Photo via: The Associated Press
With taxes, agent commission, and an income-share agreement, how much is Tatis really earning?
For most, $340 million paid out over 14 years is life-changing money. For Major League Baseball (MLB) player Fernando Tatis Jr, it’s just a deal with the San Diego Padres. However, this contract is different than professional sports contracts of the past, as numerous questions arise. Mainly, due to a caveat in the contract, how much of that $340 million contract will Tatis receive? Most people would take even a small sliver of such a contract, but when you are a blossoming young MLB player with an outstanding conditional loan, it is not that simple.
Tatis’s contract is the longest contract in MLB history and the third largest, standing behind only Los Angeles Angles of Anaheim’s Mike Trout and Los Angeles Dodgers’ Mookie Betts. Curiously, the largest contracts in the MLB are all from teams based out of California. California currently has a tax rate of 13.3% for those who earn more than $1 million a year. Furthermore, Tatis will pay the highest federal income tax rate of $156,235 plus 37% on the portion of his taxes that exceeds $518,401 or more. Yikes. Per Sportico, Tatis will pay roughly $191 million in taxes. With quick math, Tatis is looking to make about $149 million after taxes.
Living in San Diego with $149 million does not sound too shabby. However, Tatis, a client of the MVP Sports management group, will owe his agent commission. An agent’s commission is usually between four and ten percent. For simplicity, estimating a five percent commission for his agent, Tatis’s agent will earn a commission of roughly $17 million (Five percent of the $340 million contract). That brings Tatis down to $132 million. Not bad, but not $340 million.
Yet, this is all normal and part of contracts and sports. As the late-great rapper Biggie Smalls famously said, “Mo Money Mo Problems.” However, Tatis’s contract signing comes with an even more significant caveat. During Tatis’s time in the minor leagues, he signed a venture-capitalist-like deal with Big League Advance (BLA). BLA, a company started by former MLB pitcher Michael Schwimer, invests in minor league baseball players. The company looks to give minor league players $50,000 for every one percent of that player’s future MLB earnings. Meaning, if a player requests $500,000, they must give up ten percent of their future contract earnings in the MLB. The amount a player chooses to give up in return for upfront money is completely up to the player. If a player does not make it to the MLB, they do not owe any money to BLA. BLA takes all of the risks in hopes that a few players they sign turnout to be superstars.
BLA has been searching for their white-whale through the use of analytics. Think money ball meets venture capitalist. They finally found him, Tatis. Although the percentage Tatis gave up is unclear, one thing is not. Tatis will owe BLA a minimum of $3.4 million and possibly as much as $34 million. Taking the median, Tatis owes BLA five percent of his contract. Another $17 million out of his pocket. At least he will be able to hold more sunflower seeds.
If counting correctly, Tatis will net only $115 million of his original $340 million contract. Over 14 years, he will be making a little over $8 million a year, far shy of the advertised $24 million.
Questions of the legality of the BLA/Tatis agreement exist. Mainly, is this a valid contract? Tatis signed with BLA at around 18-years-old. Tatis was playing Double-A baseball, making pennies compared to what he is earning now. However, legal precedent is not in Tatis’s dugout. In 2018, Francisco MejÍa, another Padres player, attempted to sue BLA in the U.S. District Court in Delaware. MejÍa argued he was taken advantage of and that the deal was unfair. However, after a six-month legal battle, MejÍa dropped the case and retracted his belief that BLA acted wrongfully. In short, Tatis likely would strike-out in a legal battle.
Agreements such as these are not new. Income-share agreements are popular in other sports such as European football. Colleges, such as Purdue, have created income-share agreements for students to fund their college education. The MLB has chosen not to regulate such agreements and likely would have no say even if they tried because athletes have autonomy over their finances. The difference here is that Tatis earned a $340 million contract at 22-years-old.
Other questions arise, such as, why did Tatis need to sign this deal in the first place when his father, Fernando Tatis Sr., is a former MLB player? How will other players deal with companies such as BLA moving forward? Tatis has only commented that he signed with BLA for the best interest of his family. Despite his lack of comments, other players may learn to avoid personal equity deals such as this one.
3rd year law student and Co-President of the Buffalo Sports ands Entertainment Law Society. I enjoy writing and learning more about the intersection of business, sports, entertainment and law.