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Fantex

Indians Prospect Francisco Mejia Embroiled In Legal Dispute Over Future Earnings

By Jeff Todd | April 14, 2018 at 12:07am CDT

Indians prospect Francisco Mejia, who is generally considered one of the game’s very best prospects, has brought suit against an entity known as Big League Advance, according to a report from ESPN.com’s Jerry Crasnick. The litigation seeks to set aside a series of contracts between Mejia and BLA.

The precise nature of the agreements is itself evidently a subject of the lawsuit. Generally, though, the arrangement was for Mejia to receive a payment ($360K in this case) in exchange for a portion (10%) of his future earnings. Mejia clams the up-front money was in the nature of a loan, whereas BLA characterizes it as a no-strings-attached payment.

This general scheme shares plenty in common with Fantex, which previously struck some notable bargains with young MLB players. Of course, that company originally sought to sell “shares” of its investments to the general public, a novel marketing concept that seems not to have worked in practice. The BLA approach appears to be more of a hedge fund model and is (per its website) focused on pre-MLB players. Unlike players who are already in the majors, many prospects’ earnings are somewhat less certain and presumably can, therefore, be secured for lesser investments.

Unsurprisingly, Mejia’s allegations paint a less savory account of BLA’s business model than would the entity itself. CEO Michael Schwimer, a former MLB pitcher, denied that the organization utilizes abusive recruitment tactics and disputes certain elements of Mejia’s claims in particular. Crasnick ticks through some of the chief allegations. Whether or not the contract is enforceable will ultimately be decided by the pending court case, which is only just getting underway, unless the sides agree instead to a settlement.

Whether or not Mejia will be bound by this agreement is itself of note, as he’s a significant player who is expected to have a chance at staking a claim to a regular MLB job in short order. (Indeed, he already touched the bigs last year, leading BLA to seek its first payment.) But the lawsuit is potentially also of broader consequences, as it could have implications for the still-uncertain development of this model of outside investment in professional athletes’ future earnings.

Most notably, perhaps, is the simple fact that this sort of agreement was struck in the first place. Unlike the Fantex situation, BLA seemingly has not sought visibility. Indeed, it asks in a counterclaim for an injunction forbidding Mejia from publicizing his interactions with BLA. But it certainly seems this isn’t an isolated matter. The entity’s website claims that it has arrangements with at least three (anonymous) players who have reached the majors since originally signing with BLA. The site also quotes some unattributed statements of gratitude from those players.

As all this is going on, the 22-year-old Mejia is trying to force his way into the Indians’ immediate plans. He’s off to a tepid start at Triple-A and still doesn’t have a clear position at the game’s highest level. (A catcher by trade, Mejia is also working in the outfield at Columbus.) But most evaluators expect the youngster to establish himself before long as a high-quality hitter at the game’s highest level.

Prospect rankings — including Baseball Prospectus (#5), ESPN.com (#7), MLB.com (#11), and Baseball America (#20) — unanimously value Mejia as a top-end talent. He’s obviously already on the verge of drawing a major-league salary. Certainly, there’s every chance that ten percent of his eventual earnings will turn out to be quite a tidy return on the initial investment reputedly embodied in the contract that’s now in dispute.

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Cleveland Guardians Fantex Francisco Mejia Michael Schwimer

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Angels Notes: Anderson, Escobar, Morris

By charliewilmoth | August 20, 2016 at 12:39pm CDT

The Angels will induct former outfielder Garret Anderson into their Hall of Fame on Saturday, as Mark Whicker of the Orange County Register notes. Anderson hasn’t appeared in the big leagues since being released by the Dodgers in 2010, and he says he’s enjoyed his time away from the game, in which he hasn’t had to deal with the frustrations of failing. “I was a mess in the minors. If I struck out in my first at-bat, I was done. For a good player to become better, he has to put that aside,” he says. “I miss the one-on-one with the pitchers. I miss competing against Pedro Martinez, a guy who could make you miss. Other than that, I don’t miss anything. When it was over, I was going home to be with my family. The game was never my identity.” Interestingly, Anderson credits Mike Scioscia — who appears likely to remain with the Angels in 2017 — with instilling a winning culture that changed the Angels. “We had a third-place mentality,” he says. “We’d have good years but we wouldn’t get the player we needed, so that’s how we played. Then Mike Scioscia came in and after a while I realized, this guy really thinks we can win.” Here’s more from Anaheim.

