THE BOOK--Playing The Percentages In Baseball

Here’s the unofficial watch page:

http://matsuzaka.blogspot.com/

So, if you believe the Red Sox are going to post a $45M fee for the rights to negotiate with him and then give him a $55M 4 year contract then that is $25M a year—actually, this will be less if you take in to account the likely tax implications (the posting fee is luxury tax exempt, which reduces the *total* outlay the Red Sox would have to dole out).

Right, so if you believe that you have $2-3M per marginal FA win and that a typical salary is $5M then Matsuzaka has to be ~7-10 wins above average to justify his contract. Santana in 2004 was only 550 WPA or 5.5 wins above average.

Either way you slide the pie Matsuzaka is going to be expensive ...

There is also talk that the Japanese team will kick back some of the fee to the mlb team - if Matsuzaka doesnt sign then that team eventually loses a $45 million opportunity.

So, do the Red Sox explain this to the Japanese team, and say they need $15-20 million back to be able to sign him? If the Red Sox walk away, they are not out anything, and worst case they’ve delayed Matsuzaka being in the majors a year. (most likely 2)

I’m thinking his current team says $25-30 million now is a lot more than zero dollars later.

The Red Sox are out $5 million less a year, or 5-7 wins plus. If he performs real well, he will be a draw, and could have an economic impact beyond wins and losses. His success could also add to the total worth of the franchise.

Interesting—would that even be allowed? I have no idea.

I think the economic impact of breaking into the Far Eastern market is important; I haven’t really given much thought for how much that might be worth. Incidentally, for soccer team like Real Madrid and Manchester United have made millions from exploiting the popularity of soccer superstars in Japan. I believe that David Beckham generated $10M+ in Japan / China through shirt sales alone. If one gets it right the economics can be compelling

Can’t see how a kickback could be allowed.  If the Red Sox bid 40 and want 20 back, then why are they even awarded the bid in the first place?

The teams that bid 30 million and lost would have reason to cry foul here.

And why wouldn’t some team bid 200 million and just demand a 170 million kickback?  There’s no end to this.

Or bid 200 bazillion dollars to block the hated Yanks.  This is what happens when you create a system to control the movement of a very finite number of players. 

The soccer system seems better:
http://en.wikipedia.org/wiki/Transfer_(football)

Basically, it’s a compensation to the previous team, for letting the player out of his contract to become a free agent.

In the NHL, European players are subject to the draft, and a flat-per-player fee is paid to the respective European league for each player signed to an NHL contract (excludes Russia: see Evgeni Malkin).

But, with Bbudd Sselligg as the architect, what do you expect?

There are many instances when a team losing a player pays part of the contract (although the circumstances are different from this instance).

I would imagine the $40 million has to be paid to the Japanese team; I could see the Red Sox asking that team to pay part of the salary. This eliminates the ability to bid 200 bazillon.
There is also some risk as to what (if anything) the Japanese team will pay.

I don’t think there is anything to stop Kansas City from bidding $170 bazillion just to block everyone else from having the guy.

There is actually a good argument that the soccer transfer system is illegal in Europe. There is supposedly freedom of labour which means players should be able to move between clubs relatively easily—much like you or I moving jobs. This has yet to be challenged in court but I think it is on shaky legal ground. Extra-EU deals (or Japan USA in this case) is probably expempt because it doesn’t fall under existing labour laws

According to the wiki entry, the players are transferred while still under contract (like Matsuzaka).  There was a ruling that once a player completes his contract, no transfer is required (i.e., free agent).  There is an exemption for under-23 players, even if no longer under contract, must still go through the transfer process.

It all depends on the CBA that they have, if any.

But the issue in soccer is that it directly contravenes EU law, which is obviously illegal!

That is why the ruling you talk about occured; because a player (Marc Bosman) challenged the old ruling in court.

Industries can’t go around making up random labour laws otherwise there would be anarchy. If I sign a contract with Goldman Sachs it is very difficult for them to enforce a notice period of more than 3-6 months, let along getting my new employed to pay a transfer fee. It is preposterous, so why should sport be different?

