The CEO of Big League Advance Makes His Case

Last Monday, I wrote on this very site about both the lawsuit Indians uberprospect Francisco Mejia has filed against Big League Advance (“BLA”) and also BLA’s counterclaim. With the rise of branding contracts in professional sports, Mejia’s lawsuit likely represent a harbinger of things to come — rather than an aberration unlikely to be repeated — as a new frontier in sports litigation develops.

Shortly after publishing that piece, I spoke with BLA Chief Executive Officer Michael Schwimer about his company, the Mejia lawsuit, and what the future might hold. Schwimer, it should be noted, was good enough to spend a full hour being grilled by an attorney while simultaneously fathering his two young children, an arrangement most reasonable people would consider to be less than ideal.

Big League Advance

Schwimer himself is a former major-league pitcher, owner of an abbreviated 48-inning career with the Philadelphia Phillies marked by a lot of strikeouts (9.62 K/9) and a lot of walks (4.25 BB/9). After leaving the game, he started Big League Advance. Schwimer said he started BLA because of his own experience in the minor leagues. “I was reffing basketball games [to make ends meet],” Schwimer told me. “I was babysitting.” Schwimer believed there was a better way, and BLA was born.

According to Schwimer, BLA trades capital for a percentage of a player’s major-league career earnings. “This kind of business has been around for hundreds of years in boxing and golf,” Schwimer said, citing Upstart and Thirteenth Avenue as examples of companies that have made similar deals with students. (Upstart, it should be noted, is a personal loan company.) Schwimer told me the purpose of the company was to help minor leaguers, particularly given the low pay and long odds of making the major leagues.

The capital is intended to be used by players for one of two purposes. First, players can use it to improve their chances of making the big leagues, and Schwimer cited specifically the opportunity to use the money to “eat healthier.” Alternatively, Schwimer talked about creating a safety net for minor leaguers whose careers don’t pan out. “We’ve already had players getting released. We’re helping them start their second lives,” he said. As for the money itself, Schwimer said it isn’t a loan — players are only required to pay the money back if they make the major leagues, and then only the agreed percentage of their major-league earnings.

BLA’s clientele is primarily minor leaguers; Schwimer told me that, of the firm’s 99 clients, “over 90%” are current minor leaguers, and “75% were outside the top 300 prospects when they signed with us.” Schwimer wouldn’t identify any of those 99 clients besides Mejia but did say that they include some “players and prospects ranked way higher than Francisco Mejia.”

Schwimer said that BLA has a proprietary method of identifying minor league players, which looked for “Ben Zobrist types, Moneyball guys.” Schwimer wouldn’t disclose how that model worked, but did say it was “different than anything else around.” That includes, by the way, Fantex: Schwimer told me that BLA and Fantex have completely different business models, with Fantex focused on major leaguers, while BLA uses proprietary methods to identify minor leaguers of interest. Schwimer also bristled at the suggestion that his company was analogous to a payday lender for minor-league players. “We are the exact polar opposite of that,” Schwimer said. “We let the players choose what percentage they want to give up.”

Thus far, Schwimer described his company in less-than-stellar terms. “We’ve raised more than $100 million in two years [of doing business] and returned less than $350,000,” Schwimer said. Schwimer said that, nevertheless, BLA has started to see returns from a handful of major leaguers who signed deals with BLA while in the minors, all of whom had “paid in full.” Based on that, Schwimer said that he was optimistic that the business model could be successful. “If we lose money on 80% of our investments, we’re in great shape,” he said. And Schwimer did say that his business was growing. “We’ve got 10 players wanting to do deals with us every day.”

The Mejia Lawsuit

Our discussion of Mejia’s suit against BLA began with me asking Schwimer why the contract itself, and BLA’s counterclaim, called for the existence of the contract itself to be confidential. I returned to that question no fewer than four times during our conversation, and, to his credit, Schwimer’s answer was consistent each time. “I don’t care at all [about disclosing the existence of the contract],” he said. “That was never the issue.” In fact, Schwimer said several times that he “encouraged” BLA clients to tell teammates about their deals so as to provide a larger customer base for BLA.

