The following article is brought to you by the ILR Sports Business Society. It is written by Max Fogle an undergraduate student at Cornell University and the Editor-in-Chief of the ILRSBS Blog. Max has worked for several blogs and websites, most notably MLB Trade Rumors. He can be reached at firstname.lastname@example.org and the original version of this article can be found here.
Masahiro Tanaka may or may not be coming to Major League Baseball this winter. The Japanese ace’s future is in the hands of his current team, the Rakuten Golden Eagles. With the changes in the Posting System decreasing incentives for Nippon Professional Baseball clubs to post the very best players, Rakuten may hope to keep Tanaka for at least 2014, his last season before he reaches free agency in Japan. And then he would still have to complete one more season in Japan to become a free agent in MLB terms.
The new posting system allows NPB teams to place a price on players they post. That’s a significant change. The more dramatic change is that the posting fee is capped at $20 MM. Another major change is that any MLB team that meets that number will be free to negotiate with the player. For a quick recap on the incentives of the old posting system, check out my post on the subject.
The clear losers in the new agreement are the NPB teams. For most players who get posted the $20 MM limit probably won’t come into the play, but they stand to lose big money on players like Tanaka. And while this is a big loss for Japanese clubs, it is not a big gain for MLB clubs. It’s impossible to imagine that teams would spend less via this arrangement.
While the posting fee is capped, the players contract part of the equation will probably make up the difference, especially since guys like Tanaka will essentially be free agents with many teams bidding. Small-market teams will still not be able to get the top posted players, although they’ll be happy to see more of the transaction costs for big-market teams counted against the competitive balance tax.
Japanese players who make it through the process stand to get a much bigger chunk of the MLB club’s money. But with less incentive for teams to post them, many could lose out on years of a lucrative career in North America. So just to sum things up, the Masahiro Tanaka saga will be a huge test of the posting system.
The decision for Rakuten comes down to how much surplus value he will have to their team. One way to think about this is one season at a time. Would Tanaka be worth more than $25 MM ($20MM posting fee + about $5 MM in salary) for them in 2014. I don’t know the answer, but it’s not unrealistic that it could be yes. While NPB revenue (~$1.5 BB) is a fraction of MLB revenue, it is split among just 12 teams. While Rakuten has not traditionally been a top earner since it’s entry as an expansion team midway through the last decade, 2013’s championship season may have helped bolster the club’s income statement. But still, $25 MM is far more than any NPB player has ever made, and likely too high a valuation of Tanaka.
But if the team could still post him next year for a similar fee, then it’s really a much simpler question. There’s no reason to believe the posting fee cap will be lowered, and unless Tanaka has a disastrous season, he would still bring the max amount. It’s likely even if he misses some time with injury, MLB teams still might be interested at a highly stomachable $20 MM. So yeah, it seems like Rakuten will be highly motivated to keep Tanaka for one more season.
The only hiccup could be Tanaka. If he wants to pitch his age-25 season in MLB next season, he certainly will have some clout. Rakuten would not want an ugly PR battle with their star. Although, contrary to what has been repeated in the US media, I’m not sure there would be public backlash to a team holding onto its best player after their first championship. That’s just not how it usually unfolds in sports.
But besides a publicity battle, Tanaka could simply hold out to gain leverage. This would certainly make Rakuten more likely to post, or even trade him to another team that would. Alternatively, some other agreement could be worked out. He could agree to a contract that takes him to full free agency, giving Rakuten two more years of his prime, and Tanaka the ability to essentially pocket the $20 MM posting fee. These scenario’s are a little far-fetched, but with the perverse incentives of the new posting systems, they are not out of the question.
The next few weeks should give us a great deal of information. There will be further dialogue from Rakuten on how much they value Tanaka. MLB insiders will likely examine how he is valued stateside. At some point, there will likely be statements from Tanaka himself on where he wants to pitch. He may very well wish to stay in Japan and earn a very comfortable paycheck for a few more years. Or he may yearn for the brighter lights and even more comfortable paycheck that MLB teams can offer. One way or another, we are going to learn a lot about the new posting system.
Featured Image courtesy of http://www.tracking.si.com