Is Matsuzaka even allowed to ask for a kick-back ...

Why wouldn’t he?  He’s not obligated to sign any contract. 

What if he says “no thanks!”? 

Seibu will come back and say: “Ok, listen, let us please buy you out for 20 million$ Now will you leave us?  You are the Suzanne Somers / Shannon Doherty of baseball.  What will it take for you to leave us alone?”

***

John, if you sign a personal services contract with Goldman for 3 years, and you want out after 1 year, why would Goldman let you go necessarily?  Howard Stern was trying to get out of his contract, as was Opie&Anthony.  With Howard, they let him stay on the air.  With O&A, they suspended them with pay to the end of the contract.

I don’t see the issue.

In Russia, they do have labor laws that allows you to give two weeks notice, and then get out.  Apparentely, there may be an exception clause for atheletes (like Malkin).  I don’t know the EU labor laws about the right of the employee to terminate his own employment.

I guess we can try to come up with a scenario where Seibu doesn’t kick back to Matsuzaka.  For example, if the Redsox offer him a 9million$/2yr deal, with right of free agency, Matsuzaka would take it.  The Redsox however, would be on the hook for 60 million/2yr, and that’s not going to happen.

After that, Matsuzaka would want 20 million for every additional year.  So, a 29/3 yr deal would work for him, meaning 80/3 for the Redsox.  Nope, not good.  A 49/4 yr deal would work for him, meaning 100/4 for the Redsox.  Nope.  A 69/5 yr deal would work, meaning 120/5 for the Redsox.  Nope.  Finally, the famous 89/6 yr deal, meaning 140/6 for the Redsox.  Nope. 

I don’t see a scenario where Matsuzaka will not get a buyout from Seibu, unless the Redsox think he’s worth a 120/5 yr deal.  At that level, the Redsox can get themselves TWO front-line starters (75/5 + 50/5).  They’ve got to believe that they will make huge inroads in Japan for that to be true.

Or, incredibly shrewd at blocking the Yanks.  But, if only they knew the Mets would overbid too, the Redsox might have been happy with the Mets blocking the Yanks.

By the way, to the best of my understanding, Matsuzaka will be a free agent on Nov 1, 2008 (free agency after 10 years).  If someone thinks otherwise, please post a reference (and not a link to what someone else thinks).

A prime example of game theory at work

***
Tom—I am not a contract law expert and you could well be right but I believe in the EU that preventing someone from working from someone else, even if under contract is unlawful is the employee wants to move. That is why, in EU at least Goldman wouldn’t offer a 3 year contract to someone. There would be an agreed notice period that would be 3 months, 6 months max. Under Eu law the freedom to choose where you work is sacrosanct. May not make sense but it happens.

Anyway appears that soccer is an exception. Excerpt from EU Observer

The European Union leaders decided in Nice that sport should be treated as a special case in EU lawmaking. The British Prime Minister Tony Blair and Gerhard Schröder, the German Chancellor backed by Italy, Spain and France agreed to block attempts by Brussels to end the transfer system in football, which it claims breaches EU rules on the free movement of labour. The clubs fear ending the transfer system in football would do huge damage to small clubs. The Presidency conclusions Annex IV says as follows: ‘Even though not having any direct powers in this area, the Community must, in its action under the various Treaty provisions, take account of the social, educational and cultural functions inherent in sport and making it special, in order that the code of ethics and the solidarity essential to the preservation of its social role may be respected and nurtured.’ (EUobserver.com 9/12/00)

If Masuzaka can ask for a kick back from the Lions then there is nothing to stop a club posting $60M and clawing 40 back from the contract ...
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On a seperate point. If you believe Studes that a marginal win is 4.5M (I haven’t see the analysis so am not sure if this is correct or if 2M is the right number) then at an effective $21M a year he needs to be as good as Clemens. If he becomes the best pitcher in the game he justifies the salary. You have to believe that the Far East opportunity is worth *at least* $5M a year, which brings the contract into a realistic range. 21M a year is a 55/5 contract, which feels achievable ....

