CAN INVESTING IN MINOR LEAGUE PROSPECTS BE GOOD BUSINESS? FORMER PITCHER MICHAEL SCHWIMER AND HIS COMPANY, BIG LEAGUE ADVANCE, ARE COUNTING ON IT
IT WAS the top of the third inning of the All-Star Game, with all eyes on Mike Trout as he dug in against Jacob deGrom, but Michael Schwimer was working the phones, trying to identify—and invest in—the next generation of All-Stars.
The 32-year-old former Phillies reliever runs Big League Advance (BLA), a two-year-old company that has raised more than $150 million from private investors to fund its novel business: offering minor league baseball players lump-sum payments in exchange for a share of their future earnings.
Using a wealth of data, Schwimer has developed a predictive model to forecast prospects' careers. BLA aims to identify future MLB regulars before the pundits do, and then offers them a sum depending on the percentage of future earnings a player is willing to give up. The average offer from BLA is around $350,000; players often sign away 10% of their earnings, though some give up less. So far BLA has signed 123 prospects and has plans to sign many more.
That July night Schwimer was on the phone with a 20-year-old pitcher in A ball who had a seemingly ordinary stat line and a ranking outside of his organization's top 15. But the BLA model loved him: He was young for his level, with a strong fastball and curve. Schwimer foresaw a long big league career for him, and after months of trying he connected with the player. "We don't want to be a company that knocks on people's doors," Schwimer says—but BLA will sometimes reach out to a friend or teammate of a player the firm has identified. In this case Schwimer had asked another BLA signee who knew the pitcher from AAU ball to connect him.
The pitcher had called Schwimer to accept his offer: a six-figure sum in return for 10% of his earnings at the major league level. "You've made my night," Schwimer told him. "I'm curious: What are you going to do with the money?"
The player told him, "Offseason training, finding the right gym, the right food, all that stuff. But also, mainly, being a pitcher, you never know when the injuries are going to find you. I just wanted a good foundation for myself if that comes into play."
Any minor leaguer assumes financial risk while chasing his dreams. Health can determine which prospects leave the game with great fortune, and which leave with little or nothing. BLA reduces players' risk by buying out their upside—one solution in a less than ideal system.
DESPITE A board that includes Paul DePodesta, the respected longtime baseball executive who now works for the Cleveland Browns, and Marvin Bush, the son of the 41st president and brother of the 43rd, BLA has mostly avoided publicity. That changed last February, when Francisco Mejía, a 22-year-old catcher from the Dominican Republic then in the Indians organization, sued BLA in district court in Delaware. (Mejía, who was ranked the No. 11 prospect in baseball by MLB.com entering 2018, was traded to the Padres in July.) The parties agreed on this: Mejía had signed three separate deals with BLA in 2016, which gave him $360,000 for a 10% stake in his eventual big league earnings. Mejía was seeking to void the contract on the grounds that BLA had preyed on his financial illiteracy and a desperate family medical situation. BLA vehemently denied the allegation and countersued, claiming that Mejía had breached confidentiality by revealing the terms of his deal.
On Aug. 31, however, Mejía announced that he was dropping his suit and would pay a portion of BLA's legal fees. He said in a statement, "I do not believe Big League Advance has ever deceived me. All of my interactions with Big League Advance and specifically Michael Schwimer have been very professional and respectful. I believe that Big League Advance offers a great option for all minor league players, and one that worked for me and helped me focus on baseball and fulfill my dream of reaching the major leagues.... I apologize to BLA for filing the complaint."
"There's a lot of people who have a really bad view of Big League Advance based off the false complaint that Francisco Mejía filed, but I didn't build the company for those people," says Schwimer. He says more than 100 minor leaguers reached out to BLA after Mejía's complaint made the news; some wanted offers, he says, others just wanted to express their gratitude for BLA's existence. "Minor leaguers have rallied around what we're trying to do," he says.
The players whose deals will make BLA profitable are the ones who reach salary arbitration and eventually free agency; the company expects to lose money on most of its signees. (Players who never make a big league roster can keep their BLA money; they will never owe the company.) "This is not a charity," Schwimer says. "But I believe that making money and being profitable is a win-win for all parties."
Similar arrangements have long existed in boxing and golf and other individual sports. Wealthy benefactors stake a young pro as he works his way up; later, in exchange, the athlete gives a share of his winnings back to his investors. If there is no payday, the investor is out of luck. Baseball wouldn't seem to need such an arrangement: Boxers and golfers are independent contractors, responsible for their own travel and expenses, while baseball players are employees, who travel on team buses and receive instruction from team coaches at team facilities. But many players struggle to get by on salaries as low as $1,100 a month in Class A.
