Inside the company that has discovered the ultimate cash cow: teenage athletes (2024)

The minor-league pitcher sits on the couch next to his wife. They're both in their early 20s, and they both look tense. They're on what could turn out to be the biggest — and most lucrative —Zoom call of their lives.

The couple is joined on the call by their financial advisor and the husband's agent. For the next 45 minutes, they all listen, transfixed, as Michael Schwimer holds court from his home office in Maryland. A former pitcher with the Philadelphia Phillies (3 wins, 2 losses, 4.62 ERA), Schwimer is a 6-foot-8 Grecian bust of a man with a mop of curls. He begins his PowerPoint with an apology — he talks too much. From there, he tells the young pitcher about his life in the game, about the way players struggle financially — he once watched a teammate fish through a dumpster for food — and about the superstars he met who earned more millions than they could spend.

Then Schwimer, who suddenly found his baseball career derailed by an injury, hit on an idea. What if athletes could sell a percentage of their future earnings to investors, the same way tech entrepreneurs offer a stake in their promising new ideas in return for venture capital? What is a minor-league pitcher, after all, if not a one-man startup aiming to break into the big leagues?

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So in 2016, Schwimer started Big League Advantage, a sort of hedge fund that invests in the future of minor-league baseball players. Following a landmark Supreme Court decision in 2021 that allowed student athletes to be paid, BLA has since expanded to invest in college football players, basketball players, hockey players, and coaches. (Schwimer explains that BLA also hopes to invest in musicians. "We haven't signed any yet, but anybody who wants a deal with us, we want to call us.") Using a proprietary algorithm monitored by some 30 analysts, the firm models a player's career earnings to decide how much to invest in them. "We look at the game very, very differently than everyone else," Schwimer tells the pitcher. "We probably spend more money on our analytics team than multiple teams combined."

So far, Schwimer says, BLA has invested in the future earnings of nearly 600 players. The athlete — often a teenager —gets an up-front payment in return for up to 15% of their professional sports earnings over the next 25 years. Schwimer says the payments start around $100,000 and sometimes range into the millions. One of the fund's first deals was with the hot-shot shortstop Fernando Tatis Jr., an 18-year-old who went on to sign a 14-year deal with the San Diego Padres for $340 million. If BLA secured only 8% of his earnings, Tatis alone would pay out $27.2 million — more than the company raised in its initial round of funding.

Now, 20 minutes into the Zoom call, Schwimer arrives at what the pitcher and his wife have been waiting for: an offer. BLA, he announces, will pay the pitcher $12,000 for each percent of his future earnings, up to $180,000. That's a nice chunk of change for a young couple. But if he winds up making it big, the pitcher could be selling tens of millions in earnings to BLA for pennies on the dollar.

"Assume you're gonna make it," Schwimer urges the player. "Assume you're gonna be great. We've only had two players regret it later. If you're not gonna be happy, please don't do this."

At the end of the call, the pitcher — who agreed to let me join on the condition he remain anonymous — asks Schwimer what will happen if he says no now. Is there a chance there will be a higher offer next year if he performs well on the field?

Schwimer has anticipated the question. Ninety-two percent of the time, he tells the pitcher, the offer will wind up being lower. And 80 percent of the time, there will be no offer at all. The message is clear: If the couple wants the $180,000, it's now or never.

Schwimer is far from alone in treating human beings as growth investments. X10 Capital, run by one of the original general partners at Benchmark Capital, offers similar deals to athletes. Finlete is launching a fund that allows fans to buy shares in a prospect's future earnings. Spotter and Jellysmack are paying influencers for a share of their YouTube revenue, and private firms and colleges are paying undergraduate tuition for students in return for a cut of their salaries once they enter the workforce. In perhaps the most extreme example, the brothers and serial tech entrepreneurs Daniil and David Liberman are selling shares of their own future earnings and aiming to list themselves on the stock market.

