What Will Daisuke Matsuzaka Get?

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?

Answer:

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.

14 Responses “What Will Daisuke Matsuzaka Get?”

  1. YumYum says:

    I’ve read somewhere, but can’t find it again, that Dice-K will make the equivalent of US$3.5m if he remains in Japan for 2007.

    I’ve also seen reports that the Mets bid $38m for their posting fee, so that would move the BoSox bid up from $36m.

    Since the posting fee isn’t treated as player salary, I don’t think you can count it 1:1 against MRP. I’ve read that it doesn’t count vs salary cap and that it has a much more beneficial tax treatment. Also, signing Dice-K won’t cost any free agent draft pick/cash compensation. Last, couldn’t some Japanese money into NESN help defray some of the posting fee?

  2. YumYum says:

    Maybe he’ll get some value in the form of a Hideki-like 3-year deal that grants him free agency at the end instead of leaving him arb eligible.

  3. Kyle S says:

    I’ll take the over on your prediction, JC. Say the Sox offer Matsuzaka 3 years, 6 million per year. He can go back to Japan for one season and come back over as an unrestricted free agent the next season (although many news reports don’t report this, it’s true). As an unrestricted free agent, he’d get something similar to Zito money – say 5 years, 70 million or, 14mm per year.

    The discount rate at which you choose the CF stream of 6, 6, 6 over 4, 14, 14 (ignoring the later years, though they further support the argument) is ludicrously high – my HP 12C says something like 400% per year. Now, that assumes he doesn’t get some terrible injury next year; but even if the chances of him getting hurt are 50%, he’s still indifferent at reasonable discount rates (10-20%), and that assumes he suffers a career ending injury and gets nothing beyond his $4m Japanese salary, as well as ignores the value of the CFs after the 3 year period ends.

    Knowing that, the Sox won’t be able to get away with such a lowball offer. boras doesn’t have tons of leverage, but he has a lot – after all, matsuzaka choosing him as an agent sends a signal, IMHO. if anything, i could see boras agreeing not to insist on matsuzaka’s FA rights after the initial contract ends, so at least the sox can amortize the posting fee over six seasons.

    I said on my blog I think he’ll get 4 years, $40 million. We shall see, I guess.

  4. David Gassko says:

    I hope you’re right, but I sure have a hard time believing Matsuzaka will get 3 years, $18 million. Boras wants 5/$75, and while I doubt that happens either, Matsuzaka will simply wait a year until he’s a free agent and get the big bucks then.

  5. Telnar says:

    The opportunity cost of signing with the Red Sox for the 2007 season isn’t just the, say, $4 Million that Sebu would have paid him combined with whatever he wants to be willing to live in the US. The largest piece of the opportunity cost comes in future years.

    If he doesn’t sign, then a few weeks into the 2008 season, he becomes an unrestricted free agent (I think his contract with Seibu runs about 20 days past opening day 2008). At that point, if nothing bad has happened to his arm in the interim, he will get full market value for the remaining years.

    Let’s say that he’s worth $20 million/year as a free agent. In 1 and 7/8 years, that’s 37.5 million to go with the 4 1/2 million that Seibu will pay him for a 1 and 1/8 years, for a total of 42 million. There are risk issues (since he won’t be able to make nearly as much if he is seriously injured in 2007), and present value discounting issues, but even allowing for those, I can’t imagine that Matsuzaka would be better off by taking a 3 year contract for $6 million/year.

    I think that your approach to the opportunity costs will work only for contracts no longer than his current deal with Seibu.

  6. JC says:

    I was under the impression that he’d have to go through the process again next year, but some of you think that’s incorrect. Wouldn’t be the first time I’ve made a mistake. ;-) However, according to this text of the agreement, it looks like the procedure starts over again a year after a failed bid. If he’s going to be a free agent, then I don’t see a deal getting done this year, especially a three-year deal based off the $51 million fee. Maybe it gets done with a five-year deal. And I wouldn’t be surprised it the Red Sox are just blocking other teams. And I thought my estimates of pitcher values were high.

  7. matcohen says:

    So if you think that Mats can get $4 million next year and say a 3/14 deal after that, that is $46 million over 4 years.

    So he should be willing to take $32 million over 3 years to come here ($46-the 14 he will get in year 4 as a free agent).

    Roughly, if you want to evaluate it like this.

    I tihnk that he gets $12 – $15. The Sox have made a statement that he is a top of the line pitcher and they are desperate to have him and Boras will hold out for top dollar.

