The following is a guest post from Dr. Tim Naddy, vice president of finance at the Savannah Bananas and founder of Legaci Forge, a nonprofit focused on equipping athletes and emerging leaders with financial education. Opinions are the author’s own.
Like many finance-minded folks in the sports entertainment industry, I’ve found something intriguing developing in the wake of the Fernando Tatis Jr. future earnings story.
Naturally, the feigned outrage surrounding it is palpable from those who surf the wavetops, pick up floating driftwood and try to cobble together a profound thought on their socials to be part of the conversation. Alas, what the uninformed public is fomenting is the reason why we need to address this…now.
Look, we all know that the internet wants villains. The sports-loving masses want to chime in on whether the investors were predatory, whether athletes should even be allowed to make these kinds of deals, and, yes, whether Tatis somehow got “taken advantage of” because his investors reportedly turned a $2 million investment into roughly $34 million.
And I am all for this healthy discourse, but it seems that almost everyone discussing it seems to be arguing about the wrong thing. The focus appears to be on the emotional aftermath of the athlete after a crazy successful (and very risky) investment in him hit big, and somehow the investors are being excoriated for trusting their model and staying the course.
The sexy conversation of data-driven foresight and investor perseverance is being overshadowed by whether Big League Advance played the angel, the devil or both. The depth of this is about as shallow as it gets, but I don’t see anyone spittin’ in a mask to observe this at even a snorkel depth.
Just below the surface, if we dare to look, we come to find that this entire transaction and the events leading up to it are chock full of nuance that is largely misunderstood by parties outside this transaction. So, as the casual drive-bys argue over which shoulder BLA sat upon, all I want to uncover is why Tatis feels like he was duped.
The real issue underneath this entire situation is financial asymmetry. One side of that table understood capital deployment, risk tolerance, probability curves, downside exposure and long-horizon investing. The other side of the table was a teenage athlete with enormous potential and immediate access to liquidity that could change his family’s life overnight. At least that’s what we’re being led to believe. But, a quick scan of the Juan Dolio reefs color in the lines a bit for us.
A story of understanding the business of you
Tatis was 18 years old and a legal adult when he signed the agreement with BLA. I’m pretty sure that with a father who had an 11-year professional baseball career, he most certainly had people in his corner reading over the document with him, though he has filed a lawsuit alleging that he fell victim to BLA’s alleged “predatory tactics” and was “fraudulently induce[d]” into signing a deal. In fact, he’s quoted as saying, “It was just a family decision.”
No trickery here. No fraudulent intent. Just a lack of foresight on the athlete’s side that BLA believed in the future value of his talent more than he did, and put their money where their data was. Contract signed. Contract honored.
And what a contract it was! As a fan of Billy Bob Thornton and his Landman show on Paramount, this deal was akin to our brothers in the Texas basin wildcatting to find the big one. Of course, this prospect was borne from data mining athletic potential.
From the CFO’s perspective, nine years ago, a group of modern-day prospectors bought up a fledgling oil lease for $2 million, which ended up tapping an absolute gusher for $34 million. A $32 million profit — a 1600% return! CAGR of a monster 37%! Who does that these days? Comparing that haul to the Wild West of the S&P 500 over the past 10 years, people dump money into company stocks hoping for a 13.9% (rounding up to 15% to keep it simple) YoY return.
If BLA had opted to do that, they would have netted $7.04 million over the same time period, a whopping $27 million less than what they achieved. What an amazing story of benefitting from trusting the data (and getting really lucky Tatis didn’t wash out or incur a career-ending injury).
And honestly? Depending on his circumstances at the time, that opportunity may have been impossible to pass up. See, that’s the part many people conveniently forget. Before BLA, he was Fernando Tatis Jr.; now he has become Fernando Tatis Jr.™.
Everybody wants to evaluate the deal retroactively through the lens of superstardom. But rewind the tape to the moment the agreement was actually signed. Nobody knew with certainty how his career would unfold. Pro sports are littered with can’t-miss prospects who missed. One shoulder injury, one knee injury, one bad year and this entire story gets told completely differently.
And had that happened, investors would have lost millions, Tatis would have kept the upfront money and most people would simply shrug and say, “Well, that’s risk capital.” Which is true, but that is why I think the outrage surrounding these deals completely misses the point.