Such investment schemes have drawn sharp criticism. "Big League Advance Is a Major League Scam," reads a typical headline. Sports agents, players unions, and lawmakers have compared BLA's business model to predatory loans or even indentured servitude. However you slice it, the hedge-fund approach to professional sports means that more of the riches will flow to wealthy investors and less to the athletes whose talent and effort actually generate the profits. That's because BLA isn't like an agent, who takes a cut of anything they manage to negotiate for a player. If you make it big, it's more like a payday loan on steroids — it gives you cash when you're strapped but takes a huge bite out of your income for the rest of your career.

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"Until a couple of years ago, minor-league baseball players were among the lowest-paid employees in the entire country," says Garrett Broshuis, a minor leaguer turned lawyer who recently won a major class-action lawsuit for players over wage and overtime violations. "When you're that desperate, you're willing to take more risks. We're talking about human beings here, not startups."

However you slice it, the hedge-fund approach to professional sports means more of the riches will flow to wealthy investors and less to the athletes whose talent actually generates the profits.

A lifelong instigator, Schwimer revels in the negativity. He frames his business as somewhere between a social safety net and trickle-down economics. "We are 'Shark Tank,'" he tells me, "but for athletes and coaches." To him, the players who make it and owe BLA its cut are like any successful founder who owes a venture-capital firm its cut; those who don't are lucky enough to grab a little financial security in one of the world's toughest and most inequitable job markets. And though he has raised nearly $250 million in funding to invest in promising young athletes, he sees himself as a misunderstood underdog fighting on behalf of other underdogs. "I didn't start this company for agents," he says. "I didn't start this company for journalists. I started this company by players, for players."

Last November, I spent a day with Schwimer in Philadelphia, where he was speaking to business-school students and alumni at the Wharton Sports Business Summit. Over breakfast, he tells me he still remembers the moment he knew he'd never be an MLB star.

In 2008, after four years at the University of Virginia, he was drafted in the 14th round. When Schwimer arrived at his first minor-league workout, he watched pitcher after pitcher throw fastballs that whizzed and breaking balls that snapped in ways his never had. That day, he called his dad, a lawyer.

"I'm in trouble here," Schwimer told him. "I got no shot."

His dad was unperturbed. "We got to figure out a way to be different," he said.

So Schwimer started thinking analytically. He'd spent a summer interning at the hedge fund P.A.W. Partners, where he'd worked with their trading algorithms. To better understand the tendencies of the hitters he'd be facing, he built a rudimentary model. The data, he says, revealed that hitters are shockingly predictable creatures.

Schwimer had four subpar pitches. But informed by his DIY pitch-selection algorithm, he managed to confuse batters enough to move up through the Phillies organization. He claims he got the nickname Houdini because no one could understand how he was sneaking his pitches by all these batters.

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Inside the company that has discovered the ultimate cash cow: teenage athletes (1)

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The story is vintage Schwimer — a slightly self-promotional tale that looks shaky on closer inspection. When I asked Erik Kratz, who was Schwimer's catcher in AAA, about the Houdini moniker, he responded with a laugh. "Is that a self-proclaimed nickname?" he said. "You better go back to him and see if he's talking about himself in the third person."

Schwimer insisted the story was true — mostly. "People would say all the time: 'You're like fucking Houdini. How the fuck are you getting outs?'" he clarified when I went back to him. "But, yeah, I guess it probably was a little aggressive to say it was my nickname."

Kratz says Schwimer developed a contentious reputation on his team for "questioning things" and seeking creative edges. Once, he annoyed every hitter in the dugout when he shared his idea to train one of them to foul off a dozen pitches per at bat, to tire out the opposing pitcher. "We were just like, 'Schwim, are you kidding me? You're completely demeaning what we do every single day,'" Kratz recalls. Kratz tells me they dubbed Schwimer's wild theories Schwimosophy.

When Schwimer was drafted, his friends from home thought he was rich. "I signed for 3.2," he'd tell them, pausing for dramatic effect. "Thousand. After tax." He saw the precarious financial conditions that up-and-coming players face firsthand. When one top prospect in the Arizona Fall League told him that the stress of supporting his wife and baby was hurting his play, Schwimer says he floated what would later become the model for BLA. What if you could sell a share of your future earnings, he asked, for $10,000? "I'd give up 50% for 10 grand!" the guy joked.

