Would you invest in a player’s earnings?

Finlete will let you “buy stock” in a player’s future earnings.

Several companies have shown up recently that take a new approach on investing in Athletes. BLA signs them to their own portfolio, so it is run like a venture capital fund (think shark tank) that only invests in young athletes aspiring to be top end professionals. Vestible wants to be a pro athlete stock market. And the most recent one to make big news, Finlete, lets fans buy a portion of player earnings to get dividends like preferred stock. Though I think their aspiration is to be very similar to the Vestible stock market.

Emmanuel Clase has recently partnered with Finlete, which will give regular people a chance to get a chunk of his future baseball earnings. If you take a look at the Finlete website, he is the first major league player to offer part of his salary in a deal, the other two are minor leaguers Leonardo Bernal and Echedry Vargas. I actually think this sort of company could do some good in the case of the minor league players, but I have some concerns about stars like Clase joining up.

The structure of the deals on Finlete are preferred stock, in Wall Street terms, and they are overseen by the SEC like a typical investment security from Apple or Google. For the Clase deal, that means you invest in some shares and 3% of his baseball salary every year gets paid as a dividend (1.5% every six months),evenly among the shares. It is strictly on his baseball earnings, so no endorsement money, and it is for his entire career. Companies that issue stock, preferred or common, can stop paying the dividends at any time, so read these fun disclosures from the Clase Offering Statement:

-Investors in Emmanuel Clase Preferred Stock can only receive dividends to the extent our Company can legally pay dividends under Delaware law. For instance, even if there is revenue from this Player Agreement but the rest of the Company does poorly, we may be legally restricted from paying any distributions.

-We could be required to use assets attributed to one series of preferred stock to pay liabilities attributed to another series of preferred.

-We can amend or terminate the Clase Agreement without the vote of the holders of Emmanuel Clase Preferred Stock.

Finlete has a vested interest in not screwing their shareholders over, but if the company struggles this whole thing could blow up.

This sort of deal makes sense to me for the minor league players. It basically becomes a way for them to get money in the short term when they may have little to none, especially for international signees that come from poorer countries. Echedry Vargas was the first player to sign up for the Finlete deal. He is from the Dominican Republic and signed to the Rangers for $10,000 and has subsequently been traded to Miami. He probably has very little money and will be scraping by in the minors. It makes sense that he might offer part of his future earnings to get some money to help him live for the next few years, though I am not sure the deal ever got enough funding to actually happen. There was a $50,000 dollar minimum and I cannot find a form C for him anymore. Last I could find they had raised a little over $20,000 for Vargas’ offering.

Emmanuel Clase is a very different type of player to invest in. He already has a lot of money, with lifetime baseball earnings of nearly $7 million and at least another $15 million coming before he hits free agency. I get why Finlete wants these sort of players, bigger deals equals more money for them. Also, baseball fans know Clase and selling shares in him would be much easier than some low-level prospect none of them have heard of. I’m going to run through the math of the deal first, feel free to skip if you don’t need finance nerd discussions, and then I will come back and discuss the implications after.

Clase is offering 3% of his future earnings at a maximum offering amount of $3,600,000 at $12 per share. We are going to assume it gets fully funded for simplicity, and to keep my finance side from going down some weird rabbit holes. In simple math that means if Clase earns $100 million the rest of his career, investors will get $3,000,000 and this ends up not paying off with a break-even point around $120,000,000 (3% of that is 3.6 mil). Finlete gets 8.5% of the offering, or $255,000, plus $7,000 for the activation fee and $600 per month in subscription fees (I assume until he retires??). Clase gets $3.6 million minus Finlete’s cut.

The Guardians have club options that can keep Clase from free agency until after the 2028 season. If they pick those up, which seems likely and if they don’t this whole thing will be a terrible investment, he will make $34.2 million plus some possible bonuses that are all pretty small except for a $1 million trade assignment. Let’s call it roughly $35 million. He needs to then make at least $85 million from 2029 until retirement for these to break even. He will turn 31 in the off-season of his likely free agency year, and Josh Hader got $95 million last year for his age 30- through 34-year-old seasons, so it is conceivable that these stocks could pay off.

For now, the only way for investors to get money is through the dividends on his salaries. Finlete is working on making a secondary market where you could buy and sell shares of players after the initial offering, but it is not up and running yet.

I am not sure how they talked Clase into doing this deal. He is going to get at most $3.3 million, which is a pretty small amount compared to his current contract. He got a little publicity I guess, and maybe they paid him something extra to get someone on his level to gin up interest in the concept. It just isn’t clear to me what’s in it for these already rich, established players. It just seems like a different way to gamble on sports, and we have no shortage of ways to gamble on players and teams now, so it is unclear to me what this is for beyond the minor leaguers who need cash now.

This would just add another reason for people to get angry and send players ridiculous messages over social media such as death threats. If you are bad a gambling, it is not the players’ fault. Please stop.

There is a lot more that we could discuss here, like I find it interesting that they are not starting with more of a slam dunk money maker to get investors in and strategies for building portfolios of prospects would be fun, but I have written a lot here already. Something about this whole enterprise strikes me as strange and somewhat problematic because of how the incentives are set up for Finlete in particular, though I will reserve final judgment as they have done nothing problematic so far.