The real question is not whether these arrangements should exist. The real question is whether young athletes fully understand the long-term cost of the capital they are accepting. We CFOs understand instinctively that capital is never free, that debt comes with interest and that equity comes with, dare I say it, dilution. Even private investment comes with uncomfortable expectations. We understand that every dollar attached to a business extracts something in return — eventually.
Athletes, however, are increasingly being asked to make sophisticated financial decisions before they have even received basic education around taxes, investing, cash flow management or long-term wealth preservation.
Yeah, yeah, I can hear the chortling of the peanut gallery now who all think that athletes are given financial “literacy” courses that help them stay in front of these “predatory tactics”, but let’s be real. Athletes don’t pay attention to those “mandatory” classes because their jobs are to hone their athletic prowess, not their accounting skills, so they can ply their trade in front of millions of fans in hopes of one day breaking through the league.
But wait, now layer name, image and likeness on top of all of this. What once applied primarily to professional athletes is now rapidly being thrust upon teenagers, yes, teenagers, who are being asked to navigate endorsement contracts, sponsorship agreements, social media monetization, licensing arrangements and private investment conversations before they can legally rent a car or enjoy a Guinness.
Don’t forget about the moms and dads out there who are just as surprised at the newfound realities that include IRS oversight, potential penalties and the tax chaos coming at them because their babies are “success stories” overnight.
At the exact same time, though, social media continues rewarding the appearance of wealth far more aggressively than the discipline required to sustain it. I mean, everywhere you look, the first question being asked to these young athletes isn’t “Where did you invest your money?” it’s “What did you spend your first paycheck on?” The answers? Luxury watches. Exotic cars. Designer fashion. Some even private jet aesthetics. This combination is combustible. And if we are being honest, this problem is only getting started.
Which is why we need to go back to the original problem of why this even made it to the courts at all. After his success, why did Tatis feel like he had been duped? In my humble opinion, it’s because he’s looking at this through the Tatis-the-person lens who sees a $34 million payout and feels pained by it. However, Tatis-the-business was given $2 million in early-stage risk capital at a time when nobody could guarantee superstardom, health or long-term earning power. The ones who carried all the risk of uncertainty before he became a star in a fingers-crossed investment for 10% of future earnings ended up looking darn good once certainty arrived.
The harsh truth
Many athletes are making the largest financial decisions of their lives during the least financially sophisticated stage of their lives, and that should concern all of us, especially CFOs.
Finance leaders understand something the public often overlooks. Cash flow pressure changes behavior. A young athlete trying to support parents, siblings or an entire community may evaluate long-term opportunity cost very differently than a seasoned executive sitting in a corporate boardroom.
Note, this should never be chalked up as a weakness because his is just human nature. Ironically, corporations make versions of these same decisions every single day. Businesses constantly sell future upside for present stability by issuing equity earlier than they would prefer or sacrificing long-term margin for short-term runway. Like with all major decisions, sometimes they become transformational and, yeah, sometimes they become cautionary tales.
The difference is that corporations usually have CFOs, attorneys, consultants, bankers and boards helping pressure-test those decisions before anybody signs paperwork. Young athletes often have far fewer guardrails, which is the real problem.
The Tatis story should educate us. Because buried underneath the headlines is one of the most important financial “literacy” conversations happening in modern sports right now: What happens when elite talent intersects with immediate monetization before financial maturity catches up?
That question is only becoming more relevant as name, image and likeness deals accelerate the business ecosystem surrounding athletes. Some athletes with access to resources will leverage early capital wisely. They will build sustainable businesses, protect their earnings, invest intelligently and turn their high visibility into profit-sustaining ownership. However, others will learn extremely painful lessons about taxes, leverage, unsustainable spending and the true cost of selling future upside too cheaply.
The thing is, when those stories emerge, everybody will ask the same predictable question: Why didn’t somebody teach them this earlier?
In my opinion, that is probably the question we should start answering now. Whether you are a CFO allocating enterprise capital or a young athlete navigating NIL or professional opportunities, the principle remains remarkably similar. Every decision you make costs something. The question is whether you understood the price before you signed the deal.
