By Andrew Summerville
Baseball players are asked to take on risk in a way that is unique. We fight year after year for financial security, with few guarantees or safety mechanisms. In other careers, things look different. For example, investors manage risk by diversifying their portfolio and all 30 Major League Baseball franchises have entered into a revenue-sharing agreement. They spread risk. We do not. And I don’t think the public understands; I’m sure we have all had people assume we’re rich because we are professional ballplayers. Newsflash – it is hard to reach the MLB, and the MLB is where the money is!
As a current minor leaguer in the St. Louis Cardinals organization, I live this problem daily. Each step on the diamond is fraught with injury-risk. Each new drafted player threatens my future. Each front-office move or coaching decision leaves its mark. Just this past week I saw a player get released who had a sub-1 ERA last season. A first-round pick who I grew up playing with is now working as a longshoreman loading cargo ships. This past year I saw a pitcher field a ground ball and tear his ACL in this fluke play. The difference between making it and not can be razor thin. Until now, players have not had ways to manage risk.
During my time as a student-athlete at Stanford University I was drawn towards the innovations being made by companies in Silicon Valley. Two years ago, I was fortunate enough to meet two students at the Stanford Graduate School of Business, Charlie Olson and Eric Lax, who were busy founding a company centered on improving the lives of those in high-volatility careers (e.g., baseball players like me!). I spent last summer working as an intern for them and this off-season working in their Palo Alto offices. This not only gave me the chance to gain invaluable business experience, but also allowed me to help a company that has its sights set on transforming the way baseball players view their financial futures.
Their company is called Pando. Pando exists to help those in high-volatility careers manage risk through income pooling. Just as all 30 Major League teams contribute a percentage of their revenue into a shared pool, which gets split up annually, Pando allows players to form pools and contribute a percentage of their future earnings into a shared pool, which is split annually. Players only contribute to the pool after they have made their first $1.5M (signing bonus and endorsements are not included) in Major League earnings.
Pools of players are formed based on current level in the minor leagues, age, and draft slot. 5th rounders pool with 5th rounders, AA players pool with AA players, and MLB players with MLB players. The pools can range in size from 5-50 players and players have total control over how the pools are constructed.
For the players in the pool that do make it, they can use the pool as bargaining power to negotiate bigger contracts. For the players that don’t make it, they now have some money to hit the ground running to start a business or family when baseball is over.
Despite being in the top 1% of baseball players in the world, we are not paid like it. Bi-weekly paychecks for minor league players like myself of $470 are enough to cover the cost of food and gas, but not much more. In a sport where much is out of control of the athlete, players deserve a tool to capture more of their value. Pando helps baseball players by diversifying a portion of their future earnings. Just as an investor holds a portfolio of stocks (understanding some will go down and others up), pooling allows players to take a percentage of their future earnings and invest it in the futures of others. Albeit incredibly biased, my opinion as a current minor leaguer is that Pando has developed a solution to our ever-worsening problem in baseball.
Baseball comes with risk, but I chose to embrace that risk to fulfill my lifelong dream of pitching in the MLB. It shouldn’t be the case that someone chooses not to play baseball for fear of the inherent risks. I see this company as being one that allows players to chase their dreams and reach higher, without bearing as much risk as their predecessors had to.