Rumors have it that the Boston Red Sox have paid somewhere between the mid-30s to low-50s in millions of dollars for the right to sign Japanese ace pitcher Daisuke Matsuzaka. That money gives the Red Sox the right to negotiate with Matsuzaka (through his agent Scott Boras) for 30 days. If no agreement is reached, Matsuzaka must return to Japan for a year before being posted again. So, how much is he going to get paid?
A team will be willing to pay a player a equal to his marginal revenue product (MRP)—the additional value he generates in value to the team. A player in the open market ought to receive a salary equal to his MRP; but, a player with who is restricted in his salary will earn less. I’ve seen several reports that the Red Sox will be paying Matsuzaka ace money, but that is not the case. Part of Matsuzaka’s value will be going to the team that holds his reserve rights, the Seibu Lions of Japan. The salary that any team will be willing to pay him will be his total added value minus the amount paid to his old team. Furthermore, because the bid winner has the sole right to sign him in MLB, it only has to pay him enough to make him want to play in the US over playing in Japan. I’m not sure how accurate this report of his salary is, but translated into dollars, Matsuzaka made about $2.8 million last year. Since his team still owns his rights, I’ll assume he’s good for a raise to $4 million in 2007 (I have no idea if this is a good assumption, if you have better information, please pass it along). Now, the Red Sox have to convince him that playing in the U.S. is worth more than the $4 million he would earn in Japan.
Also, it looks as though he’s going for a three-year deal like most Japanese players. Before even paying him a salary the Red Sox will be paying out between $10-$16.7 million a year for his services. Let’s then assume he’s as valuable as Brandon Webb, whom I estimate to be worth about $20 million year. This gives him a salary of between $3.3 and $10 million. He certainly won’t come for the low number, but the high number surely would do it. But I don’t think the Red Sox would be willing to go to the high end. All they have to do is outbid their competition in salary and compensate him enough to not mind living in the U.S.
So, after all this, I’ll stop being fancy and take a stab. I’ll guess that he’ll be getting a $6 million contract from the Red Sox, who will pay a $36 million bid fee to the Lions. In total, the Sox will be on the hook for about $18 million a year. I’m not buying the $50 million reports unless the Red Sox are planning to sign him for more years and he’s willing to work for peanuts. I guess will find out soon enough.
Update: I was way off. ESPN reports it’s a $51 million posting fee. I think one of three things will happen.
1.) Matsuzaka signs for a five-year deal.
2.) The parties don’t reach an agreement. Maybe the Red Sox were only out to prevent the Yankees from getting him.
3.) We are getting ready to see salary escalation so high that A-rod will wish he had an out clause in his contract.
I’m betting on 2.
Addendum: Can someone find a sources that clarifies what happens if Matsuzaka and the Sox do not reach a deal. Some people are saying that he becomes an unrestricted free agent, but the only document I’ve found says that he would have to be reposted next year. Also, I believe he has two more years of service before he can become a free agent in MLB. Is this correct?
If the Sox do not reach a deal by the deadline, Matsuzaka will return to Seibu to pitch next season and the posting fee will not be paid by Boston. Matsuzaka, whose current salary in Japan is $3 million, could then be posted again next year.
Further Addendum: A few other issues that seem relevant. Some people have been discussing whether or not the Red Sox are using their bid to block the Yankees. If this is the case, Bud Selig can intervene and give the rights to the second-highest bidder. However, let’s say that the Red Sox offer him a $6 million/year deal. Boras might argue that a player of this caliber would command a salary of double that to accuse the Red Sox of negotiating in bad faith. However, I think the Sox could easily beat that rap. They would be offering him more than he would earn in Japan, and it’s not the Sox’s fault that the Lions hold his reserve rights. What the Red Sox pay out for him is not the same as his salary. I expect the Sox to play hardball. Matsuzaka has a lot to gain from playing in the U.S. from endorsement deals, so I think it’s going to be difficult to turn down a deal.
Also, are the Red Sox banking on an influx of revenues from Japanese fans and advertisers? Certainly, there will be some money from Japan, but I can’t imagine it would be that large. As I just mentioned, I think the player will reap most of the benefits from endorsements. Following baseball from the other side of the world has to be difficult. Do the Red Sox think they can get NESN on Japanese television? If so, then he probably is very valuable. But if it means that the Sox forgo singing Zito and J.D. Drew by spending $30 million on Matsuzaka, what is that going to do to Boston fans who value winning?
From the article mentioned above:
To calculate Matsuzaka’s financial impact on the Red Sox, Boras said, he will use Hideki Matsui as a benchmark. Boras said he’s heard from Japanese sources that Matsui brings in $21 million per season for the Yankees in advertising and marketing, so he wasn’t blown away by the $51.1 million bid.
That’s bull. I don’t think anyone will be impressed by what Boras as heard. Put some numbers on the table and then that’s something impressive.
It looks like the Sox are trying to buck the trend of signing a Japanese players to three-year deals.
The Sox, meanwhile, likely will try to tie him up for five years, but at somewhere in the $12 million-$13 million range.
This makes a lot more sense—an average of $22 million/year over five years—but it’s still a lot more than I thought he would get.
Thanks to Baseball Musings for pointing me to the article.
Posted by JC in Business, Economics, Moneyball, Pitching
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