Instead, Schwimer focused on the terms of the contract, on which he said he spent hundreds of thousands of dollars and six months developing with the aid of the law firm Morrison Foerster (known in the industry — and on their own website — as “MoFo”). It’s the terms of that contract which Schwimer said he wanted confidential, worried that competitors might be able to backwards engineer their business model and formula. Interestingly, however, Schwimer said that the contract Mejia signed is no longer used, having been replaced by a new contract drafted by Zwillgen, the firm which employs BLA’s current litigation counsel, attorney Jeff Landis.

I asked Schwimer why, if the Mejia form contract had been retired, BLA still considered it a trade secret. Schwimer provided two reasons. First, he indicated that although some changes had been made between contract versions, much of it remained the same. Second, Schwimer said that the equity percentage and payment for that equity were confidential — specifically for the players’ protection. “[The players] all think they’re better than everybody else… [T]hey all think they’re hall of famers,” Schwimer said. And although he said that mindset was needed to make the big leagues — Schwimer said he needed it, for example — he was concerned about players bidding based on what other players received.

Schwimer also said that the confidentiality provisions were “all for the players’ protection… [T]hey don’t want people knowing they have this capital.” Schwimer did concede, however, that it was for BLA’s protection as, well. Schwimer, as can be seen, is remarkably guarded when it comes to disclosing the inner workings of his company.

Schwimer provided a very different narrative of events than what is contained in Mejia’s complaint. According to Schwimer, Mejia did, in fact, have three different contracts with BLA — and, in fact, was among their first clients. But Schwimer said that Mejia was represented by counsel of his own choosing each time, and BLA never paid for Mejia’s attorneys or went to his house. “We don’t even know where Francisco lives,” Schwimer said. Schwimer contends that Mejia was represented by his ISE agents at the first negotiation, which was $100,000 for 3% of Mejia’s career earnings. Thereafter, Schwimer says Mejia approached BLA twice more without his BLA representation and asked for more capital, using a separate attorney and cutting his ISE attorneys out of the picture each time. Schwimer said that the contract was explained to Mejia in Spanish and said the terms are always explained to every client in their native language. In fact, Schwimer said, that after the third contract, Mejia sent a text to BLA saying, “I love you guys.”

According to Schwimer, things went south between Mejia and BLA after the catcher asked for a fourth deal, proposing $500,000 for an additional 1% after the 2017 season, saying another company had offered those terms. Schwimer balked at that deal. “At the absolute most, we might do an extra 2% at a much higher valuation, really only to help him out.” Schwimer says that, after BLA turned down Mejia’s proposal, Mejia sued his company and blindsided him in the process.

I asked Schwimer point-blank if Mejia was lying in his complaint. “Absolutely yes,” he said. “Where we said ‘denied’ [in our Answer], then obviously we’re saying that [that allegation is] a lie.” I then asked Schwimer if he would be pursuing a sanctions motion against Mejia based on that position. “I haven’t even spoken to anyone about that,” Schwimer said.

The Future

One matter about which I was curious is whether Schwimer plans to change any of BLA’s business model in the wake of Mejia’s lawsuit. “Absolutely not,” he said. “Integrity and character, that is what we live by.” Schwimer made clear that he and BLA are seeking no future earnings in their counterclaim and that he is seeking only to keep the terms of the contract under wraps so as to prevent competitors learning their trade secrets. But Schwimer did tease that this story wasn’t over. “One of the best prospects in all of baseball is demanding to go on the record [defending BLA],” Schwimer said, though he wouldn’t reveal who that was. He did say, however, that we wouldn’t have to wait long to find out.