  • Third baseman Yunel Escobar could wind up on the disabled list, Jeff Fletcher of the Register tweets. Escobar left yesterday’s game after bunting a ball off his face. X-rays came back negative, but he is sore. The 33-year-old is batting a strong .320/.368/.402 in his first season with the Angels. He has a $7MM club option for next season.
  • Angels pro scouting director Hal Morris is leaving the organization to work in athlete development for Fantex in San Francisco, Mike DiGiovanna of the Los Angeles Times tweets. Fantex is the company that makes deals with athletes, paying them an upfront sum in exchange for a percentage of their future earnings and then offering shares of those players to investors. Its MLB players include Jonathan Schoop, Maikel Franco, Collin McHugh, Yangervis Solarte, Tyler Duffey and current Angel Andrew Heaney. Morris, the former Reds first baseman, was a candidate for the Angels’ GM job before the team hired Billy Eppler.
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Los Angeles Angels Fantex Garret Anderson Hal Morris Mike Scioscia Yunel Escobar

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List Of MLB Players With Fantex Deals

By Steve Adams | May 26, 2016 at 8:15pm CDT

Earlier this season, Fantex, Inc. announced that it had reached agreements with five new Major League players. For those unfamiliar with the concept, Fantex offers players an up-front sum of money in exchange for a percentage of their future earnings — typically 10 percent. Fantex essentially then treats the athletes as “stocks,” selling shares of the player to investors that stand to turn a profit if the player in whom they’ve invested ultimately earns enough in their career both on and off the field.

At first glance, a player who sells 10 percent of his future earnings for $4MM, for instance, would become profitable for the investors upon reaching $40MM in career earnings. Of course, there’s quite a bit more to it than that, as it remains unclear how taxes, Fantex fees, and yet other considerations are accounted for. All said, there’s quite a bit of uncertainty surrounding what is a fairly new concept; I took a look at some of the potential far-reaching impacts of Fantex deals when the last wave of deals was announced.

With six players now on board and a seeming likelihood that more will follow, we’ll keep a running list of the players that have entered into such deals. We’ll do so in this post and update each time that a new deal is announced. Here are the two initial groups…

April 27, 2016

  • Jonathan Schoop, Orioles, $4.91MM guarantee (10% of future “brand”)
  • Maikel Franco, Phillies, $4.35MM (10%)
  • Collin McHugh, Astros, $3.96MM (10%)
  • Yangervis Solarte, Padres, $3.15MM (11%)
  • Tyler Duffey, Twins, $2.23MM (10%)

September 11, 2015

  • Andrew Heaney, Angels, $3.34MM (10%)

Unsurprisingly, none of the listed players had reached arbitration eligibility upon signing their deal. Franco, Heaney and Duffey, in fact, each had less than one full year of Major League service time when agreeing. Players that have not yet qualified for arbitration are the likeliest candidates to enter into these types of agreements, as they make the most sense for both the player and the business. By the time a player reaches arbitration, he’s secured more than $1MM in career earnings (at least two full seasons of league-minimum salary, plus whatever arbitration number he has settled upon). At that point, a greater sum would need to be promised to make the deal worthwhile for him, thereby making it a more costly expenditure for Fantex. Presumably, the vast majority of Major Leaguers in these deals will be pre-arbitration players.

The greatest impact of these agreements seems likely to be a reduction in team-friendly contract extensions for pre-arb players. Certainly, the agreements in place for these players don’t mean that they’ll be completely closed off to signing a long-term contract extension, but it stands to reason that each would feel less pressure to do so with some significant earnings already in their pocket. A player who has already secured $2-5MM via a Fantex deal, plus several hundreds of thousands of dollars at the big league level may not still shy away from significant contract extension offers, but it’s easy to imagine those players steering clear of contracts like the ones initially signed by Salvador Perez (five years, $7MM) and Jon Singleton (five years, $10MM — though that one worked for the player, to this point, of course). As such, these deals have the potential to push a greater portion of players to the free-agent market down the road. Those shifting incentives, of course, have important implications for players, teams, and Fantex project itself.

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Five MLB Players Enter Into Brand Contracts With Fantex

By Steve Adams | April 27, 2016 at 6:23pm CDT

Fantex, Inc. announced today that it has entered into brand contracts with five Major Leaguers: Phillies third baseman Maikel Franco, Astros right-hander Collin McHugh, Orioles second baseman Jonathan Schoop, Twins right-hander Tyler Duffey and Padres third baseman Yangervis Solarte (as noted on BusinessWire.com).

