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Star shortstop Fernando Tatis Jr. signed a massive 14-year, $340 million contract on Wednesday with the San Diego Padres, the third biggest contract in baseball history.
That $340 million, however, will not all go to Tatis, and it has nothing to do with taxes.
When Tatis, 22, was a teenager playing Single-A baseball, he signed a contract with Big League Advance, a firm that invests in young athletes. The firm spreads its investments across dozens of athlete prospects by giving them upfront cash in exchange for a percentage of their future earnings.
According to Big League Advance, the firm spread out $26 million among 77 minor league baseball players in 2017, including Tatis. Players like Tatis then agree to give up anywhere between 1% and 12% of future MLB earnings. The typical deal is for 8% of future earnings, but the firm has not stated details of Tatis’s contract, according to Sportico. The contract applies to MLB earnings and not endorsements.
If Tatis’s deal was for 8% of his earnings, that would mean $27.2 million of this contract will go to Big League Advance.
A contract like Tatis just signed is a home run for the firm.
“When we signed him he wasn’t considered a Top 40 prospect,” Big League Advance CEO Michael Schwimer said about Tatis. “At the time, talking to investors, the amount of money we were offering him was a sizable portion of our bankroll. But we trusted the model.”
Tatis’s father also played professional baseball, tallying over $18 million in career earnings, according to contract data from Spotrac.
Considering how difficult it is to make it to MLB from the minor leagues, the risk mitigation can be worth it for some athletes to take the quick money — only about 10% of minor leaguers make the big leagues, according to data from MotherJones.
Big League Advance, which was founded by Schwimer in 2016, has investors including mutual-fund manager Bill Miller, former Goldman Sachs GS, -0.81% partner Steven Duncker, former President George W. Bush’s brother Marvin Bush, and Cleveland Browns executive Paul DePodesta.
Athletes are no strangers to inventive contract structures. One famous example is New York Mets players Bobby Bonilla, who agreed to forgo the $5.9 million the Mets owed him in an upfront payment in 2000, in favor of payments spread out over 24 years with an annual 8% interest rate.
When all payments to Bonilla conclude, in 2035, his total payout will be for $29.8 million; this will be one year after Tatis’s 14-year, $340 million contract expires.