In 2011, when Schwimer got the call to join the Phillies, "it was the Motel 6 to the Ritz Carlton, overnight," he says. In an anecdote he often deploys in his sales pitches, he recounts hanging out with the All-Star starter Cole Hamels. "What does it mean to have $120 million?" he asked the pitcher. "It's great," Hamels told him. "I have the freedom to do anything I want in the offseason, but it's incrementally useless. If I had made $110 million, there'd be zero difference in my life." (Hamels declined to comment for this story.)

The exchange, as Schwimer tells it, got him thinking. Soon after, he tore his labrum and faced a year of rehab. He fell into a depression, spending his days on the couch reading "Game of Thrones." Finally, prodded by his wife, he started tinkering with his hitters algorithm, transforming it into a tool to rank the career prospects of every minor-league player. In a "Moneyball" moment, he discovered that his model didn't jibe with the MLB's official rankings. Today, he says, more than 80% of the players BLA has invested in are outside the league's top 300 prospects. I ask if signing lower-level candidates is a conscious choice to maximize value. "No, we just think the rankings are terrible," he says.

Inside the company that has discovered the ultimate cash cow: teenage athletes (2)

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During his two years in the MLB, Schwimer had accumulated wealthy contacts. "Once you get to the major leagues," he says, "billionaires all of a sudden wanna hang out with you and play some golf." The guys he met on the links gave him the capital for his first fund. "These are some of the biggest, heaviest hitters in the United States," Schwimer told the husband and wife on the Zoom call. "We have over 200 of them with a combined net worth over $100 billion."

Members of BLA's board have included Marvin Bush, the brother of President George W. Bush, and Paul DePodesta, the Cleveland Browns executive who features heavily in "Moneyball." One of the billionaire investors who helped bankroll BLA's first fund was Bill Miller, who was famously early and bullish on Amazon. The rate of return Schwimer promised was astronomical. "It's gonna be pretty hard not to make money on it," Miller told HBO's "Real Sports." The data that Michael showed us was at least 30% a year for 20 years or so."

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The beauty of the model, from an investor's perspective, is the way it places relatively small bets that offer the prospect of huge outcomes. "We can only lose the money we give," Schwimer tells me, "and we can make a 50 times return." As in venture capital, a single unicorn can cover the cost of many, many bad bets. The key then is to identify promising players and correctly price their future earnings. And with baseball salaries soaring, betting long on sports contracts has an obvious appeal. In 1999, baseball's top-paid player brought home just under $12 million. Today, the Dodgers will pay Shohei Ohtani $70 million a year for the next decade. Even if 70 to 80 percent of BLA's investments never bear fruit, as Schwimer estimates, owning 15% of a star player's future earnings is like holding a share in something that — if the last half century is any guide — will only go up, and up, and up.

As we walk from the diner to Penn's campus, Schwimer tells me that there's no difference between a startup founder taking an investment in exchange for equity and a young athlete taking an investment from him. He mentions that Jeff Bezos gave up 20% of Amazon for $1 million back in 1995, and today, post-divorce, Bezos owns only 10% of his company. He tells me he controls only 52% of BLA.

"Jeff Bezos gave 80%!" he says. "I gave up 48%! Was I taken advantage of? Was Jeff Bezos taken advantage of? Would anyone possibly say that? It's crazy to me. And nobody to this day has ever shown me any possible way as to why it's different."

Part of the issue, I explain, is that the public has always balked at businessmen profiting off an athlete's excellence. Agents and owners are not exactly beloved. Schwimer dismisses such concerns as reflexively anti-business. "If we're a company that makes $2 billion, we are fucking over athletes," he says. "If we're a company that loses all our money, we do great for athletes. Well, that's bullshit. That's like if you invest in the stock market and you lose, you're great for the economy. But if you win, you're taking advantage of everybody. It's insane."

