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Here’s a neat idea: players like Jon Singleton should look into “human capital contracts”

Jun 5, 2014, 9:44 AM EDT

jon singleton getty Getty Images

We talked about the stuff with Jon Singleton the other day. How he took what will probably end up being a well-below-market value from the Astros. At least well-below market if he becomes a solid everyday player. But hey, given the system, that’s what he felt he had to do in order to abrogate his risk.

But what if he had another option? Like the option D.R. at The Economist suggests: Singleton basically selling bonds to investors backed by future earnings?

The other possibility is a free-market solution from outside baseball: human-capital contracts, in which players would sell a share of their future earnings in exchange for cash up front. Just like the deal Mr Singleton accepted, such arrangements would guarantee athletes’ future financial security regardless of their on-field performance. But rather than having to negotiate with a single team, players could auction off the rights to a given percentage of their wages to the highest bidder, thus securing fair market value for the expected income. They would then be free either to take their chances with salary arbitration on a year-to-year basis, or to demand a far richer extension from their employer.

I’m not an expert in the Collective Bargaining Agreement or MLB rules along these lines, but at first blush I can’t see why this wouldn’t be allowed. It’d be like any other outside investment scenario that is none of baseball’s business, right? Or would someone consider it gambling or something?

I doubt baseball players break ground here — it’s somewhat radical for the sport and it’s the sort of thing that might get you labeled an oddball or egomaniac or something by teammates and the press, but I at least think it’d be legal. Someone let me know if I’m wrong, though.

Either way, it’s pretty cool.

  1. Matt - Jun 5, 2014 at 9:51 AM

    Didn’t some minor leaguer try this a couple of years ago? I seem to remember it being a story and ultimately not allowed.

    • Matt - Jun 5, 2014 at 9:52 AM

      To answer my own question – here’s a link:

      • Detroit Michael - Jun 5, 2014 at 10:29 AM

        I remembered the same article, pointing out that this may be a security that has to be registered with the SEC, so there are a lot of compliance costs and delays potentially.

    • sophiethegreatdane - Jun 5, 2014 at 5:06 PM

      Isn’t this the same kind of thing that Vernon Davis announced recently? I remember discussion about it the other day while I was walking my dog. Sophie, of course. :)

  2. Rich Stowe - Jun 5, 2014 at 9:53 AM

    I’m sure it’s against the unwritten rules…

  3. tysonpunchinguterus - Jun 5, 2014 at 9:53 AM

    I’m not sure I see how that would be a feasible option. Either the player is giving away more money in the future than he’s receiving now from the investor or the investor is giving away more money than he or she will receive back. It’s not like a business or government where the bonds are used to fund present-day needs, so what’s the upside for the player to give away millions down the line for a loan he probably doesn’t really need now?

    • drunkenhooliganism - Jun 5, 2014 at 10:05 AM

      Isn’t that what Singleton just did? He have away potential future income for short term stability?

      • tysonpunchinguterus - Jun 5, 2014 at 10:15 AM

        Not really. He doesn’t owe the Astros any money down the line if he becomes a star and hits free agency. If he signs a $100 million deal, he only owes his agent his cut rather than having to pay some investor a portion of the deal on top of the agent’s cut. The way contracts are going, that could possibly be a very large amount of money. The scenario proposed in the article is essentially a loan with an unknown – and potentially massive – interest rate if the player goes on to live up to the hype. How is that better than getting guaranteed money from the team now (like he’d have from the investor) AND not having to give away his future earnings? It only works out for the player if he’s a bust – and so does the deal Singleton just signed, so it’s not even a better option in that scenario.

  4. drunkenhooliganism - Jun 5, 2014 at 10:00 AM

    Fantex had done this for some players. Differently than the economist describes, but similar. I think Florio has an article up on it today.

    • [citation needed] fka COPO - Jun 5, 2014 at 10:04 AM

      I was going to say, I’m pretty sure Arian Foster and a few others players did this through some third party, but I couldn’t remember the name of it.

    • superturtle611 - Jun 5, 2014 at 10:29 AM

      I should probably go back and read up on it, but if memory serves me correctly what Fantex is doing is slightly shady to say the least. They set the price for the player’s stock. The value is not determined by a free market. All they have to do is keep a players stock low and they will never have to worry about paying out. Like I said, I could be wrong.

    • oldrenn1 - Jun 5, 2014 at 11:17 AM

      Vernon Davis is in FAntex among others!!!

  5. genericcommenter - Jun 5, 2014 at 10:04 AM

    Is this much different than the Fantex deals for NFL players such as Vernon Davis and Adrian Foster (I think his “IPO” was cancelled)?

    Obviously baseball and football contracts/earnings work differently. IMHO, it might be a better deal for NFL players with non-guaranteed contracts and high injury risk. On the other hand, young baseball prospects under team control carry risk, too.

  6. superturtle611 - Jun 5, 2014 at 10:39 AM

    I think the question with situations like these is who are you working for. This is a little more complicated than a player’s sponsorship deals which also tread into murky water. With the player stock situations they more depend on field performance, and there can be clashes between Joe the contacted player, and Joe the stock. Overall I see it as a possible conflict.