Yes, there is: Budd Sselig.  There is an agreement between MLB and NBP on the posting process.

There is nothing that says that Matsuzaka MUST sign with the Redsox, rather that he may sign with them or come back.

So far, things are going according to what I thought:
http://redsox.bostonherald.com/redSox/view.bg?articleid=169419

It’s all a matter of how much buyout to balance the scales for Matsuzaka.  A $10 million buyout seems low, but let’s see what Redsox will offer Matsuzaka.  Remember, if he signs for 6 years, he’s going to end up with 89 million$, whether all from the Redsox, or 72 from the Redsox, and a 15 buyout from Seibu.

If I were the Yankees I’d be screaming blue murder at this point. The posting fee should be seperate from the salary negotiations. What is to stop, in the future, a club posting a figure like $70M and negotiating the the selling team to pay the majority of that to the player (OK, an extreme example)?

Also, will Boston get an effective tax shield on the $2m per year that will be forked over by the Lions?

But, there is no bloody murder.  As I keep saying, the Redsox will offer Matsuzaka a certain amount, and have already offered Seibu a certain amount (51 million$).

Now, Matsuzaka has the right as a human being to negotiate a buyout of his contract, if he so desires.

Like I said, say Boston offers Matsuzaka a 60/6 deal.  Matsu will say to Seibu “thanks for posting me, but I’ll wait two years”.  It will then be Seibu themselves who will say “Listen Matsu, we desperately need that 51 million… we’ll give you 20 million of that, upfront, if you leave”.

There was no three-party contract.  It’s simply one contract between Seibu-Boston, another between Boston-Matsuzaka, and a third one between Seibu-Mastsuzaka.  They are obviously conditional on each other, but in no case is Boston themselves not honoring their deal with Seibu.

Tango—I understand what you are saying. But the issue (that I have at least) is that Seibu won’t get maximum value from Matsuzaka because they can only negotiate with the Red Sox.

If the Yankees were also trying to negotiate a deal with Matsuzaka, then Seibu would have more leverage and would be able to get a higher price (unless the player way fixated on playing in Boston).

We made the comparison with soccer transfers earlier in the post. The big difference is that there soccer transfers are rarely agreed in a closed market .... there is always a second club knocking at the door, which is not the case here.

Ultimately it is a flaw in the system rather than the Red Sox cheating it

The plot thickens

http://msn.foxsports.com/mlb/story/6215542

John, that’s a different tune.  The agreement between MLB and NPB is what it is.  You may see Seibu not getting maximum value out of Matsuzaka as a flaw, and others see that Seibu is involved at all and dampening Matsuzaka as a flaw too.  Matsu is in the position he’s in because it’s TEN years to free agency in Japan.

Under the existing arrangement between MLB and NPB, Boston will honor whatever agreements they come up with, and Matsuzaka will invoke whatever charter of rights and freedoms he has.  If that means that Seibu won’t make 51 million$ off the back of Matsuzaka, then good for Matsu.

I just want to make it abundantly clear that Matsuzaka is not a piece of property.... unless Matsu himself deems himself as one.

Therefore, before anyone cries foul on whatever shenanigans they perceive, it’s Matsu himself as a person that will decide what his body is worth.  Will he sell it off now to the Redsox and Seibu, for whatever he feels it’s worth, or will he wait two years, and then sell it off to the highest bidder.

Matsu has the right to extract, himself, from both the Redsox and Seibu, whatever he wants.  It’s up to those “johns” to decide if they’ll pay.

I’ve come to think that he’s worth paying the big bucks for.  Last night I was working on pitcher translations, and I get an ERA around 3.2 for him - which means he’s about a 5 win pitcher.

Right now I think he’s the second best pitcher on the planet after Johan.