One thing is for certain: these companies aren’t going away. So long as minor-league pay is a problem, companies which offer deals like BLA’s will provide an attractive alternative, particularly for players who aren’t the proverbial bonus babies. I found Schwimer to be credible, but questions do remain. His story and Mejia’s are so different that they both can’t be true, and Schwimer seemed to recognize he’s in for a protracted court battle, even acknowledging he won’t be filing a motion to dismiss. “Unconscionability is a pretty tough thing,” he said.





Sheryl Ring is a litigation attorney and General Counsel at Open Communities, a non-profit legal aid agency in the Chicago suburbs. You can reach her on twitter at @Ring_Sheryl. The opinions expressed here are solely the author's. This post is intended for informational purposes only and is not intended as legal advice.

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sadtrombonemember
4 years ago

I think part of the question that is unanswered for me is: How much advice are the MiLB players really getting? Are agents looking out for players here? What sort of legal representation are they getting?

The other thought I have is on the following quotes, put next to each other: “If we lose money on 80% of our investments, we’re in great shape” and “Schwimer also bristled at the suggestion that his company was analogous to a payday lender for minor-league players.” These two ideas are not in conflict, and are somewhat complementary. You need a bonkers return on the people who give you any in order to compensate for the bath you take on almost everyone else.

In any case, thanks Sheryl for following up with this. I’m very interested in this case. And yeah, this really makes the case pretty clear that you need better minor league pay if several players need to take this in order to eat better.

HappyFunBallmember
4 years ago
Reply to  sadtrombone

3% MLB return on a 100k advance means the player has to make $3.3M to break even for BLA. If they assume an 80% failure rate that means $16.6M to cover the lost bets.

$16.6M is enough that a “hit” has to be a player who sticks in MLB long enough to earn a FA payday … either because he’s a star who manages to clear that in arbitration, or because he’s a fringy MLB guy who finally earns it through free agency.

Moatemember
4 years ago
Reply to  HappyFunBall

You’re assuming the same terms/valuations across the board. There might be players who project to be bounce around guys that are looking at double digit percentages in order to get a $100K advance. I would imagine there’s some sort of additional risk placed on those players by the lender here, but that’s strictly speculation.

sadtrombonemember
4 years ago
Reply to  Moate

I would assume this as well. Francisco Mejia likely got much more favorable terms than, say, Oscar Gonzalez would.

HappyFunBallmember
4 years ago
Reply to  Moate

I am assuming that. Yes.

But also it’s a bet, not a loan. Failures pay back zero. Jacking up the rates for fringier prospects that are less likely to make the bigs, and less likely to earn much even if they do, doesn’t seem like much of a help from an investor’s point of view. Fringier prospects are probably not privy to the deal, or are not advanced as much if they are.

evo34
4 years ago
Reply to  HappyFunBall

What’s your point?

coopatroopa
4 years ago
Reply to  sadtrombone

Business models where success is driven by a handful of outliers and a ton of busts aren’t necessarily limited to payday lenders, though. When it comes to money, I think there are two broad classes of business models that have this property.

First, you have business models in which the business makes money when a small handful of people mess up. Payday lenders fall into this category, but so do free checking accounts with overdraft fees and most credit cards. Many people do not think highly of these types of models.

On the other hand, you have far less controversial business models in which the business only makes money when a small handful of people succeed. Things like venture capital and personal injury lawyers fall into this category, and I’m sure that Schwimer would argue that his company does too given that he doesn’t collect anything when the player doesn’t pan out.

Setting aside the possibility of misleading/illegal/manipulative/coercive behavior related to the signing of the contract- which certainly could be true, though it’ll be impossible to know until the details come out in court- I think I would agree with Schwimer that his business model looks more like insurance than a payday loan. But my fear is that MLB will be tempted to address the symptoms of this issue by banning these types of arrangements instead of getting at the root cause: the extremely low success rates of minor league players and the terrible conditions that many of them deal with as a result.

sadtrombonemember
4 years ago
Reply to  coopatroopa

That’s a fair point. I think that Schwimer definitely is arguing that BLA follows the venture capitalist model (if a player doesn’t pan out, it’s just a loss). I think the big reason why it is similar to a payday lender model is that it caters specifically to people who have the least leverage to accept other terms.

