MLB: Mr. Shoctober

Last year Shohei Ohtani had one of the greatest offensive games in baseball history. He went 6-for-6 with 3 home runs against the Miami Marlins. Yesterday, in the NCLS Game 4, he had arguably the best game ever. Full stop. He was dominant not only with the bat--hitting 3 home runs---but also with the ball, shutting out the Milwaukee Brewers for six innings with 10(!) strike outs. The epic performance propelled the Dodgers to the World Series to boot!

Here's a highlight of the highlights:

 

MLB: Best Game Ever

Looking back at Ohtani's remarkable (ridiculous?) game from Oct 2024: 6 for 6; 3 HRs, 2SB, and 10 RBIs...

How Much Sport is There in Professional Sports?

The long MLK weekend had six NFL wildcard matchups under the expanded play-off format. Sure, five of the six of the game were uncompetitive (though the Cowboys vs 49ers game made up for some of that). But that's not the point. While there were six games of 60 minutes each, how much football did we actually see? Well, according to a study from the WSJ from a decade ago, the average amount of time the ball is in play on the field during an NFL game is about 11 minutes! Where does the rest of the time go? Here's a helpful graphic from the Journal:

If there's so little actual football in a football game, what do the networks do with the other 190 minutes in a typical broadcast? Not surprisingly, "commercials take up about an hour. As many as 75 minutes, or about 60% of the total airtime, excluding commercials, is spent on shots of players huddling, standing at the line of scrimmage or just generally milling about between snaps." All this is facilitated by the fact that in American football the clock is allowed to "run for long periods of time while nothing is happening. After a routine play is whistled dead, the clock will continue to run, even as the players are peeling themselves off the turf and limping back to their huddles. The team on offense has a maximum of 40 seconds after one play ends to snap the ball again."

But what about the other major sports? Are the dynamics the same in basketball, baseball, soccer, etc.? Well, as this well-sourced post from the National Arms Race shows, things are not quite as bad in the other sports:

                                    Source: nationalsarmrace.com, Mantabye

In American football there's only 5.8% of action time in a 3-hours plus broadcast. Commercials take up about 75 minutes of the 190 minutes. Cha-ching! Football is truly the quintessential capitalist sport. Baseball, America's official pastime, comes close to football in its lack of playing time, with 18 minutes of actual baseball in a typical 176-minutes broadcast. By contrast, soccer is action-packed. In a typical 115-minutes broadcast there is 58 minutes of action! That's 50% of action time. It also means there is comparatively little time for the all-important ads. While 40% of a football game's coverage is devoted to commercials, only 16% of time is devoted to ads in soccer. Socialist sport!

                                    Source: nationalsarmrace.com, Mantabye

Moneyball: The Financialization of Self

I don't follow baseball all that closely (except maybe in October), but this headline in the WSJ certainly caught my eye: The Padres Owe Fernando Tatis Jr. $340 Million. He Owes an Investment Fund Millions From His Payday.

Sure, $340 million is an impressive number...but what's really interesting is the second part of the headline. Four years ago, when he was 18 and just a (very) promising prospect, Tatis signed a contract with Big League Advance, an investment fund that pays "minor-league players money up front in exchange for a share of their future MLB earnings." Titas now owes BLA perhaps $30 million.

BLA is essentially a venture capital fund, but instead of investing in promising startups they invest in promising baseball prospects. It is run by Michael Schwimer, a former MLB pitcher, whose years in the minor leagues inspired him to start BLA to help struggling players. Minor league players are notoriously underpaid. A typical AAA ball player (one step below the Majors) makes around $2,500/ month-- but that's only during baseball season, so on an hourly level they actually make below minimum wage; it's by no means a glamorous life. By contrast the average MLB player makes $4.4 million/ year.  Schwimer aims to help these players by investing in them today. 

BLA uses advance predictive analytics (think Moneyball) to spit out a price per percentage point. For example, they may advance $100,000 for 1% of a player's MLB contract or $500,000 for 5%. BLA usually takes 8-10% stakes in a players' (potential) future big-league earnings, but can do less or more. So far, they have invested $150 million in nearly 350 players. 

Problem is, only 10%-20% of minor league players make it to the "Show." So, like a VC fund, BLA will lose money on most investments--remember this not a loan, but an equity transaction; players owe nothing if they don't get a MLB contract...But every once in a while a homerun like the Titas deal will subsidize the other transactions and provide a nice return for BLA's investors. The below chart explains the basics (click to enlarge):

Like any financial innovation it works by transferring risk...from players to investors...All good, as long as the players fully understand what they are getting into. When you hit it big, giving up a nice chunk of pre-tax earning can hurt.

From an investor's point of view, it is quite attractive, because returns are truly uncorrelated. What happens in the S&P 500 is not really going to impact what happens in baseball. The exit environment is also less cyclical and investment horizons shorter...most players who make it to the MLB will do so within 3-4 years. 

There are similar "income-sharing" mechanisms for university students. It's a fascinating topic (with multiple dynamics like majors and university rankings) that deserves it own post. There is also "income-pooling" from groups like Pando, which itself is a modern version of communal committees. All work on the same principle of risk-sharing. For now, it'll be interesting to see if this deal spurs more investments and in other sports as investors clamor for uncorrelated returns.