"Athletes are thought of as dumb," Schwimer says. "It's an ism. Not racism; it's like intelligent-ism."

I admit to Schwimer that I'd been feeling a certain queasiness about his company that I'd been trying to unpack. The fact that he was often investing in teenagers, seemingly in times of need, was something I couldn't square morally. People have long circled young stars with dubious or exploitative offers, financial or otherwise, I point out.

"Athletes are thought of as dumb," he responds. "Oh, God, it just kills me. Like, it's an ism. Not racism; it's like intelligent-ism. Do you know how hard it was for me to start this thing? I'm going in with 10 legs down. I'm a former baseball player. They all assume I'm a moron. Like, it's hard."

Schwimer is protective of BLA's algorithm, which he believes provides him with a competitive edge. He would only share certain small differentiators, like the way the model puts more weight on how a minor-league hitter performs against an elite pitcher than how he performs against guys who will never make it to the show. Steven Duncker, a former Goldman Sachs partner who sits on BLA's board, admits he doesn't fully understand how the model works, but nevertheless believes they're onto something game-changing. "This is 'Moneyball'-plus," he tells me. "People say, 'You know the advantage is going to go away?' I'm shocked it hasn't. But it really hasn't."

Inside the company that has discovered the ultimate cash cow: teenage athletes (3)

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There are, of course, some obvious hazards to betting on a person instead of a company. Tatis, the shortstop whom BLA is banking on, was suspended in 2022 for 80 games without pay after testing positive for a performance-enhancing drug. Two more offenses would result in a lifetime ban. "Three of our players under the age of 25 have died," says Schwimer. "But now, at least, their families have the money." People tell Schwimer that Elly De La Cruz, the rookie shortstop phenom who signed with BLA while in the minors, is guaranteed to make $500 million. "He might," Schwimer says. "He also might not make $2 million. He could get hit by a bus."

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But for all his talk about how athletes are derided as unintelligent, there is one type of player whose thought process Schwimer questions: those who choose not to sign with BLA. Schwimer claims he now has enough data to prove that if two players are ranked equally by the algorithm, and one takes money from the BLA and one does not, the player who takes the money is statistically more likely to make it to the majors.

I'm puzzled. Why would that be?

"It's self-selection," Schwimer tells me. "The ones that do our deals really care about making it and will do whatever it takes to make it. The players that don't do it? They're probably less intelligent."

Schwimer says that no player has ever signed with BLA because they were desperate for the money. "No one's forcing anybody to do anything," he tells me. "No one's doing this out of need." He says signees often use the payments to purchase everything from personal training or private chefs to a new mattress. "Our models are blind to your background," he says.

But others dispute that assessment. The primary targets of BLA are "indigent and talented players from Latin America," the baseball superagent Scott Boras told reporters. "Few if any top American talents who received large signing bonuses would ever consider the usurious terms. The idea of giving millions in lump sums to players is the justification of candy used to attract and compel players to give up huge percentages of their careers. That solely benefits BLA."

In response to Boras's quote, Schwimer wrote back a 700-word email that took it on with seven bullet-pointed objections, including: "4. He uses the term 'usurious' which is correlated to loans. Words have actual definitions. We do not give loans to players (no one thinks this)." The email ended: "Again, there are no two sides to BLA. Period."

In 2021, HBO's "Real Sports" found that half of BLA's investments were in players from Latin America. Yermín Mercedes, a prospect highlighted in the segment, said he took $165,000 from BLA for 15% of his future earnings because his family in the Dominican Republic was relying on him for financial support. "I have a big family," he said at the time. "They need me all the time because right now I'm the head of my family. I just want to do the best I can do for them."

Schwimer says he doesn't keep track of players' countries of origin, so he couldn't offer an up-to-date figure on who it's cutting deals with. "We have signed over 100 American players," he insists, "many of which have received signing bonuses in the millions of dollars." But that would mean, by Schwimer's own calculation, that the vast majority of the nearly 600 players signed by BLA are not American.