Your salary estimator puts that at 95m/5.  Considering a unique revenue boost from Japan and luxury tax implications, The Red Sox would be justified signing him for 5 years, 55 million or so, and pay the full posting fee with no funny money at all.

My estimator actually includes an automatic aging/decline (assumes everyone is in their 30s).

Matsuzaka may not even be at his peak yet.  So, while I’d be looking at him as say 7.0 (above repl), 6.5, 6.0, 5.5, 5.0, he may be 7.0, 7.5, 8.0, 7.5, 7.0.

However, for a pitcher, there’s no way I would assume full playing time.  You have to assume a 35-start pitcher will pitch 30 starts next year.  (And less and less as time goes on).

I’ll come back in 20 minutes to tell you what it would be for someone who is near his peak, like Matsu and Santana.

7 Wins? 

I’d have to check if even Santana projects that good.

I was figuring 3 wins above average and 5 over replacement.  That’s 200 innings of a 3.20 ERA in a 4.50 context.

He might not be at his peak, but in this case I’d treat him as if he was, looking at all the complete games he’s pitched pretty much since age 18.

But if you think he’s a 7-8 win pitcher, then the Red Sox would be justified in paying Boras’ price of 15 million per year plus the posting fee.

First thing to note is that top true free agents, after ARod, get 25% to 30% of the league average payroll, and the top pitchers are close to 25%.  So, if the average payroll for 2006 will be 80 million$, that means 20 million$ is what you’d pay for the top.  Maybe a bit more.  That is, Clemens last year.

***

Now, I tweaked my model so that there is no aging.  In that case, all you need for a 5/55 + 51 posting fee (i.e., 5/106) deal is +4.3 wins above replacement.

If Matsu decides to get say 2/9 from Seibu, and then try true free agency in two years, a +4.3 WAR will give him 3/70 for those years 3 through 5, giving him a total payout of 5/79.

So, Matsu’s choice is to accept a 5/55, no buyout, or to go back to Seibu for 2/9, and then become a free agent for 3/70.  That is, he’s being asked to leave 24 million$ on the table.

Why would he do that?

Answer: he won’t.  Seibu will buy him out for between 20 and 30 million$.

(I assumed you meant 5 WAA, not 5 WAR.  Not important, though, for my illustration from post #27.)

Sounds like anyone can start a rumor, and spread it across the blogosphere:

Okay guys, here’s what I’ve heard through the grapevine on this...The Red Sox will hold out trying to lowball Dice-K [Matsuzaka]. And when I say hold out, I mean to the point where it becomes it was obvious just a blocking manuever to keep him from the Yankees. He wants $15Mx3Y, sox are offering 8Mperx4Y, “oceans apart”. I’ve been told that if the Sox knew the Mets had the second highest bid ($38M), higher than the Yankees ($32M), they never would have bid $51.11 to win him. That comes from a very good source. Moreover, what I heard from the same source who is close to negotiations that what will happen is that Selig, Boras, and Seibu have a deal in place, where Boras pays Seibu $25 mil (1/2 the Red Sox bid) and he owns the rights to Matsuzaka, and puts him on the market BY X-MAS for the highest bidder, and Selig has signed off on it…

First off, that 25 million$ looks like what I’m talking about.  In my original post, I’m always talking about how Seibu will end up with 20-30 million$.

Now, I can see a scenario where Matsuzaka will not sign with the Redsox, and Seibu does not get the posting fee.  And, Matsuzaka will buyout his own contract for 25 million$, and that NBP will declare him a free agent.  I see no reason whatsoever why Selig needs to be involved (unless of course he’s got George Bushitis).

At that point, Matsuzaka will be a free agent.

The end-result is the same: Seibu gets 20-30 million$, Matsuzaka gets his free agent price minus 20-30, except now it’s not the Redsox that sign him, but, whoever.  And, it could end up being the Redsox in the end.

I continue to maintain that Matsuzaka cannot leave 20-30 million$ on the table, unless he is deathly afraid of getting injured.

This is DEAL OR NO DEAL, at the highest possible level.  We’re about to find out about Matsuzaka’s risk averisty.

