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Matsuzaka sweepstake

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The big news of the week, although certainly not the most surprising given the myriad leaks to the media, was the Red Sox forking out an incredible $51.1M big ones for the right to negotiate with the doyen of Japanese baseball, Daisuki Matsuzaka. Now, for those of you who have chronic amnesia or happen to ONLY get your baseball news from BTB let me outline the process that is underway.

The Seibu Lions, Matsuzaka's team are in a little financial distress and thought that a good way to get out of trouble was to sell their star play to an MLB team. Given that Matsuzka is still under contract to the Lions they can do this through the posting system. This means that every MLB team can bid for the rights to negotiate with Matsuzaka. The highest bid is then submitted to the Seibu Lions who can choose to accept or reject it -- quite why they would reject the bid after going through this process is unclear. Then the winning team is notified that they have the right to negotiate with the player for 30 days. If there is no agreement then the player goes back to the Lions where he'll go through the same process next year; if no agreement is reached at that point he becomes a free agent in 2008. Phew -- easy, right?

And to cut a long story short the Red Sox spunked out $51M just for the RIGHT TO NEGOTIATE with Matsuzaka. The question is just how can the Red Sox expect to make good on this deal?

There is some debate as to what the Red Sox will pay Matsuzaka. JC Bradbury is of the view that Boston has leverage in the negotiations because you only need to pay the player enough to make him want to play in America over Japan. In order to fit with JC's valuation the Red Sox would need to pay him a paltry $3M a year for a 3 year contract, which isn't going to happen. Factor in that starting pitching is at a premium (and Daisuki is a definite #1 starter) and the legendary Scott Boras is his agent and you soon see the dollar signs racking up.

Another theory is that the Red Sox posted a winning bid just to block the dreaded Yankees from signing him and will fail to reach an agreement. If this were to happen there would likely be an investigation by Bud Selig and his cohorts and given the Red Sox do need starting pitching this deal does make sense.

OK, so let's run a few numbers and see what you have to believe for this deal to work. Most commentators thing that the Sox will offer a $10-12M a year for between 3-5 years. Let's assume that a 5 year $55M deal is thrashed out. Boston's total outlay would be $105M over 5 years, or $21M a year. How good does Matsuzaka have to be to justify this salary?

Well, given that Santana earned just south of $9M last year you could argue that Matsuzaka needs to pitch 30 perfect games to justify the price tag, but Santana isn't a free agent so that is an unfair comparison. David Studeman, of the Hardball Times, has calculated that a marginal win in the free agent market is worth about $4.5M. The average salary for a pitcher is probably somewhere in the $5M region so to justify $21M a year you need to be 5 wins above average.

Interestingly, in 2004 Santana was a shade over 5 wins above average (550 WPA), as he was again in 2006. So what we are saying is that Matsuzaka has to become one of the best (if not the best) pitchers in the game to justify his value.

Many believe that he will do that. Baseball Prospectus thinks he will be a pretty useful player. I'd say that most estimates peg him around 3-4 wins above average, which isn't bad and easily makes him the most desirable free agent hurler on the market this year. Given that Zito could get an Oswalt type deal (75/5) and Matsuzaka is clearly better we are a little closer to justifying the heady valuation.

However, there is even a more important factor that many have missed -- two actually. First, the $50M posting fee has a few tax benefits. It doesn't count towards the luxury tax threshold and also acts as a tax shield. Second, signing Matsuzaka will allow Boston to dip a toe into the super lucrative Japanese baseball market. By selling Matsuzaka paraphernalia at top-dollar to baying Japanese fans it should allow the Red Sox to recoup some value. This is the model that soccer team Real Madrid followed with its signing of David Beckham where shirt sales and sponsorship have easily covered a $40M transfer fee.

If we assume conservatively that these two effects equate to $15M a year then Matsuzaka is suddenly a more reasonably $90M/5 pitcher. That is certainly top dollar but perhaps not totally outrageous.

For this to work the Red Sox need to make sure they have their calculations right and that their Asian Ace stays healthy through his contract. Either way you cut the cake Matsuzaka isn't going to be short of a dime or two.