Because I Can

The Red Sox have until Thursday night, and Matsuzaka doesn't look like he'll be signed. As it stands, the question is what Matsuzaka's annual value is. This assumes of course that his value is constant over time. So here's what it is for a 3-10 year contract:

51.1	Posting fee (millions)
15	Matsuzaka's value (in $millions/year)
	Years	Salary	Total Contract
	3	$2,033,333	$6,100,000
	4	$2,225,000	$8,900,000
	5	$4,780,000	$23,900,000
	6	$6,483,333	$38,900,000
	7	$7,700,000	$53,900,000
	8	$8,612,500	$68,900,000
	9	$9,322,222	$83,900,000
	10	$9,890,000	$98,900,000

Clearly, not a $15 million pitcher given how commonly Japanese players get 3 year deals. Let's say $20 million.

51.1	Posting fee (millions)
20	Matsuzaka's value (in $millions/year)
	years	Salary	Total Contract
	3	$2,966,667	$8,900,000
	4	$7,225,000	$28,900,000
	5	$9,780,000	$48,900,000
	6	$11,483,333	$68,900,000
	7	$12,700,000	$88,900,000
	8	$13,612,500	$108,900,000
	9	$14,322,222	$128,900,000
	10	$14,890,000	$148,900,000

We notice here that all the numbers are in the black. My guess is that this is where Boston sees Matsuzaka's value. But let's try $25 million.

51.1	Posting fee (millions)
25	Matsuzaka's value (in $millions/year)
	years	Salary	Total Contract
	3	$7,966,667	$23,900,000
	4	$12,225,000	$48,900,000
	5	$14,780,000	$73,900,000
	6	$16,483,333	$98,900,000
	7	$17,700,000	$123,900,000
	8	$18,612,500	$148,900,000
	9	$19,322,222	$173,900,000
	10	$19,890,000	$198,900,000

ESPN is saying Boras wants Zito money for Matsuzaka, particularly 6 years, $100 million. That seems like a bridgeable gap, but it clearly has huge implications for Matsuzaka. His salary nearly triples for a 3 year contract, and even for a 6 year contract there's a 43% difference. Keep in mind that the total cost here to Boston is only a 25% difference.

Boras would argue that with a rotation of Matsuzaka, Schilling, Beckett, Papelbon, Lester, plus Wakefield and Clement, the Red Sox could easily find an NL suitor for Clement if they needed to shed salary and avoid the luxury tax. The ultimate leverage, though, would be based on what Matsuzaka would get next year. An MLB.com article said Matsuzaka could become a general free agent, and that would open him up to much higher salaries (although with a $2 million deal for 2007), but compare that to holding out with Luke Hochevar.

**********

Ultimately, the posting system as it was set up was flawed, as it was a sealed bid first-price auction. Teams would not bid their true value, but rather either bid very high to block, or bid just enough to get access and sign. What would have made more sense would have been better would be to bid in a sealed bid second-price auction. If you bid $50 million, you would pay up to that amount, but you would not actually have to spend that much, but only the second place bid, which might have been $32 million. Here's what Boston would offer Matsuzaka then:

32	Posting fee (millions)
20	Matsuzaka's value (in $millions/year)
	years	Salary	Total Contract
	3	$9,333,333	$28,000,000
	4	$12,000,000	$48,000,000
	5	$13,600,000	$68,000,000
	6	$14,666,667	$88,000,000
	7	$15,428,571	$108,000,000
	8	$16,000,000	$128,000,000
	9	$16,444,444	$148,000,000
	10	$16,800,000	$168,000,000

This is much closer to what Boras is looking for. Realistically, teams would likely bid a bit more and teams looking for a high-priced block would need to price themselves so high that they may not be able to make a "good faith" effort to get the pitcher, causing the commissioner to intervene and nullify their bid. Perhaps the most interesting effect of this is that if the player went to New York, the Yankee Premium would not be absorbed by Matsuzaka, but rather by the posting team.

Labels: MLB