A Fair Posting Process for Japanese Professionals Entering Major League Baseball

Abstract

Japanese Players under contract with Nippon Professional Baseball Teams are currently allowed to enter Major League Baseball through a posting process. The process begins with a first-price sealed-bid auction that determines the transfer fee paid to the Japanese team. The player and the winning Major League team then have 30 days in which to negotiate a contract. Recently, the Boston Red Sox bid a record $51.1 million to the Seibu Lions for the exclusive right to negotiate with Daisuke Matsuzaka. Using this transfer fee and the resulting contract between the Red Sox and Matsuzaka, I show that Seibu received 76.7 percent of Matsuzaka's value. A simple bargaining model reveals that were Matsuzaka allowed to negotiate fairly with Seibu, Seibu would have received no more than 54.3 percent of Matsuzaka's value. By precluding the player from negotiating over this transfer fee, Major League Baseball's current posting process can over-compensate the Japanese team for the contractual right it holds. Alternative posting processes that correctly determine the player's value and fairly compensate the incumbent team are then developed.

Keywords: Major League Baseball, Nippon Professional Baseball, Posting Process, Daisuke Matsuzaka, Contract Negotiation

JEL Classification: J44, J52, L83