Fantex offers professional athletes an up-front, one-time payment in exchange for a portion of that player’s future earnings both on and off the field. Fantex then sells “shares” of that player to public investors for a set price (thus covering the up-front payment to the player), allowing those investors to turn a profit if said player crosses a certain threshold in his career earnings. Obviously, that creates risk for the investors, who stand to take a financial loss if the player fails to earn enough money in his career to justify the shareholders’ investment. Angels left-hander Andrew Heaney became the first player to enter into an agreement with Fantex last September, taking a $3.34MM up-front payment in exchange for 10 percent of his future earnings. (Notably, the league and the MLBPA each approved that agreement, and Fantex’s announcement seemingly suggests that the same is true of these five agreements.)

As for the new wave of Fantex additions, Schoop secured the largest sum, agreeing to an up-front payment of $4.91MM. Franco, meanwhile, will earn $4.35MM, while McHugh will take home $3.96MM, Solarte will take home $3.15MM and Duffey will earn $2.23MM. Notably, Solarte’s agreement is for 11 percent of his “brand,” while the other four (and Heaney) signed away 10 percent.

With six big leaguers now on board in addition to 14 athletes from other sports, it stands to reason that the number of professional baseball players willing to enter into such agreements will increase. It’s an interesting proposition for Major Leaguers — not entirely dissimilar from agreeing to an early contract extension; in essence, the players in question are taking a life-changing sum of money early in their career in exchange for limiting their earning capacity once they’ve navigated through their arbitration years and entered their free-agent seasons. Those same principles are all true of players that sign contract extensions, though the extent of the up-front sum and the long-term risk obviously vary.

Beyond the long-term impact on a player’s earnings, it also seems plausible that players who enter into agreements with Fantex could be less likely to sign long-term extensions with their current club. Extensions, after all, are most often signed to provide a player with his first fortune in exchange for giving the club a discount rate on would-be free-agent or arbitration seasons. Heaney, Franco, McHugh, Schoop, Duffey and Solarte, though, have each secured a sizable sum without altering their free agency timelines, thereby creating less urgency to sign an extension. (It should be noted, too, that players like Duffey and Solarte aren’t necessarily obvious extension candidates in the first place.) It seems reasonable to expect that some players and agents will view Fantex as a means of locking in that first payday while preserving the right to get to free agency at a younger age. In a market that places a premium on youth — as evidenced by contracts signed by Jason Heyward, Justin Upton, Mike Leake and others — that comes with significant benefit.

The payments from Fantex, of course, are smaller than the sums that we’ve seen players haul in via contract extensions, but the trade-off that Fantex players face early in free agency figures to be more minimal than the trade-off of their peers that sign extensions. For instance, Giants lefty Madison Bumgarner will reach six years of Major League service time this season, but he remains under control for three more seasons; he’s guaranteed $11.5MM in 2017 and has a pair of $12MM club options on each of the two subsequent seasons. Bumgarner’s contract guaranteed him $35MM ($57.5MM if each of those options is exercised), but he’ll earn a maximum of $35.5MM over what would have been his first three free-agent seasons — a fraction of what he could earn were all 30 teams allowed to bid on him. Bumgarner’s open-market annual value could be $25MM or more over the life of a six- or seven-year term. Ten percent of a theoretical $150-175MM contract is a smaller loss for the player than the difference between the free-agent seasons on an extension and the aforementioned market value.

I should note that this isn’t a knock on Bumgarner’s contract by any means — it was a record-setting deal for a pitcher in his service class and comes with the same potential risk/reward that many early extensions carry. Conversely, Jon Singleton locked in $10MM and has yet to see his big league career get off the ground. If Singleton never develops into an MLB-caliber hitter, he’ll receive significantly more than he would have by entering into a Fantex deal. Balancing that risk and reward is likely something with which players and their agents will wrestle if Fantex agreements continue to increase in popularity.

From a more general standpoint, there’s quite a bit we don’t know about the finer details of Fantex. The method by which each player’s up-front valuation is determined, for instance, isn’t known. Accurate reporting of off-field income (e.g. endorsements) would be paramount (and is presumably mandated within the contract agreements), and the unproven model in question seemingly only works if Fantex is able to raise enough investor funding to finance the initial payment to the player. This is all relatively new territory, though, and additional information pertaining to the new opportunity for pro athletes should become increasingly available in the months to come.

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Baltimore Orioles Houston Astros Minnesota Twins Newsstand Philadelphia Phillies San Diego Padres Collin McHugh Fantex Jonathan Schoop Maikel Franco Tyler Duffey Yangervis Solarte

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