Perhaps there are competitors to BLA that we just don’t know about, and maybe they are getting good representation, and so on and so forth. I doubt it, but it is possible.

I would also agree that the root problem is that MiLB players are paid so poorly they’re willing to take these terms, and that no matter what your view of BLA is it’s hard to escape that fact.

TapeyBeerconemember
4 years ago
Reply to  sadtrombone

The ultimate leverage is being able to walk way from the table, and the MiLB players always have that option.

dominic.theofan
4 years ago
Reply to  TapeyBeercone

MiLB players would have increased leverage if they were paid more than minimum wage for 5 months a year while being obligated to maintain their physique and ability year round.

Mark Davidson
4 years ago

This is a great point. The job really is year round since they need to stay in peak physical condition. Granted, most of them would have the mentality to stay fit, anyways, but the job is demanding 365 days a year. A lot of guys I know who toiled in minor league ball for a while would get jobs at lululemon, which would give them a flexible schedule so they could still work out, hit, throw, field, and they’d still be around a fitness-oriented community. Having said all this, keep in mind that these guys do believe in the bet they’ve made on themselves. So while I don’t think MiLB players should be compensated year-round, or anywhere close to the major league minimum, the pay has to be better.

mbs2001
4 years ago
Reply to  TapeyBeercone

When you’re young and hungry it’s not easy walking away from food on the table.

Also many MiLB players come from nothing. So worrying about negotiating leverage is not as important as feeding your family and getting them out of poverty/warzones.

Moatemember
4 years ago
Reply to  sadtrombone

Just to understand: your problem with BLA is the added value they provide the players beyond the financials? Or you feel the players are being duped by BLA? Or a lack of competition in the MiLB lending sector?

We’ll all see how this plays out, and I’m always going to support the laboring class, but since getting the MLB to agree to pay it’s players well is like pulling teeth from a moving shark while also fending off a second shark, services like this could provide a reasonable stopgap (or an excuse for ownership not to up their financial liability since “hey, these lenders will assume the risk for us!). There’s tons of pitfalls, but I don’t understand the inherent mistrust.

sadtrombonemember
4 years ago
Reply to  Moate

I can’t tell who you’re asking this of, but I think the biggest thing about BLA that worries me is the fact that you’ve got a company that has a ton of leverage over a likely desperate (and likely not financially literate, sometimes not literate at all) person.

I realize that there are an enormous number of industries that rely on that model in one way or another. I don’t like them either. I think I am much more in favor of this if a reputable agent/lawyer reviews the terms. If so, it is totally possible that BLA really is a net positive in the world, making the best of a truly terrible situation…it may be a symptom rather than the disease itself.

evo34
4 years ago
Reply to  sadtrombone

@sadtrombone What leverage? BLA is offering an optional service, and they do not have any kind of a monopoly. That’s the opposite of leverage.

Joe Don
4 years ago
Reply to  Moate

Here’s where MY inherent mistrust arises: “Integrity and character, that is what we live by.” My 40-plus years of consulting for big companies has taught me that any CEO who says this is probably lying. What they live by is making money.

Dave T
4 years ago
Reply to  sadtrombone

There is a class of minor leaguer that’s played poorly overall: non-prospects or prospects who weren’t considered legit prospects when drafted or signed as amateur IFA’s. There’s also a class of minor leaguer who are reasonably high draft picks or in-demand IFA’s and who are paid somewhere between pretty well and very well depending on where exactly they’re drafted.

Working through the math, I’m estimating that average annual compensation for minor leaguers (including bonuses) is about $80k per year.

