How much is Matsuzaka worth?

Wow. That was my first reaction when I heard about the $51 million the Boston Red Sox are paying simply for the right to negotiate with Daisuke Matsuzaka and that’s been my reaction every time since that I have heard the number mentioned. $51 million. That’s about the amount of money Pedro Martinez got from the Mets to sign for four years, what Johnny Damon got from the Yankees. And the Red Sox didn’t have to pay anything just to negotiate with them.

If we are to believe that the Red Sox are intent on signing Matsuzaka, and weren’t simply bidding all that money to block the Yankees from getting him, can we possibly justify the posting price? One guess is that the Red Sox are going to force Matsuzaka to sign for a low dollar amount because he has no leverage. The Seibu Lions, his current team, are only paying him $3 million a year, so a way below market deal (say, $6 million a year) would still mean a lot more cash for Matsuzaka (he really needs a nickname).

On the other hand, Matsuzaka’s agent is Scott Boras, and Boras is known for long holdouts. Matsuzaka could still make $3 million in Japan and wait a year; Boras had client Luke Hochevar hold out for a year while pitching in the Independent League for peanuts. I don’t doubt for a second that unless the Red Sox offer at least close to fair market value, we’ll have to wait at least another year to see Matsuzaka pitching on this side of the Pacific.

So then, the question remains: How much is Matsuzaka worth?

Performance

In this area, the work has luckily all been done for me, so I’ll be quick. A couple weeks ago, Jeff Sackmann translated Matsuzaka’s 2005 pitching line to a major league equivalent, and got 215 innings pitched with a 3.44 FIP, calling that the “upper bound on his ERA.” Clay Davenport wrote that Matsuzaka’s translated ERA over the past four years is 3.41, startlingly close to Jeff’s estimate. So that’s what I’ll go with.

How much is a 3.40 (or 3.41 or 3.44) ERA in the American League worth these days? Well, assuming that Matsuzaka allows a normal amount of unearned runs, that’s about 54 runs better than replacement in 215 innings pitched, or about five wins.

Okay, now what are the chances Matsuzaka breaks down? Again, Chris Constancio asked that question Monday. The short answer? The chances are low. The long answer: There’s almost no chance Matsuzaka breaks down in 2007 or 2008, about a 7% chance he breaks down in 2009 or 2010, and about a 14% chance that he blows out his arm in 2011.

Applying all those numbers, here is how I project Matsuzaka to perform over the next five years, denoted in wins over replacement:

Year	WAR
2007	5.00
2008	5.00
2009	4.65
2010	4.65
2011	4.30
Marketing in Japan

Okay, no one is going to bid $51 million to negotiate with a player just because they think he’s good. Obviously, the Red Sox expect that signing Matsuzaka will give them marketing inroads in Japan, and make them a lot of money in the Far East. How much can they expect to make?

I’ll start off by saying that I have no idea, but we can still try to generate an estimate. There have been two situations in the past similar to this one: The Mariners’ signing of Ichiro Suzuki and the Yankees’ signing of Hideki Matsui. Why not examine how much money they made from that?

Unfortunately, there are no direct numbers on the teams’ revenues in Japan, so the only estimate we can make is going to be based off indirect evidence. Using Forbes reports on team revenues for the past seven years, here is what I found:

  • In 2001, Ichiro’s rookie season, the Mariners made $27 million more than they had the previous year. The five teams closest to Seattle in revenues in 2000 increased their income by an average of just $6 million.
  • In 2003, Matsui’s rookie season, the Yankees increased their revenues by $8 million. The five teams closest to the Yankees in 2002 revenues upped their earnings by an average of $4 million.
  • Between 2000 and 2006, Seattle’s revenues have increased by $67 million. The five teams closest in revenues to Seattle in 2000 have seen their income increase by an average of $54 million.
  • Between 2002 and 2006, the Yankees’ revenues have gone up $62 million, versus an average increase of $21 million for the five teams closest to them in revenues in ’02.

If average all of that together, we can estimate that signing a Japanese star player is worth something like $9 million a year. But wait, we’re not done. $9 million in 2001 is not the same as $9 million in 2007. Adjusting for inflation (in baseball, inflation has held at a pretty steady 10% a year), we find that the Red Sox should expect to see their revenues in 2007 to increase by about $14 million should they sign Matsuzaka. That’s a sizeable chunk of change.

There’s another adjustment we have to make as well, though. The Mariners saw $27 million in increased revenues in 2001 partially because they signed Ichiro, but in part because they won 116 games in ’01. In fact, each marginal win is worth about $2.5 million in additional revenues, so we have to adjust for that.

We find that the Yankees and Mariners were expected to make about $3 million a year more (in 2007 dollars) than the teams they are being compared to based on winning more games alone, so we take that out for a final estimate on Matsuzuka’s impact on the Boston bottom line: $11 million a year.

(I’m going to add that Boras has been going around claiming that the Yankees make $21 million a year in Japan because of Matsui. Could he have doubled the true number? Sounds about right.)

Tying it all together

So what’s the final verdict? How much should the Sox offer Matsuzaka? How much is he worth?

To answer that question, we first need to go back to our projection and apply $2.5 million per marginal win. So for example, in 2007, we expect Matsuzaka to be worth $12.5 million, without factoring in his value in terms of opening up the Far East market to Red Sox.

Next, we need to adjust his worth in each season for inflation. While the Red Sox have to pay the $51 million posting fee up front, that does not apply to Matsuzaka’s salary. For example, I estimate Matsuzaka will be worth 4.3 wins above replacement or $10.75 million in 2007 dollars five years from now. But $10.75 million today is $15.74 million in 2011, so the Red Sox can afford to offer him a little more.

So we’ve estimated his worth in every year and we’ve estimated how much extra money the Red Sox can bring in from a new revenue stream in Japan, and we know the size of the posting fee… what’s left?

Here is what would offer a fair offer to Matsuzaka:

3 years, $22 million, or
4 years, $49 million, or
5 years, $75 million

While I doubt that Boras and Matsuzaka would ever agree to the first offer, the latter two look pretty realistic. In fact, it had been rumored that Boras would be seeking a Roy Oswalt-type deal, and Oswalt got five years and $73 million from the Houston Astros. If the Sox can bargain him down to a lower price, they might just make a little money on Matsuzuka.

All I have to say is, wow.

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