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- Athletes face enormous challenges along the way to financial success, but a new firm says it can improve their odds by letting them pool their income.
- Pando Pooling says it’s giving young athletes a shot at far greater financial security when their income is and their chances of success are the lowest.
- If it catches on, the method might give athletes more bargaining power and change their approach to contract negotiations and free agency.
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For young aspiring athletes, the journey to success and wealth in sports can be long and lonely.
At every level the competition and pressure increases, and while the possibility of life-changing money looms ahead, it can be difficult to reach. Players are often forced to sign contracts for less than they think they’re worth. They also have to overcome hurdles like wage scales, mandatory arbitration, and restricted free agency before they cash in meaningfully.
"Baseball players take these team-friendly early extensions all the time where they give up a lot of their potential value and their potential worth to the team," said Evan Frederickson, who works in the baseball division of Pando Pooling, which has devised a system that lets players to share portions of their future income.
Here’s how the system works: Pando uses complex baseball analytics to project how much money a client is likely to earn. The player is then advised to team up with other players who have similar projections — although the players . themselves decide who to team up, and at what level they’ll start contributing. Pando itself takes 10%
By allowing the players to unite and pool their earnings, the company says it’s giving them greater financial security from the beginning of their careers, when their circumstances are the most difficult. About 230 baseball players, mostly in the minor leagues, and professional football players have signed up so far.
"We have first-round draft picks, we have players that went undrafted, we have players that are rookies to players who’ve had long MLB careers," said co-founder Charlie Olson, who created the firm two years ago with fellow Stanford Graduate School of Business alum Eric Lax.
By combining chunks of their earnings, a player who makes it big and signs a giant contract will give up a chunk of his potential money, but still be very well-off. Meanwhile, the players who don’t make it to the pros — or never earn a big contract — receive a life-changing amount of money they might have missed out on.
"The actual percentage of guys who go on to earn enough money from baseball to retire is very, very low," said Frederickson. In the meantime they chase their dreams and lose time that they could put into starting a career.
He uses himself as a case in point. The Milwaukee Brewers picked him in the 2008 MLB draft, but the lefty suffered injuries that diminished his pitching speed. He retired after three years in the minors, and said he counts himself "lucky" that he didn’t struggle for many years more.
Those sorts of long odds have started pushing young players to sign long contracts many years before they can test free agency. While they’re still getting enviable salaries, the best players are signing for tens of millions less than they could get on the open market because the risk of waiting for free agency is simply too great. Less acclaimed players, meanwhile, work for years with good salaries but very low security.
That could change if the players know they already have millions of dollars pooled together.
"Baseball players take these team friendly early extensions all the time where they give up a lot of their potential value," Frederickson said. "Maybe they do hold out just a little bit longer and they get a better contract, or maybe they don’t take that first team friendly extension that gets offered their way."
With many players still in the minors, a lot of Pando’s clients are in the early stages of a tough journey. But Olson says unexpected things are already happening: Players in different sports are interested in pooling with each other, a possible bid at diversifying their income. There could be many more surprises ahead.
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Source: Business Insider – mjay@businessinsider.com (Marley Jay)