Yesterday, I bought a professional baseball player. It only took a minute. I surfed over to Real Sports Investments, clicked the "Buy Now" button, and purchased six shares of Randy Newsom. Along with my Slate colleagues John Swansburg and Dan Engber, I am now the proud owner of 0.0096 percent of a minor-league pitcher's future major-league earnings. Mr. Newsom, I wish you a long and prosperous career—emphasis on prosperous. If Newsom makes $1,000,000 over the course of his major-league career, the Slate investment group will take a loss, earning a piddling $96 on an initial investment of $143.82. If he makes $10 million, we'll get $960. And if he makes Barry Zito money? I won't be retiring early, but I'll be able to watch my baseball-playing property on some nice plasma TVs.
The 25-year-old Newsom, a midtier relief pitcher in the Cleveland Indians organization, is the first pro baseball player to hold a self-IPO. Real Sports Investments, the company Newsom hatched last year with two ex-ballplayer business partners, is fantasy baseball minus the fantasy. Newsom is selling off 4 percent of his potential MLB earnings at $20 per share. (A 15 percent "player valuation and share allocation fee" and a 2.9 percent "online processing fee" bump the price up to $23.97). A total of 2,500 shares will be offered, netting the pitcher $50,000 if they all get sold. As of today, investors can only buy shares; selling and trading will come soon, once RSI launches a snazzier Web site. And according to Newsom, this isn't a "one-player thing": In an interview with Baseball Prospectus, he says RSI is in talks with lots more minor leaguers.
The idea of buying shares in athletes isn't new. Football Players Funds Management, a Portugal-based hedge fund, helps pro soccer teams buy the contracts of promising youngsters in exchange for a percentage of the players' future transfer fees. Top poker pros are often staked for tournaments by investors, and a golfer might get his start on tour with backing from a consortium of investors. There's already a popular fantasy site, ProTrade, where fans can buy and sell virtual shares in their favorite players. And last May, Michael Lewis wrote a convincing piece for Portfolio arguing that it won't be long before Americans will be able to invest in their favorite athletes.
If the sports world turns into a trading floor, it probably won't be on account of Randy Newsom. RSI, with its one-player stable, is more mission statement than business plan at this point. Newsom says the company has two goals: to give cash-poor minor leaguers a way to get capital and to strengthen the bond between fans and players. (You own six shares? Sure, I'll sign that baseball.) "We feel like the business side will just come," he says. "If we take care of the fans and take care of the players, the business is there."
The business won't be there without the approval of Major League Baseball. Newsom says he's talked with MLB since going public, but RSI didn't give a heads-up before its launch date. If MLB decides that selling a stake in your future earnings constitutes betting on baseball, then RSI is probably sunk. (Michael Teevan, a spokesperson for MLB, tells me via e-mail: "This seems to be a unique situation, and it's one that we will look at closely.")
Let's assume that Real Sports Investments survives MLB scrutiny and recruits some more players. Will it work as a market? Jeff Ma, the co-founder of ProTrade and the leader of the Vegas-busting MIT blackjack team, says it's a winning concept for minor-league ballplayers like Newsom. A ballplayer's career carries substantial risk, Ma says, and it makes sense to shave off potential wealth in exchange for insurance against never getting a major-league payday. (If Newsom doesn't make the majors, his investors get nothing.) Ma is skeptical, though, that players with higher earning potential will care to participate, and without these higher-tier prospects, the market won't be as attractive to investors. "You're not talking about Barry Bonds or [future stars like] Billy Butler or Tim Lincecum selling their future upside," Ma says. "How many people will want to speculate on the Randy Newsoms of the world?"
Newsom acknowledges that he's not a blue-chip stock—he refers to himself as an "anti-prospect." He came into pro ball as an undrafted free agent from Tufts, and he throws his fastball around 83 miles per hour, relying on command and his sidearm delivery to deceive hitters. At 25, Newsom is old for a Double-A player who has yet to see the majors. Still, he's no scrub, putting up a 2.51 ERA last season and making the Eastern League all-star team. I asked John Sickels, a renowned evaluator of minor-league talent, to give his assessment. "Newsom is a Grade C prospect, which means he has a chance to contribute in the majors but is not a top prospect or a likely future star," he responded via e-mail. Sickels adds that he didn't include Newsom in his 2008 Baseball Prospect Book "due to space limitations." Number of players who were included: 1,074.
Newsom may be Real Sports Investments' first product, but he doesn't want to be the company poster boy. While he acknowledges that the game's most promising young players—the high draft picks who rake in huge signing bonuses—likely won't want to sell off future earnings, he insists that RSI won't just peddle misfit anti-prospects. Newsom cites Johan Santana, who struggled in A-ball before becoming the best (and soon the richest) pitcher in the game, as a player who was overlooked early but cashed in late. But unless RSI is discernibly better than pro scouts at identifying hidden talent, the company will end up selling shares in lots of players who won't stick in the majors and very few who strike it rich like Santana—most players who struggle in the lower minors never make it.
Newsom certainly won't be Santana. In the very best case, he'll be Scott Sullivan or Chad Bradford, a sidearming reliever with a steady major-league career. Newsom tells me he'd certainly be satisfied with the three-year, $10.5 million contract that Bradford signed with the Orioles last year. Most likely, Newsom will never see that kind of dough. RSI is selling 4 percent of the pitcher's career income for $50,000, meaning his own company estimates Newsom's career earnings at somewhere around $1,250,000. (Pritz says the exact details of RSI's valuation model are confidential; Newsom says they ran "a lot of statistical regression models.")