Risk Pooling and Self-investment in Baseball

Baseball is a lucrative sport. Players get to play the game they love, for thousands of fans, and they can get paid up to an incredible $20 million every year.

That's if you make it to the national league, though. And the newcomers to baseball have to prove themselves in minor leagues, being paid a not-incredible $8,000 a year. These minor league players are essentially lottery tickets: if they get lucky and make the majors, they can earn millions of dollars. But most players don't. They stay in the minor leagues, at least making more than minimum wage, but not by much.

Luckily, some players have a solution: risk pooling, hosted by a company named Pando.

It goes like this: any number of players make an agreement, and if any of these players make the major leagues and earn a certain amount of money per year (say, $30 million), that player gives back 10% of his salary into the pool, $3 million in this example. Pando takes 10% of that money ($300,000) and the rest is distributed equally amongst the players. This contract runs until the major league player's career ends or they pay $20 million.

What's intriguing is that there is essentially no downside: either no players from the pool make the major leagues and everything is the same, or a player makes it big and pays a fraction of their salary to help their former teammates.

What's more intriguing is that some people refuse this deal because of its connotations. Pando is essentially taking these minor league players, major league hopefuls with so much confidence that they'll make it to the World Series someday, and telling them to consider the chances that they'll stay in the minor leagues for the rest of their career.

Another possible issue is the idea that these insurance policies may encourage players to be less competitive, since they don't need to try so hard to make a lot of money. They could even work to make someone else advance to the major league so they earn their portion. Then again, with such confident players, what player would sabotage their own chances to help another's?

According to Pando's CEO, 140 players are participating in 25 income pools, and three have made it to the major leagues. And of those 140 players, enough players are projected to make the major leagues that the collective salary is estimated to be $250 million dollars, meaning $25 million flows back into the pool for the rest of the players.

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