Masahiro Tanaka: The unintended but foreseen consequences of the new NPB-MLB posting agreement

Masahiro Tanaka - Koji Watanabe

MLB is shocked - shocked! - that kickbacks may be a feature of the new posting agreement with NPB.

This undoubtedly has nothing to do with the Indians, as they will not be signing Masahiro Tanaka, but it piqued my interest nonetheless:

The president of Tanaka’s Japanese club, the Rakuten Golden Eagles, said at a news conference this week that Tanaka wishes to make donations to improve the Eagles’ stadium and its facilities for players and fans.

The agreement between MLB and Nippon Professional Baseball expressly prohibits a Japanese club from getting any value other than the so-called posting fee, directly or indirectly, including through the player, MLB spokesman Pat Courtney said.

"We are intent on enforcing all the provisions of the agreement," Courtney said.

For those who are unaware of the details regarding Tanaka and why the background of this story, here's a quick rehash. Masahiro Tanaka is one of the best pitchers in NPB (Nippon Professional Baseball), Japan's top professional league, and he's eligible to play in MLB at just 25 years of age. MLB and NPB just recently agreed to change the way eligible NPB players are posted, and the agreement will greatly reduce the amount of money going to the player's former club. Instead of a blind auction for the privilege of negotiating with the player, the player is a free agent once his club agrees to post him. And the posting fee that goes to the player's club, which before had no maximum, is now capped at $20M.

Let's look a recent example to more fully explain the differences. Two years ago Yu Darvish was posted, and the Rangers won the blind bidding with a $51.7M bid, and signed Darvish to a contract worth $56M. The $51.7M did not count against the luxury tax.

Tanaka is not considered as good as Darvish, but I think he's on par if not better than Ubaldo Jimenez, Ervin Santana, and Matt Garza the top remaining starting pitchers on the market. Tanaka's current club will likely get $20M, and Tanaka himself should get a contract far surpassing the one Darvish received. The total dollars spent by whoever lands Tanaka will probably be less than the total dollars spent by the Rangers in landing Darvish (post fee + contract), but the player will be getting a much bigger cut and the club a much small one. Hence Rakuten's reluctance to post him.

And hence MLB's strong response to reports that Tanaka would make a "donation" to his former team once he joins MLB. The new agreement hurts the NPB clubs the most, especially ones with potential superstars. A $50M+ posting fee would have been a huge windfall for Rakuten. In 2009 (for example), the team with the highest payroll in NPB was the Yomiuri Giants, with a US Dollar equivalent of $45.3M. Rakuten in 2009 had a $20.74M payroll.

In some ways the relationship between MLB and NPB is similar to the one between MLB and the minor-league clubs at the beginning of the 20th century. At that time there were agreements between major-league and minor-league clubs, but the clubs were independent of each other. The minor-league clubs would stay afloat financially by selling some of their good players to major-league clubs, or they could keep them with the hopes of getting their revenue through the box office. Earl Averill, who would go on to have a Hall of Fame career with the Indians, didn't debut until the age of 27 because the San Francisco Seals were getting more than enough money at the box office to stay in the black because of Averill's play. Eventually the Indians paid San Francisco $50,000, a huge sum in those days, to acquire Averill.

Under the old posting system, Rakuten wouldn't have thought twice about posting Tanaka, because the money they'd receive from the winning bid would be more than enough to offset any lost revenue from losing Tanaka. But now that the posting fees are capped, it's going to be a more difficult decision for teams with potential future MLB stars. Keep in mind, though, that once a NPB player accrues nine years of service time, he can become a free agent and sign with any team, whether in the NPB or MLB, so Tanaka would have eventually been able to go to the US after the 2015 season, but would have a lost a lot of potential career earnings in the process.

The new posting system, and particularly the posting fee cap, ostensibly will help small and mid-market clubs with landing players from NPB, but for the stars such as Tanaka, it's almost certain that a large-market club will land him. Although the posting fee bids are capped, the player can negotiate a contract with any club that meets the posting fee set by the NPB club. So if the Indians for instance bid $20M for Tanaka but the Dodgers and Red Sox also bid $20M, the chances of the Indians landing him would be almost infinitesimal. But the deal does hurt clubs already close to the luxury tax threshold, specifically the New York Yankees, so I suppose that's a small consolation.

But yesterday's development is another outcome of the new agreement. Essentially it appears that Tanaka either explicitly or implicitely agreed to pay his old club a kickback once he got his big contract, and MLB's shock that this would happen reminds one of a certain poor corrupt official in a famous movie:

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