Was It a Good Idea for Schoop to Sell His Future Earnings?

It was recently reported that Jonathan Schoop was one of several players who entered into an agreement with a company called Fantex to sell 10% of all future earnings. In exchange, Schoop would receive a one-time payment of $4.91 million. Fantex has also entered into agreements with several other professional athletes across NFL football and the PGA on similar terms. Taking it a step further, Fantex also floated the idea of packaging up these contracts of 10 or more athletes diversified across sports and selling them as an investment on public exchanges meaning anyone could buy a share of the collective future earnings.

This is fascinating on several levels such as whether it’s a good idea from the player’s perspective, whether the security would make a good investment, and also how one would confidently assess whether the group of athletes is properly “diversified” so as to assure there are enough long-term earners to provide a good return. Since the latter two story lines don’t exist yet they are just potential events down the road there is little to assess in this article. But we will keep an eye on it and report back. However, we can certainly do some number crunching regarding whether Schoop got a good deal.

It’s hard to envision any scenario where receiving a check for $4.91 million before taxes isn’t a good deal. But what if he has a long playing career and potentially makes hundreds of millions over that time? Schoop is currently 24 years old and will turn 25 this year. He is in his third season as the regular second baseman for Baltimore and has made $522,500 each of those years, but after this season will be eligible for arbitration.

In its simplest form arbitration means next year he will at least be paid similar to what other second basemen who are hitting and fielding like him are paid. He could still end up signing a long-term contract too, but starting next year he should be making a lot of money.

So what’s a lot of money? And does the risk that he doesn’t end up making that money make it worth cashing in a portion of his earnings now? According to Spotrac, the average salary of all MLB active roster second basemen is $3.679 million between 52 total players (52 because some teams have more than one player who is considered a second baseman). That average is somewhat skewed though by 33-year-old Robinson Cano, who is making $24 million for 2016 (who, by the way, so far this year is batting .237 – only slightly better than Jonathan’s .220, though Cano does have 8 home runs though to Schoop’s 4). Regardless it is clear Schoop will be getting a big raise this offseason and, if he sticks around in the league, will make a lot of money.

Whether he sticks around seems to be the more important question than how much he will make coming up. Kolten Wong of the St. Louis Cardinals provides a good comparison. He is at a similar age and point in his career but just this offseason on March 2^nd he signed a five-year $25.5 million deal with the Cardinals having an option for a 6^th year at $12.5 million, meaning the total would be $38 million.

Some might argue, especially locals, that Schoop has more potential and therefore earning potential than Wong. But the age and experience and timing of the contract are what we are comparing. If Schoop signs that deal and that 6^th year option gets exercised, he would be forfeiting approximately $3.8 million over the six years. If that’s the only long-term deal in the majors he signs, that is a no-brainer because he is getting $4.91 million right now.

On the other hand, at the conclusion of that theoretical contract Schoop would be 31 years old – still young enough to play quality baseball and sign another two-four year deal. Chase Utley, Robinson Cano, Daniel Murphy & Ben Zobrist are all active infielders over 31. So if he stays healthy and continues to improve, he could sign a deal like Daniel Murphy did this offseason as a 31-year-old which was three years $37.5 million, meaning another $3.75 million would be taken off the top. But Murphy’s contract was signed this year. Schoop’s future contract would be signed in the year 2022 or 2023. Assuming the average MLB contract increases by 5% per year, that puts the three-year deal he would sign at closer to $50 million.

$3.9 million from the first contract and $5 million from the second means he would lose $8.9 million over a nine-year period to receive $4.91 million at the beginning. Sounds like a big loss – and it is – in dollar terms. But who knows if he will be able to sign those two contracts? He is coming off a partially torn PCL last year. And remaining a starting second baseman consistently for 12 years in the majors is an exceedingly rare occurrence. Even for someone with his potential.

All in all, this is not a bad deal for Schoop.

This and all articles contributed by Brian Kuhn to RussellStreetReport.com or EutawStreetReport.com as well as the content of any quoted third party professionals in these articles care purely for entertainment and illustrative purposes. They may not be construed in any way as financial, tax or legal advice to the reader or to any subject in the article. Seek legal, tax and financial guidance regarding your personal circumstances.