At 6'8", with a mop of curly brown hair and a goofy charm, Schwimer is more Big Bird than big business. He was selected by the Phillies in the 14th round of the 2008 draft, shortly after graduating from Virginia with a degree in sociology. As a pitcher, he married average stuff with exceptional guile. He's fond of saying that his best pitch was whichever one the hitter didn't expect. Sometimes clever sequencing wasn't enough. Erik Kratz, who caught Schwimer at the Phillies' Triple A team in Lehigh Valley and in the majors, says, "To give you an idea of how, uh, innovative he was, if he felt on a given day like he didn't have enough fastball, he'd cover up the rubber with dirt and pitch from six inches in front of it. He called it Schwimlocity." (Schwimer says he did this only once or twice in his career.)
Schwimer debuted with the Phillies in D.C. on Aug. 21, 2011, and shuttled between Triple A and the majors before tearing his labrum shortly after a trade to Toronto in '13. The first month Schwimer was out, he moped. "I was wallowing in self-pity," he says. "I read all the Game of Thrones books." But then his thoughts turned to what might follow baseball, including using his math skills (he had also been a summer intern at a hedge fund during college) to launch a career as a poker player.
He had long considered launching a company to invest in minor league players, and he had always thought he understood baseball well enough to give him an edge. He fired up Excel and got to work, plugging in data. For a year, he did this 16 hours each day.
Schwimer thought that while most minor league statistics were essentially meaningless, those replicating a big league environment mattered a great deal. An A ball slugger could hit 15 home runs against pitchers who would never sniff a promotion, but that would predict nothing. A player who could hit well, even without home run power, against arms that were bound for the Show—well, he was going places.
By 2014, Schwimer's shoulder had healed and several teams were interested in him. Even though he hadn't yet raised a dollar for his business, he told his agent not to bother. He had a new baseball career.
EARLIER THIS year, Schwimer got the go-ahead from his board to hire a full-time analytics team, led by Jason Rosenfeld, who had been the Lakers' director of basketball analytics. Midway through the summer, that team had a breakthrough. It had come up with a superior video-based approach to forecasting pitchers' injuries. He figured it had value not just to BLA but to major league franchises, who invest millions in pitchers with a less-sophisticated idea of whether their arms would hold up.
He decided to market BLA's data. On one sales call in late August that an SI reporter attended, Schwimer sat at a conference table with a team's GM and farm director, as well as staffers who focus on analytics. "I'm still kind of shocked thinking about it," he told the officials. BLA's research dispensed with the conventional wisdom that fireballers are more likely to get injured than soft tossers—"we found there's almost no correlation between fastball velocity and injury"—and with the belief that a "clean delivery" forestalls injury. "If a scout says, 'Oh, I like his motion, it's so smooth,' that's almost a red flag to me," Schwimer says.
To demonstrate his model's value to the front-office guys, Schwimer showed them information based on the 2012 season. Of the pitchers in the sample—all active starters—the program identified a group (about a third) who had a greater than 75% chance of suffering a major injury within three seasons. Just under a third had less than 25% chance of such an injury. After three years, the results: 80% of the players in the high-risk sample got hurt, while only 15% of the low-risk sample had.
Rangers lefty Matt Harrison, for example, had a 98% chance of injury in 2012 according to Schwimer's algorithm; he wound up needing spinal fusion surgery in '14 that would end his career. Matt Cain, who had not missed a start in six seasons before '13, rated a 93% chance of injury. He would lose most of his '14 season due to elbow surgery and would never again be an above-average pitcher; the Giants had signed him to a five-year contract extension in '12. Rick Porcello (2% chance of injury), Chris Sale (8%) and Justin Verlander (9%) were in the other category. Porcello remains a paragon of health; Verlander missed part of the '15 season with a triceps strain but rebounded to help the Astros win the World Series in '17; Sale, despite his unorthodox, violent motion, has remained healthy almost his entire career, though he spent about six weeks on the DL this season.
Finally, the ask: For $150,000, BLA would provide injury forecasts for 75 pitchers (50 professional, 25 amateur) of the organization's choosing. He told the executives he eventually expected to sign up 20 to 25 teams. "We were offered $5 million by one team for an exclusive," says Schwimer. "I said no because once teams see it, we're going to go to division exclusivity, and that's going to be in the millions."
Back when he was in the minors, Schwimer wrote on his blog that he dreamed of making more from baseball than the $2.68 hourly he cleared after taxes. BLA may or may not make millions for its investors, but for now, a sizable number of minor leaguers have gotten a raise.
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