Normative Narratives

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Monday Morning QB: The Tanaka Effect

The subject of this blog is Japanese pitcher Masahiro Tanaka. The MLB pitching market this off-season has been non-existent, as teams looking for top-notch pitching wait to see if Tanaka is an available option. The issue surrounding Tanaka’s potential availability is a proposed rule change for the “posting fee” a MLB team has to pay its Japanese counterpart for the rights to negotiate with a player (original article):

Japanese pitcher Masahiro Tanaka’s baseball future was thrown into flux Thursday when the president of the Tohoku Rakuten Golden Eagles told a newspaper that the team might not make the prized starter available to major league teams as a free agent this winter.

Yozo Tachibana told Sponichi that the Golden Eagles might refrain from making Tanaka available through the posting process. Under a proposed system, major league teams would submit maximum bids of $20 million for rights to negotiate with Tanaka, and Tanaka would be free to sign with the club of his choosing among those that meet the threshold.

Previously, major league teams would submit bids and the club with the highest offer would receive exclusive rights to negotiate with the player.

The proposed rules would result in a significantly lower payout to the posting club — in this case, Rakuten — while giving Tanaka a wider range of teams in the bidding. According to reports out of Japan, 11 of Nippon Baseball’s 12 teams agreed to the $20 million maximum fee and the proposed system, while Rakuten was the dissenter.

Officials from MLB and its players’ association are hoping to get Tanaka’s situation resolved as quickly as possible, because his status could have an impact on Matt GarzaErvin SantanaUbaldo Jimenez and other top free agents who might have to wait in line to see how the market for their services shakes out.

Lets consider how this rule change might affect all parties involved:

The Nippon (Japanese) Baseball Team:

As the article clearly states, under proposed rule changes, the posting fee would be capped at $20 million dollars. While multiple teams could post this $20 million dollar fee, only the team which successfully signs the player pays the fee.

$20 million would be a substantial decrease in revenue for the Japanese ball club. Comparable free agents Daisuke Matsuzaka ($51.1 million) and Yu Darvish ($51.7 million) commanded much higher posting fees. The lower posting fee may make the Japanese club reconsider letting their best player go; for $50 million they will likely give up our best player, for $20 million they may not.

The Free Agent:

The financial benefits go to the player in question. The player will command a bigger contract under the proposed system for two reasons:

1) Competition: Under the old system, there was no competition from other clubs once a posting fee was accepted by the Japanese club. The only two options for the Japanese pitcher would be to either sign with the MLB team or reject the offer and return to the Japanese team. Under proposed rule changes, multiple teams will have the right to make offers, and the player can negotiate with any team that makes the posting fee.

For a player in high demand (such as Tanaka), this will bid-up the price of the player as teams compete for their services.

2) Total Cost: Teams generally have an amount (or range) they are willing to spend in order to sign a player. When it comes to Japanese players, this total included both the posting fee paid to the team and the contract signed by the player. With less money now going to the Japanese club, this frees up more money for the clubs to offer the player.

MLB Teams:

As stated before, MLB teams will likely have to offer a larger contract to highly desired Japanese free agents, as they will have to bid against one another. There is another small caveat that should be mentioned here, regarding teams that are trying to get below the luxury tax threshold.

As it currently stands, the posting fee is not factored into the teams payroll and therefore is not counted against the luxury tax threshold. Therefore, a Japanese player is even more attractive to a team that is near the threshold, as it can theoretically sign a higher caliber player while taking less of a payroll hit. This is part of the reason why a team like the New York Yankees is very interested in signing a player like Tanaka.

If the rules are changed, more of the cost of the player will be reflected in his contract, and therefore count as part of a teams payroll / luxury tax burden.

Other Free Agents: 

Often times, players must wait until the most sought-after free agent at a specific position is signed before they start to receive offers. This top free agent “sets the market”, and once they are signed, other players at that position receive offers from teams that could not sign that most sought-after player.

This is likely what we are seeing with the market for pitching this off-season. While many big name players like Robinson Cano, Jacoby Ellsbury, and Brian McCann have signed lucrative contracts, big name pitchers such as Matt Garza and Ubaldo Jimenez have not. Once the Tanaka situation is resolved (one way or another), expect teams to more aggressively pursue the other available free agent pitchers.

MLB Fans:

Fans may bear the greatest cost of the proposed rule change, if they are deprived of the opportunity to see Tanaka pitch in MLB games.

I do not see this as a likely scenario, but it is something the Tohoku Rakuten Golden Eagles are threatening if the new rule is passed.

Update: Tanaka-claus is coming to town!