Here’s that math:

– Approximately $500 million per year in minor league signing bonuses (not including any tax on overages) plus player salaries and benefits, per an article from Ben Lindbergh ( https://www.theringer.com/mlb/2018/2/21/17035624/mlb-revenue-sharing-owners-players-free-agency-rob-manfred ). That seems to fit pretty well with estimating totals: draft bonus pools for 2018 total about $255 million ( https://www.mlb.com/news/2018-mlb-draft-bonus-pools-pick-values/c-269930084 ), and that’s likely to be exceeded slightly by some teams going up to 5% over. International bonus pools average about $5 million per year, so that’s up to another ~$150 million. That puts us around $400 million, so it only takes a bit over $3 million per team to get to about $500 million of total spending.

– There are 247 affiliated minor league teams. At ~25 players per team, that’s ~6,200 players.

Division gets us to average comp per minor leaguer of about $80k, though around 80% of that comp is in the form of signing bonus and not salary. That seems not too far off from what a 5th round pick signing for 2018 slot value would expect: 5th round slot ranges are $300k to $400k. Pro-rate that over five to six seasons over which we’d expect players either to make the majors or wash out, and that’s about $50k to $80k of pro-rated bonus plus whatever minor league salary the player earns.

evo34
4 years ago
Reply to  sadtrombone

What makes you so sure BLA’s terms are bad? All insurance companies make money on average. Are all of their terms also bad?

mikeE1977
4 years ago
Reply to  coopatroopa

You can’t compare this to VC: VCs provide more than funding: they are advisors, they serve on a company’s board, they provide legitimacy to companies (which is why you’ll often see tech companies take a deal for worse terms with a better VC firm).

Regardless of what these guys are calling it, these are loans with incredibly high default rates and incredibly high interest rates. That sounds an awful lot like payday lending to me.

Moatemember
4 years ago
Reply to  mikeE1977

The fact that they don’t provide additional services other than th the money doesn’t make it NOT capital, which is not the same thing as debt. Y combinator’s mentorship isn’t what makes it a capital venture, it’s cash is.

Based on the general understanding of how this business works, they’re giving a sum of money in exchange for a percentage of the player “product” with the assumed risk that the player may not develop into a viable product. The terms of return are established beforehand and based solely on the player turning a profit. If the player isn’t profitable, the company takes an L and moves on. There’s no ability to sue for the money back like a payday loan. Collection is only as a percentage of overall profits, which is basically like purchasing stock in that player.

Mean Mr. Mustard
4 years ago
Reply to  mikeE1977

It’s not a loan, in that a player doesn’t repay anything unless they make MLB. If they flame out, it’s a sunk cost on the company’s part. Too, there’s no set amount to be repaid other than the percentage to which a player agrees.
If a player defaults, it’s because they *chose* not to reimburse according to the terms of their contract with BLA; not because they *can’t*.
It’s also stated in this article that a player can set their own percentage. BLA likely scales their investment to the percentage chosen. Regardless, even if the percentages were flat across the board, 10% is in no way exorbitant. Try walking into a bank with even decent credit and ask for a personal loan, see what that interest rate is.

Moatemember
4 years ago

While I agree with you, one point to be made here is that if you try and pretend that this is a loan (it isn’t!) then the return on the investment would be the equivalent of the interest.

Example: Jonny Baseball gets $100K for 2% of his lifetime earnings in MLB. He’s a flash in the pan, and signs a league minimum $545K contract and then quits baseball. He owes $10,900 on that “loan”, which is over 10% of the “loan”‘s value.
If he was a star and went on to sign a 5 year/$50Mil contract, he now owes an even $1Million which is 10X the value of the “loan”.

This is why these are not loans. They’re capital investments. The company is buying stock in the player.

mikeE1977
4 years ago
Reply to  Moate

I get that this isn’t structured like a standard, interest-bearing loan.

But this isn’t an equity investment. You can’t buy stock in a person. There’s nothing here that can be bought or sold — no value —except for the amount that Mejia owes the fund.

