Baseball players’ free agent contracts often act like a reward for past performance rather than a solid bet on future contributions. Sometimes the fully guaranteed deals work out; other times injury or a quick drop-off in skills can saddle a team with a long-term millstone.
One entrepreneur, Mark Grenader, said he thinks he can combine baseball’s obsession with statistics with the ability to hedge player contracts, using agreed-upon expectations for player performance to provide a type of contract insurance. His startup, Reifi, has just gotten an investment from the Minnesota Twins Accelerator by Techstars, which comes with a four-month residency the team holds annually for a handful of early-stage efforts in sports and technology.
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“Reifi is a financial marketplace that allows teams to mitigate the financial risk of later underperformance regardless of the source of that underperformance,” Grenader said on a video call. “And the way we do that is we securitize the performance of a team’s athlete and then allow investors to take on that risk in exchange for a return.”
Grenader’s vision is simple: Teams sell shares on player contracts that pay off for the team or the buyer if the player veers much from a metric, probably a version of Wins Above Replacement (WAR) that is fully transparent. Performance below WAR means investors would lose some money, while performance above WAR means investors would earn a greater return.
Right now, Reifi is in discussions with institutional investors to be counterparties for test contracts they are seeking from teams. The aim is to use securitization to effectively create a new type of insurance for contracts that doesn’t have a 60- to 90-day waiting period, isn’t just for injury and would be cheaper than traditional insurance, which has gotten both more expensive and harder to find. It’s not an idea out of left field: Securitization has been used to hedge risk around variance from expectations with things like the weather. Surely structuring a trade on whether or not Giancarlo Stanton will hit over the Mendoza line next year can’t be as complex.
“We want to be able to provide a strong financial product for teams to ultimately build rosters with franchise-altering names that can produce more wins, secure more playoff berths or rebound financially from seasons that unexpectedly turn out to be a bust,” said Grenader.
Ideally, Reifi could not only be a financial instrument for teams, but also a way to engage fans more, akin to sports wagering. Grenader’s original concept is that clubs would sell a limited number of shares, say 1 million at $10 apiece to cover a $10 million season contract for a specific player. Fans wouldn’t see all their $10 at risk—some portion, say $7.50, would be guaranteed to be returned, effectively giving teams an interest-free loan for the season. The balance would accumulate value every day based on how the player performed: think a penny in value added for every base hit. Fans would be excited to follow every game. While teams would take on additional risk of a player outperforming expectations, they possibly would see an uptick in fan interest for tickets or merchandise that would ease the hit. Somewhere in there, Reifi would make money, perhaps on a fee per trade, collecting interest on escrowed funds or some yet-to-be-determined way.
Obviously, there is a lot to be ironed out before Reifi is ready for the pros. Grenader just started the business a year ago, after stints at consultancy Bain & Co. and as clinical strategy manager for opioid treatment firm Ophelia after graduating from the University of Pennsylvania in 2019. MLB hasn’t endorsed the idea—but also hasn’t quashed it. “We’ve had preliminary conversations to make sure we comply with regulations,” Grenader said.
Being selected by the Twins accelerator is a big step forward. “The primary consideration for any investment is the founder and our belief in the founder,” said Twins senior director of innovation and growth Chris Iles on a phone call. “Our investment in Reifi really demonstrates how much we believe in Mark.”
The team chose Reifi and the other nine startups—most with ideas around crowd-sourcing data—in this year’s accelerator from a list of 40 finalists from hundreds of applicants compiled by Techstars, the world’s largest investor in the “pre-seed” funding round of tech companies. Selection to the accelerator means a four-month residency in Minneapolis working with the team and area mentors to develop out ideas. The Twins also take an undisclosed equity stake in the businesses, up to 6% according to general Techstar guidelines for entrepreneur applicants. Still, startups often evolve into new ideas altogether as they are built out, something the Twins are fully cognizant of. “It’s certainly an intriguing idea. Is it something we would do? I can’t answer that today. We’ll see how things go through the course of this accelerator. It’s something we’ll certainly seriously consider,” added Iles.
Right now, Grenader says five MLB teams are considering participating in the institutional investor-led test market to start with the 2024 season, the parameters of which will be built out in the next few months in Minneapolis. “We think the Twins front office and their ownership group are a super innovative organization and we’re excited to get their help,” he said.
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