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In 2018, Francisco Mejía, a Cleveland Indians prospect who accepted $360,000 from BLA for 10% of his future earnings, sued the fund for "unconscionable conduct." In the complaint, he claimed that his mother was sick when BLA approached him and that the fund had him sign a draft of the contract in an airport without an interpreter present. BLA's response was to countersue Mejia, who wound up dropping his lawsuit and issuing a public apology. "To be clear," he said, "I do not believe Big League Advance has ever deceived me."

Inside the company that has discovered the ultimate cash cow: teenage athletes (4)

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BLA has more recently come under fire for cutting deals with athletes while they're still in school. In 2022, the defensive lineman Gervon Dexter signed over 15% of his pretax future earnings for $436,485 after his sophomore year at the University of Florida. A year later, Dexter signed a four-year contract for $6.72 million with the Chicago Bears — more than $1 million of which he would have to hand over to BLA. Last September, Dexter sued BLA, arguing that Florida law allows deals with athletes only while they're enrolled in college, not after, and therefore his contract is null and void. An initial hearing will be held in March.

Schwimer, for his part, maintains that he has always followed the law. He tells me he tends to believe he was sued by Dexter and Mejía because advisors told them BLA would give them a settlement to avoid the expense and the reputational risk of going to court. "But we can't settle," Schwimer says. "If we settle one, the whole company's over."

Before his Wharton panel begins, Schwimer finds me in the atrium of Huntsman Hall. He's been thinking about why all the media coverage of BLA has been so negative. "It always starts with a writer calling me and you can tell wanting to kill me," he says. "And then, after an hour, they're like, 'Actually, what you do is amazing. I can't write anything.'" Their publications, he suggests, refuse to run the stories because they don't want to piss off powerful sports agents.

I tell him, as someone who has written many sports stories, that his theory is hard to square with my experience. But Schwimer continues with his Scwimosohpy. Sure, the lawsuits and the home-run investments like Tatis are newsworthy, he argues. But why not write about all the guys who flamed out and got to keep their payments? "I've done so many interviews just like this one where you go back to your editor and he'll be like, 'Nah, it's not a story because no one gives a crap about the people that don't make it,'" Schwimer says. "I know what it's like when the world leaves you for dead at 25, 26 years old. It's brutal. And nobody cares. The media doesn't care." He pauses. "I care."

Schwimer's reasoning leads to thornier questions. Why is the system built in such a way that young strivers are so desperate for quick cash? And why is an upstart hedge fund the one to fix it?

Throughout our many conversations, Schwimer is rarely combative; his presentation is that of an energetic star of a high-school debate team. He answers many of my questions with questions of his own. He thinks the moral quandary of what he's doing is a fallacy that can be disproven via hypotheticals. His argument that it's not anyone's place to make decisions on behalf of an athlete isn't especially convincing: Regulatory protections exist for a reason. But his other line of reasoning is more interesting. If giving up $10 million in earnings means little to a player who makes $100 million, and being handed $100,000 means everything to a broke minor leaguer, isn't there a justification to take money from the superstar and redistribute it to the underdog?

Perhaps. But that, of course, leads to other, thornier questions. Why is the system built in such a way that young strivers are so desperate for quick cash? And why is an upstart hedge fund the one to fix it?

When the Wharton panel on college sports begins, Schwimer is in his element. The other panelists — a sports agent, a college administrator, and a marketing executive — gently traipse through the intricacies of how NCAA athletes can be compensated today. Schwimer is having none of it. He rails against corruption in the college-sports system, scoffing at the half measures that keep amateur athletes from getting the money they deserve and casting himself as the trailblazing agent of disruption. So what if he's also done well for himself and his investors? He explains, again and again, that he's a free-market absolutist when it comes to getting kids paid. "I'm a believer in capitalism," he declares. "I'm a believer in America."

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During the Q&A session, an audience member asks about the way businesses and college boosters have begun pooling money to facilitate deals for student athletes. "That's what we want to know," the confused attendee says. "Like, what is going on?"