Look at it in the most simplified structure: When someone gives you money and then you owe them money, it’s a loan regardless of what they call it or how it pays out.

mikeE1977
4 years ago
Reply to  mikeE1977

Besides, it’s right there in the name: Big League Advance. This is just a dressed up payday advance loan.

Moatemember
4 years ago
Reply to  mikeE1977

Once the contract exists, the firm could buy/sell their percentage stake to someone else the same way you can sell your Amazon stock. It’s not a real good but it is a commodity, almost like futures.

mikeE1977
4 years ago
Reply to  Moate

Sure, but just because you can securitize or sell something doesn’t make it not a loan. It’s not a good — there’s no underlying asset, you’d be buying a revenue stream. Think of it like a buying an asset backed security of mortgages vs buying a house. If you buy an ABS of mortgages, you’re getting that revenue, but you don’t own a piece of the houses, you own a piece of the debt.

Anyways, I don’t seem to be convincing anyone here that it’s a loan. (whispers: it’s a loan!)

dl80member
4 years ago
Reply to  mikeE1977

It’s not a loan because they player doesn’t owe anything if things don’t work out. Unlike payday lenders or student loans, where you owe the money regardless of whether you ever get a good job or earn enough to actually pay it back.

I actually think payday loans and student loans would be much better off if they were structured like this.

Mean Mr. Mustard
4 years ago
Reply to  mikeE1977

Yes, you absolutely can buy stock in a person. From where do you think endorsements have come?
Outside the sports world, look at movie studios who invest in grooming actors and actresses with lessons, teeth bleaching, etc.
Or hell, a publisher to a prospective author.

RichWmember
4 years ago

Golfers have been doing this for decades. Get up front money to get you from college through the satellite tours in return for a specified payback of PGA tour earnings

LHPSU
4 years ago
Reply to  mikeE1977

Maybe we can put it this way:

Mejia starts a company called “Mejia’s MLB Career”.
BLA buys 10% of “Mejia’s MLB Career” stock for $100,000.
If “Mejia’s MLB Career” is worth $5 million now, BLA’s “Mejia’s MLB Career” stock is now worth $500,000.
If “Mejia’s MLB Career” fails, BLA’s “Mejia’s MLB Career” stock is worhless. Notably, “Mejia’s MLB Career” is not required to pay back any money to BLA.

mikeE1977
4 years ago
Reply to  LHPSU

But that’s not what’s happening here. The contract as written is with Mejia, not a shell company: This Amended and Restated Brand Agreement (this ”Agreement”) is entered into by and between Big League Advance fund I, L.P., a Delaware limited liability company (“BLA”), and Francisco Mejia (‘ Player”)

Eminor3rd
4 years ago
Reply to  mikeE1977

It’s NOT the same thing, man. It’s a loan that you only pay back if you can afford it, set at a fixed percentage to guarantee that you CAN afford it.

The only reason payday loans are a problem in the first place is because they knowingly put people who can’t afford them in a position to owe forever. This is just not the same thing.

mikeE1977
4 years ago
Reply to  Moate

Not every capital investment is an equity investment. This is basically like a Bowie Bond, right? one that only pays out if the player makes the majors, but it’s still basically a Bowie Bond. A bond is a debt instrument, i.e. a loan. The players are borrowing against their future earnings.

mikeE1977
4 years ago

1) Plenty of loans — especially subprime loans— default. Just because the company has built in a lot of losses into its expectations don’t make it not a loan.

2) the deal is for 10 pct of his future earnings, not 10 pct interest

Mean Mr. Mustard
4 years ago

Honestly, a player can look at it as a privatized income tax. With the higher bracket income tax breaks now in place, paying two to ten percent really isn’t that bad a deal, especially since the “tax” only lasts the duration of their playing career. For even the best of them, that’s what, twenty years max? For an extreme outlier?

evo34
4 years ago
Reply to  sadtrombone

BLA is selling insurance. Of course they expect to lose to the majority of individual clients.