Three Ringed Circus

If you take material from one source—that’s plagiarism.

If you take material from multiple sources—that’s research.

Using that criteria this could be referred to as research. I was mulling the whole Red Sox/Daisuke Matsuzaka/Scott Boras situation wondering how this will all play out. I felt a column was in order, and the good folks at Baseball Think Factory were enjoying a lively discussion on this very subject.

Excellent points were made, and while the writing is my own, a lot of the thoughts come from my fellow primates and credit should be paid where credit is due. I highly recommend reading this thread which can be found here. So before I press on I’d like to thank the participants for basically writing—or at least researching—this week’s column.

I might add a random thought or two off the top of my head. It’ll amount to little more than talking (or typing) out loud. That way if I turn out to be brilliantly insightful then I look pretty good. If I come across as stonecold bat#### mad as a bloody march hare and you e-mail me to point that out I can simply reply: I was just thinking out loud.

That should be enough butt-covering disclaimers for this week.

What the Red Sox might be thinking

Some have speculated that the Red Sox simply wanted to keep Matsuzaka away from the Yankees. At best they might delay that possibility by a year while getting a lot of bad will from Japan—especially if they hope to acquire players from there at some point in the future.

The Red Sox probably went that high since they view this as their best chance to sign Matsuzaka. They probably couldn’t outbid the Yankees, plus having exclusive rights makes it easier to deal with Boras—they don’t have to worry about Boras getting them to bid against themselves. They will pay precisely what they feel Matsuzaka is worth over the short and long haul or they simply won’t sign him. The Red Sox lose nothing if Matsuzaka/Boras want them to severely overpay for his services.

Boston’s brain trust will be looking for a longer deal than Boras and Matsuzaka, because if Matsuzaka wants to sign this year Boras will be looking to get him to free agency as quickly as possible. Boras will likely try to get a three-year deal, and although the posting fee isn’t payroll and doesn’t count against the luxury tax it’s still money spent. Even if Boras wants three years/$39 million that means the Red Sox will have spent $90 million for three years of Matsuzaka, or $30 million a year.

I think the Red Sox won’t care for that idea. The Red Sox paid the $51 million fee not because they felt Matsuzaka is worth $51 million+the contract—they paid that $51 million so they wouldn’t have to pay Matsuzaka what he would get as a free agent. They doubtlessly feel that the fee entitles them to a better deal with Matsuzaka because part of that fee includes the rights for not having to bid on him as they would a free agent.

To them it’s outlandish that they’d have to pay the posting fee for the right to pay Matsuzaka free agent wages when they could wait a year and do the exact same thing.

The Red Sox are looking at this from a twofold perspective: the on-field product and tapping into the Japanese market. The longer Matsuzaka plays in Boston, the greater brand recognition they’ll have in Japan. While international revenue is shared, blunting the potential revenue gains they hope to generate; the overall product (especially if the Red Sox win the World Series with Matsuzaka) increases in value. This translates into the ability to charge higher fees for advertising, local TV revenue, ticket and concession prices, etc. This in turn increases the overall franchise value of the Red Sox.

Short-term pain can become long-term gain—especially if Matsuzaka pitches well.

I’m guessing the Red Sox are thinking really long term with this: the old “you have to spend money to make money” adage. They may not get the full value from the contract/posting fee over the life of the deal but over the long haul…

I think the Red Sox have every intention of signing Matsuzaka.

What Scott Boras might be thinking

Boras will likely use the $51 million posting fee as a point to both the Red Sox and Matsuzaka in determining his market value, in effect saying: “Your contract offer plus $51 million is what my client is worth.” Boras knows that isn’t necessarily so because part of the value of the $51 million resides in obtaining exclusive negotiating rights. Not having to bid against the Yankees and Mets for Matsuzaka’s services has a great deal of value. Regardless, Boras will view a substantial chunk of the posting fee as money rightfully belonging to Matsuzaka.

He may encourage Matsuzaka to pitch in Japan in 2007 to recapture a chunk of the value of his posting fee by coming back as an unrestricted free agent where a club can devote 100% of the acquisition costs to salary.

This carries a few risks: This is Boras’ big opportunity to add Japanese players to his stable. But if he passes on a big contract hoping for more and Matsuzaka is injured or pitches poorly and his value plummets, the pitcher will have hurt his future chances in Japan severely. If Daisuke Matsuzaka’s legacy is becoming ‘The Matt Harrington of Japan’—Boras can forget the Japanese market.

Another risk is Matsuzaka has only two choices: pitch for the Red Sox or return to Japan. If he returns to Japan he doesn’t become a free agent until May 2008—long after most teams have blown their free agent budget—plus Boras’ client will be older which will negatively affect his value. Complicating this scenario is that this offseason could be a crest in the free agent market like 2000-2001 when Alex Rodriguez and Manny Ramirez inked $20+million/year with the game swimming in money and a new collective bargaining agreement signed. Next year’s market might not be as potentially lucrative. In addition, the Seibu Lions will have nothing invested in Matsuzaka’s future since they know he’ll be gone after next season and will pitch him like there’s no tomorrow. The Lions will look to get maximum value out of his arm in 2007.

Boras might decide to play hardball with the Lions by asking them to subsidize the Red Sox under the table and strictly on the hush-hush (underhanded financial shenanigans in professional baseball? Perish the thought!), basically telling them that a good chunk of that $51 million belongs to his client and they’d best pony up some scratch or he tells Matsuzaka to wait for free agency and the Lions get nothing. This is a risky tactic since they could reply to Boras: “Fine, we’ll even help you out in marketing him as a free agent: ‘Come sign the last professional pitcher ever to log over 400 innings and 45 complete games in a season.’”

And of course there’s Boras’ bottom line: no contract for Matsuzaka, no commission for Boras. Boras can also use the posting fee as a way of goosing his other clients’ market values. If the Red Sox/Matsuzaka settle for the aforementioned 3/39 deal he’ll probably tell teams that the Red Sox spent $90 million for three years of Matsuzaka. Therefore, his other clients must be worth…

What Daisuke Matsuzaka might be thinking

Scott Boras is, to the best of my knowledge, the first agent he has retained; Matsuzaka is not naïve about his value. He knows that he could command more money on the open market than he would as a posted player.

He asked the Seibu Lions to post him anyway.

If memory serves he also asked to be posted last year as well.

In other words he wants to pitch in the major leagues as soon as possible. Granted the $51 million posting fee probably changed both his and Boras’ expectations a bit, but Matsuzaka knows that he’ll make more money in the big leagues as a posted player than he would in Japan. He also realizes that if he pitches in Japan next year he could make more money in 2008 pitching in the bigs than he would’ve in 2007 pitching as a posted player.

And the posting system isn’t like free agency, which is about testing the player market. It’s about getting into the major leagues before they become free agents in Japan.

Matsuzaka likely understands the risks of a return to Japan next year that I outlined in the previous section. He’s already wealthy and he knows, posting fee or not, that he’ll be still wealthier. Boras likely has explained to him that the sooner he reaches free agency in MLB, the sooner he becomes wealthier still. I’m guessing he’s on board with trying to get as short a contract as possible for the most money the Red Sox are willing to pay.

Chances are good that he retained Boras not because he’s looking for top dollar (something he could get by waiting a year for free agency), but because Boras has the reputation of being the best agent and he’s going to an economic system [in MLB] that’s foreign to him. He wants to enter MLB under the most favorable circumstances he can achieve.

Smart move.

I’m guessing that Daisuke Matsuzaka will be pitching at Fenway in 2007. I’m looking forward to watching him, and I hope he does well—except against Toronto.