  8. JMR says:

    I think the Sox will make offers that escalate based on the number of years. If Boras only wants 3 yrs then free agency the salary will be lower than if they can lock him up for 4 or 5.

    Two things that we can’t really measure here:
    (1) the added revenue stream of having a player like this…especially w/ NESN. The Sox have pretty much maxed out local revenue w/ constant sell outs of Fenway and the highest ticket prices in MLB, but NESN rights in Japan will be very valuable and the new CBA lets teams keep more of this based on the split vs. straight pool.
    (2) Scarcity–revenue sharing means more teams are locking up aces (see Sheets, Ben,; Santana, Johan) so guys like this don’t go on the open market. Based on Davenport tranlations he figures to be a 7-9 win player..that is huge in the AL East, especially when you deny him to the Evil Empire.

    The core of Dice-K, Beckett, & Papelbon could rival the Maddux, Glavine, Smoltz trio….

  9. Ben says:

    Should Daisuke’s MRP be higher because of his effect on “untapped revenue streams” that we’ve all heard so much about? This is an extremely unique case where a highly-payed player’s off-field value could be matched/eclipsed by his off-field value. Matsuzaka could also add value to the Red Sox organization by allowing them better access to future generations of Japanese and Asian players (which is in line with Red Sox “philosophy”; they were much more active in Taiwan than anyone else this past year).

    The Sox will want 5 years, Bora$ will want 3. I see 4/45 contract in Matsu’s future.

  10. Jason says:

    I bet on numbers 1 and 3 being correct. In fact, I’ll predict that he’ll get a 5 year deal that will pay him at least $10 million a season. I don’t believe the Red Sox outbid the Yankees just to delay Matsuzaka from going to the Yankees for one year. If they fail to reach a deal, the Yankees or Mets will surely pay more than $10 million a year to get him next year as an unrestricted free agent. I think a new era of A-Rod type contracts is about to begin in MLB. This is exactly why Gary Sheffield is so angry that the Yankees picked up his option (prior to trading him). He knows that he could get a lot more on the open market this year.

  11. tangotiger says:

    He’s either going to get a huge buyout from Seibu (on the order of 20-30 million$), or he’s going to reject the Sox offer, not ask to be posted next year, and simply become a bonafide free agent in two years. I explain my reasoning here: http://www.insidethebook.com/ee/index.php/site/comments/what_price_matsuzaka/

  12. jon says:

    I think the Red Sox and Matsuzaka will split the difference and do a four year deal that would leave him a free agent at the end. From what I understand he has wanted to pitch in the US since he won the high school championships in Japan. I think it will be in the $12-$15m price range. Jaret Wright makes about $10m/year, Mike Mussina just signed for about $12/year. Matsuzaka while he is a risk, has much higher upside potential than either of these two players. That is just for on field value. When you add the extra revenue from NESN broadcasts, increased in stadium advertising meant for the Japanese market, and increase merch sales. A nation that I am pretty sure doesn’t have many sales of BoSox jerseys as it is, things could be interesting. Not to mention all the Matsuzaka jerseys they will sell in New England over the next three or four years.

  13. Sean C. says:

    As much as I would like to agree that the Sox bid that high just to keep the Yankees from signing Mats, I just don’t think that it’s going to happen. Two reasons: 1) it seems quite obvious that he wants out (whether that is for the money or a change in geography or whatever) and 2) Seibu has made it clear that it no longer wants him because of the financial restrictions with which the team is currently dealing.

    Because of that, Mats is in a situation in which he can hardly turn back. He doesn’t want to be in Japan and his team doesn’t want him in Japan. So if the $51 million is a base price for the negotiations, then the Red Sox could very well wait this out and he would be almost forced to accept whatever deal was put in front of him, as long as it isn’t totally ludicrous. Say the Sox offer a net sum similar to the starting bid for 4 years or so. While $12-13 per isn’t quite what an ace is worth, it’s not something that Mats and Seibu (who will undoubtedly be prodding him along the next 30 days) are going pass up when they consider the predicaments they are both in at the present, no matter what Scotty Boras whispers in his ear.

  14. Cliff Harpe says:

    Can Seibu “back door” the excess posting fee (above bidder #2) back to Dice-K? In other words, they get $51 milllion IF RED SOX SIGN him, otherwise, nothing. If they threw $12 million around the corner that would help.

    I wish somebody had an idea what Ichiro and Hideki Matsui have been worth in Asian revenue. My gut is Matsuzaka is worth $4 to $5 million, which, when averaged over 5 years at 10 million a year puts total 5 year package at $85 million or so, which makes it a good deal for the Sox and for Dice-K.