    • superturtle611 - Jun 5, 2014 at 10:58 AM

      To give an example, you are a hockey player and you have an injury. In hockey they are labeled as upper body or lower body. Now as a stock do you owe it to your stockholders to reveal more detail? By doing so you are hurting yourself and possibly your team. Will stuff like this fall under the watch of the SEC? Are these situations ripe for insider trading? These all have to be answered.

      • nukeladouche - Jun 5, 2014 at 12:07 PM

        And what happens when Player X has an IPO while he’s in AA and the manager of that franchise’s MLB team buys stock in Player X? He’s now got all sorts of financial incentives clouding his judgment and decision making; incentives that complicate the decision to “put the best team on the field” to try and win every game. . . .

        Paging Pete Rose. . . .

  7. Kevin S. - Jun 5, 2014 at 10:39 AM

    When Randy Newsom (guy in the NYT article linked by Matt above) tried to do this, it was the SEC that put the kibosh on things.

  8. schmedley69 - Jun 5, 2014 at 10:55 AM

    “such arrangements would guarantee athletes’ future financial security regardless of their on-field performance.”

    No thanks. I’ll pass.

  9. philliesblow - Jun 5, 2014 at 11:12 AM

    I’ll sell short on Phil Coke stock.

  10. danaking - Jun 5, 2014 at 11:40 AM

    At the risk of sounding like I’m about to yell, “Get off my lawn,” wouldn’t a more practical (and realistic) solution be to suggest he find a way to live on $10 – $35 million for the rest of his life, worst case scenario?

    • superturtle611 - Jun 5, 2014 at 11:48 AM

      Depends, would you tell yourself to do the same? The amount of money isn’t the question, as who is to say what is too much. The question is who has the right to limit your opportunities.

      • danaking - Jun 5, 2014 at 12:06 PM

        Good points, but:
        1. Yes, I would. I know good times are guaranteed to last. Plan accordingly.
        2. Which opportunities are being limited? This is how his chosen profession works. If he can make more than $10 million guaranteed elsewhere, he should do so.

        This is a tough one for me, as I am always a players man in management-player discussions. It just, at some point one has to wonder, why is how a baseball player can squeeze every extra penny out of a $10 million guarantee worth worrying about, when I’m willing to bet there are people advocating for that who don’t want to see a livable minimum wage.

      • [citation needed] fka COPO - Jun 5, 2014 at 1:09 PM

        It just, at some point one has to wonder, why is how a baseball player can squeeze every extra penny out of a $10 million guarantee worth worrying about

        I believe the question should be for players who haven’t signed long term deals yet*. Trying to come up with a way for a player to make money before they “hit it rich.” For instance, the Pirates are supposedly pulling this ploy with Polanco (sign a long term, team friendly deal and we’ll bring you up to the bigs). As of now, Polanco doesn’t really have the long term security that Singleton now does.

        So what if the player could come up with a way to ensure security now for a cut of his future benefits?

        *note if it’s not, then it’s a useless hypothetical

    • scorpiox1960 - Jun 5, 2014 at 12:46 PM

      I’ll get off your lawn once you turn down that blasted rock music.

  11. sabathiawouldbegoodattheeighthtoo - Jun 5, 2014 at 1:02 PM

    Would the player need to comply with Sarbanes-Oxley?

    Does the board need to approve his contract? It seems like the investors would need some say in contract negotiations, which would be complicated to the Nth degree.

    Frankly, I think Singleton did very well by securing his financial future, while positioning himself to hit free agency before 30.

  12. sleepyirv - Jun 5, 2014 at 3:14 PM

    If you can fit in “free market solution” and “market value,” of course The Economist is going to love the idea.

    From what I can tell, I doubt the stockholders can ever get enough return on investment to justify the expenditure. And unlike, say, a movie that goes over-budget, investors could never gain control over the player to make sure he’s aiming to get the biggest contract possible (No way for investors to stop Singleton from any bad habits instead of working on his hitting.).

    I’m sure they’re comparing it to a college loan, money up front for future value, but there’s a reason you don’t give Singleton a straight-up loan– it’s too risky. Trying to securitize to lower the risk is just as likely to work long-term as it did with mortgages.

  13. American of African Descent - Jun 5, 2014 at 4:05 PM

    This sort of issue raises real questions about control. For example, say player enters into one of these “human capital contracts.” Does the investor have the right to tell player which free agent contract he has to accept? What if player doesn’t want to go to [City A] because he doesn’t like [being on the East coast, being in fly over country, being on the West coast]?

    What about longevity? If player decides it’s time to hang them up, but he can realistically get another contract—fourth outfielder role, for example—is he obligated to play so that he can maximize investor return?

    • pappageorgio - Jun 5, 2014 at 5:18 PM

      To add on to that thought…..what about endorsement deals?

      Do investors have the right to sue when said athlete doesn’t do a lucrative deal for herpes cream? Given that he’s not maximizing the investment. Or when the 50 year old retired athlete doesn’t do that Depends commercial?

      This seems like dirty business.

      But probably the biggest reason something like this won’t take off….it’s basically an athlete betting against himself. Betting that his future earnings won’t be more than he sells himself for now. Realistically, for it to be a good deal for the athlete he would have to be less successful. The more successful he is the more money he has to pay (back).

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