Schwimer points to the college administrator seated beside him. "He'll give you the answer," he says. "I'll give you the truth!" The room erupts in laughter, and Schwimer smiles. For today, at least, the B-schoolers and MBAs see Schwimer just as he sees himself.

Joseph Bien-Kahn is a freelance journalist based in Silverlake. He covers film, sports, true crime, and oddballs for GQ, Vulture, Sports Illustrated, and Businessweek, among other magazines.

As an expert in sports finance and investment strategies, I have a comprehensive understanding of various concepts and practices discussed in the provided article. Here's a breakdown of the key concepts and terms used:

  1. Minor-League Baseball: Refers to the lower levels of professional baseball in the United States, typically serving as a developmental system for players aspiring to reach the major leagues.

  2. Financial Advisor: An individual who provides financial guidance and assistance to clients, helping them manage their wealth, investments, and financial goals.

  3. Agent: In the context of sports, an agent is a representative who negotiates contracts and deals on behalf of athletes, often handling their business affairs and endorsements.

  4. Michael Schwimer: Former professional baseball player with the Philadelphia Phillies, known for his transition into sports finance and investment.

  5. Big League Advantage (BLA): A hedge fund founded by Michael Schwimer that invests in the future earnings of minor-league baseball players, college athletes, and coaches.

  6. Supreme Court Decision (2021): Refers to a landmark ruling that allowed student-athletes to be compensated for their name, image, and likeness, impacting the landscape of amateur sports and athlete endorsements.

  7. Venture Capital: Investment capital provided to startups or small businesses with high growth potential in exchange for equity ownership.

  8. Proprietary Algorithm: A unique mathematical formula or set of rules used by BLA to analyze and predict the future earnings potential of athletes, influencing investment decisions.

  9. Analytics Team: A group of analysts responsible for gathering, analyzing, and interpreting data to inform strategic decisions, particularly in sports finance and player valuation.

  10. Up-front Payment: A lump sum of money provided to athletes by BLA in exchange for a percentage of their future earnings.

  11. Fernando Tatis Jr.: A professional baseball player highlighted as one of BLA's early investments, known for signing a lucrative contract with the San Diego Padres.

  12. Student Athletes: Refers to individuals who participate in collegiate sports while pursuing their academic studies.

  13. Musicians: Mentioned as potential targets for investment by BLA, expanding beyond sports into other entertainment industries.

  14. Private Firms and Colleges: Entities mentioned in the article that offer financial assistance or tuition support to individuals in return for a portion of their future earnings.

  15. Salary: The compensation earned by athletes or professionals for their services, often based on contracts or performance incentives.

  16. Shark Tank: A reference made by Schwimer to describe BLA's model as a platform for investing in athletes and coaches, likening it to the popular TV show where entrepreneurs pitch business ideas to potential investors.

  17. Moneyball: Refers to the innovative approach to baseball management popularized by the Oakland Athletics, emphasizing the use of data analytics to assemble competitive teams.

  18. Pitch-selection Algorithm: Schwimer's analytical tool used to assess the tendencies of hitters and inform his pitching strategy during his baseball career.

  19. Hedge Fund: An investment fund that employs various strategies to generate returns for its investors, often involving high-risk, high-reward opportunities.

  20. Unicorn: A term used in venture capital to describe a startup company valued at over $1 billion.

  21. Regulatory Protections: Legal measures designed to safeguard individuals or entities from exploitation, abuse, or unfair practices.

  22. Amateur Athletes: Refers to athletes who compete in sports without receiving financial compensation, often at the collegiate or developmental levels.

  23. Free Market: Economic system characterized by minimal government intervention and competition based on supply and demand forces.

These concepts collectively illustrate the intersection of sports, finance, and ethics, reflecting the evolving landscape of athlete compensation and investment strategies in professional and collegiate athletics.

Inside the company that has discovered the ultimate cash cow: teenage athletes (2024)
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