Most baseball sources seem to agree that Masahiro Tanaka is a really good player. He may be Darvish-level, he may not be. But he’s 24 years old, dominant, and headed for the MLB posting process. Every team in baseball would love to have him on their team. A lot of teams, including the Yankees, are planning on bidding on him through the posting process. Instead of a more efficient auction, Japanese teams make sure the bidding is blind, in order to force prices up. Every team interested in Tanaka’s services is right now deciding how much they value exclusive negotiating rights with the young star.
Assuming every team values Tanaka’s talent the same (who knows what each scout is saying), the Yankees should value exclusive negotiating rights higher than any other team. Here’s why:
Higher Value per Marginal Win
In a purely profit-seeking world, teams value marginal wins at the amount of revenue each brings in. So, a team with a smaller revenue base (like, the Rays) gets a smaller revenue increase for each marginal win that they add. So, All else being equal, the Yankees, with their huge market and revenue streams, can make more money off Robinson Cano than the Rays case. Ergo, they’ll pay more for his services.
The Yankees are the biggest market and by far richest team, and so for any free agent, like Tanaka, they can bid the highest per win. That doesn’t take into account any special marketing opportunities that the Yankees can take advantage of thanks to their history with top Japanese stars and Tanaka’s current status as a top Japanese star.
Luxury Tax / $189 million Soft Cap Threshold
There aren’t a lot of teams thinking hard and fast about the $189 million threshold for luxury tax and revenue sharing penalties. The Dodgers appear content to spend without worrying too much about budgets. The Red Sox, Phillies, and Tigers are all pretty far below the threshold. Really, the restrictions are only affecting the Yankees. We’ve all read about and discussed this ad naseum, so I won’t rehash it here.
Most, perhaps the majority, of the costs to sign Tanaka will not count against the threshold. The Yankees could plan on bidding $60 million, signing Tanaka for $60 million over 6 years, and only half would count account the soft cap. The Yankees could value Tanaka at $120 million / 6 years, but functionally extend their $189 million budget. The Rays would probably much rather pay players over time, instead of all at once, for cash flow reasons, and don’t care about the luxury tax difference.
Of course, there’s a catch here too: MLB and NPB are currently renegotiating the posting system. The speculation is that MLB is going to want to redirect some of the posting fee to the player. This is a much fairer system, and it is likely that the redirected funds will count against the luxury tax. I would be shocked if the NPB concedes a large fraction of the posting fee to players, as they have no incentive to do so. Either way, the Yankees still prefer paying for players via posting than any other way.
Other Teams Know This
This may be a little counterintuitive, but the third major advantage the Yankees have is that every single team can clearly see, again assuming that everyone judges his baseball ability the same, that the Yankees value Tanaka higher than anyone else. A bit of a weird game theory scenario is going to play out:
- Every team has a general, fuzzy idea of how good Tanaka should be. No one really knows what dollar amount to put on it.
- Every team knows that at an equal price, the Yankees can get the most bang for their buck off him.
- Therefore, every team knows that they want to bid lower than the Yankees.
There’s an auction winners curse going on here. Generally speaking, the auction winners curse goes like this: When a lot of parties place a value on a thing, the party who places the highest value on it is probably going to be wrong. Its kind of like crowd sourcing: the best judgment is probably an average of what all the informed people say it will be. When someone is far away from that average (so, the highest bidder), they are pretty likely to be wrong. That’s why a lot of free agent contracts end up hurting teams.
It is natural in the game theory to want to know what the crowd thinks. You may be confident in your own bid, but you are still probably more confident in the crowd’s average bid. And, at the same time, you are aware that not every team in the crowd values Tanaka’s economic impact the same: the Yankees are going to be much higher. So, any effort to go out and ‘beat the Yankees’ in the bidding is almost certainly dooming a team to the auction winner’s curse. That doesn’t mean they won’t bid, it means they are less likely to pad their bid with extra ‘I really, really want him!” money. Winning an auction is dangerous in the best of times, but in this particular situation, its even worse.