have their eyes set elsewhere. They are scouting, running their algorithms, and crunching numbers on the top prospects, players in the minor league farm system that might make it to the big leagues one day. With the way the MLB works, some of these players sign with MLB teams as early as 13 years old.
Investment firms like Big League Advantage and X10 Capital have raised $400 million and $250 million, respectively, to invest in the premier upcoming talent before they make it to the major leagues.
They provide athletes with an upfront payment for a percentage of their future earnings. The deal is contingent on the player reaching the professional level, so if their career gets shut down, they do not need to pay back anything to the investment firm.
Payments start at $100K and sometimes range in the millions in return for up to 15% of a player’s professional sports earnings.
Some publicly announced investments in players are already set to return millions to these investment firms:
- Fernando Tatis, outfielder for the Padres, owes $27.2 million (~8%) of his $340 million contract that he signed in February 2021 to Big League Advantage, per The Wall Street Journal
- Elly De La Cruz, shortstop for the Reds, is projected to earn hundreds of millions of dollars from his MLB career, in which he will have to pay 10% of that to Big League Advantage
The MLB’s current system with regard to contracts and minor league players provides the perfect environment for these types of deals to happen in baseball. The average minor league baseball player makes anywhere from $19,800 to $35,800 annually and typically has to work additional jobs during the offseason just to have enough money to pay for food and housing. Further, many talented players are from Latin America, the primary target of Big League Advantage and other investment firms, and feel obligated to support their large families back home. As a result, they end up taking these upfront cash payments.
While the morality of investing in teenagers, seemingly in times of need, has been debated by several media outlets — many compare them to predatory loans or even indentured servitude — why don’t we see these types of deals replicated in other sports?
For the National Basketball Association (NBA) and National Football League (NFL), they typically tend to get talent from college athletics or international players who are already playing professionally. Both in college athletics and internationally, these players have a much larger platform to market themselves than minor league baseball players. The Alabama Football team averaged 7.12 million viewers per game in 2023, per Action Network, while minor league baseball games are still not nationally available. As a result, top prospects in basketball and football can command hundreds of thousands of dollars, or even millions, from program boosters to play at their school. Therefore, investment firms have less leverage when they try to make these types of deals with top basketball and football players.