Wow. Looks like this deal might get done ... will be interesting to see the terms

http://msn.foxsports.com/mlb/story/6266048

Looks like he caved.  BTF rumors have the deal at 6 years and 51 million.

He’s leaving a lot of money on the table to pitch in the Majors NOW.

Yes, and that number has been confirmed by SI.com. That makes the Matsuzaka deal 100/6, perhaps a shade less if you account for the luxury tax effect (and possibly even less depending on what you believe about the Japanese market opportunity)

According to Tango’s little chart, that is about 5 WAR / 3 WAA, and that doesn’t account for the aging profile that is built in. Most projections have him above that. If he can hit his ERA projection of 3.50 and stay healthy it should be a reasonable deal all in.

Reasonable?

The Red Sox just pillaged MLB this offseason.  And I don’t like the Red Sox, so I’m not happy about it.

They will pay less for Drew and Dice-K, including the posting fee, than the Cubs will for Soriano and Ted Lilly.  Want to bet on which pair provides more wins?

A 6/103 deal means around 4.75 WAR, with decline (hardly the case here).  In 2 years, you should expect a 4/89 deal (assume 10% inflation, same level of performance).  Let’s call it a 25% chance that his arm blows between now and the 2008 offseason.  So, 4/67 for his MLB time, and he would have gotten about 2/10 from Seibu.  So, that’s a 6/77 deal, with risk averseness built-in.  He settles for 25 million$ less.

What’s really strange is that he’s getting around 8-9 million bucks a year for the next 6 years, whereas if he stayed in Japan, he makes half of that for 2 years, and then doubles that for the next 4 years in MLB. 

I will be shocked if Seibu did not buy him out for something close to 25MM.

If there was no buyout, then Matsuzaka:
1 - just really loves to play at the highest level
2 - has not really felt how low in the totem pole he is in salary, which will become very apparent in short order

Will be interesting to continue the watch.

Reasonable?

In the light of some of the other deals done this off-season it is probably better than reasonable. But the Sox are still paying $17M for a pitcher, albeit a top of rotation one. That is a lot of money and there is significant risk attached: he has tossed a lot of innings and no one knows how he’ll adapt to the majors.

Given the situation you have to say that the Sox played a cute hand throughout the whole process. Had they lowered their posting fee then Matsuzaka’s salarly would have been higher. By opting to set an outrageous posting fee the Sox made the deal even more attractive by reducing their luxury tax bill (which would have been much higher had Matsuzaka been a FA). Epstein understood that he would have the negotiation leverage and he used it to full effect—and in the process made Boras look a little foolish.

To Tango’s point on whether Seibu has backhanded some money to Matsuzaka, I see the theory, but given what has been said by various commissioners I don’t think that has happened. If it has then no doubt it will come out in due course. What is clear through this saga is that the posting process screws one party: the player.

John, as I keep saying, if Seibu wants to offer Matsuzaka a severance package, it doesn’t require the involvement of Budd Sselig.  And I don’t see why it requires the involvement of anyone other than the two people signing the contract.

http://www.usatoday.com/sports/hockey/games/2006-12-14-devils-bruins_x.htm

Matsuzaka… dropped the ceremonial opening puck to a standing ovation. Matsuzaka was wearing a No. 18 Bruins jersey — he’ll wear No. 18 with the Red Sox — and saluted the crowd before exiting through Boston’s bench.

I’m just re-reading this thread.  My original post speculated that he’d get a 6/60 deal (he actually got a 6/52, with possible bonuses to 6/60), but only if Seibu kicks back 20-30 MM.  I still think the second part happened.  Otherwise, I’m only half right.

***

If we consider that Matsuzaka is being paid 10 MM for his first two years (i.e., pre free agency), then Boston is paying 93 MM for his FA years (2009-12).

Assuming no decline in aging, and a 4.84 MM per win at that time and escalating at 10% per year, then they are paying for 4.2 WAR (and the benefit of his arb-level wages).