Only about 10% of the more than 7,000 minor league baseball players make it to the majors, and even fewer reach free agency, making the odds of one day signing a multimillion dollar major league contract pretty slim.
But successful investors often have to take a risk, which is why Big League Advance, a company that pays minor league players in advance for a stake in future Major League Baseball contracts, is willing to do.
Michael Schwimer, a former major league pitcher and founder of Big League Advance, uses predictive models to forecast a player’s future valuation and success. He told Yahoo Finance last week that there's "massive risk" and he'll lose money on the majority of his investments, but he only needs a small percentage of his players to have long-term success in the majors.
“We're probably going to lose money on about 60%, 70%, maybe 80% of the players we invest in,” said Schwimer. “But we still think we can make money because on the players that we do invest in that make it big, it's like a lottery ticket, they could produce 50x returns.”
And that certainly was the case for the company’s investment in Fernando Tatis Jr. Earlier this year, the San Diego Padres signed Fernando Tatis Jr. to a $340 million, 14-year contract. It’s the third-largest MLB deal on record and one that generated a sizable return for Big League Advance. The firm reached an agreement with Tatis early in his professional baseball career.
“At the time we invested in him, our models had him as the second best player we have seen in the minor leagues in the last 15 years. He wasn't a top 50 [MLB] prospect,” Schwimer said. “No major league team was predicting this. No one had any idea who he was… But we trusted the numbers, we trusted the process, and it certainly worked out for us."
Here’s how it works: The money given to players is an investment, not a loan, so if a player doesn’t make it to the majors, they don’t have to worry about paying it back. For the players that do make it, Big League Advance will then get a percentage of the major league contract.
It’s an attractive offer for players starting out in the minor league, where weekly minimum salaries as of MLB’s 2021 season range from $400 to $700 a week.
Schwimer told Yahoo Finance that offering players financial security early on in their careers typically pays off, as he sees a higher rate of success from those who sign with Big League Advance than those who decline their offer.
“Players who take this money and invest in themselves increase their likelihood of getting to the major leagues… We see the players who accept our deals do much better than those who don't," he said.
Seana Smith anchors Yahoo Finance Live’s 3-5 p.m. ET program. Follow her on Twitter @SeanaNSmith