Masahiro Tanaka and Prospect Valuation

Masahiro Tanaka was finally posted last week. Now, for the next 25 days or so, he’s going to be the center of the baseball world, for all the reasons Tony talked about this morning, and the month long courting of Tanaka is going to end with him likely signing a deal that costs a similar amount to Shin-Soo Choo or Jacoby Ellsbury. Perhaps more, on an annual average basis, since his deal is likely to be for six seasons instead of seven, and teams will have to pay a $20 million posting fee in addition to the salary they negotiate with Tanaka. My guess is that he ends up at $120 million over six years, so the total cost will be 6/$140M with the posting fee, putting his final bill just slightly behind the 6/$147M that Zack Greinke went for last winter.

It is going to be, by far, the largest contract ever given to a player who has yet to play in the big leagues. Including the posting fee, Daisuke Matsuzaka cost the Red Sox about $100 million, while Yu Darvish cost the Rangers about $110 million. And those deals dwarf all of the contracts given to other international players: Jose Abreu got $68 million this winter after defecting from Cuba. Previously, Hyun-Jin Ryu went for $62 million including the posting fee paid to his Korean team, Yasiel Puig got $42 million (plus some potential arbitration payouts that could raise that number substantially), and Yoenis Cespedes got $36 million over four years. Even going back a few years, we see Aroldis Chapman at $30 million and Leonys Martin at $15 million.

Some of the difference in price is due to the rapid increase in revenues that MLB teams have now versus several years ago, but then again, Jose Abreu just signed a few months ago, and the Rangers had already struck gold on their TV deal when they ponied up for Darvish. Ryu and Puig went to the Dodgers, who apparently had a money-is-no-object mandate for the first year of their new ownership, but in the end, the total cost of having both players under control for six full MLB seasons will be less than a team pays to acquire Tanaka.

Changes to the posting system are a factor in the price escalation, as Tanaka will essentially be a free agent, free to negotiate with any team that wants to negotiate with him. But besides shifting money from the NPB team to the player, I don’t know that the new system really increases the cost of the player that dramatically. Because a significantly larger portion of the total cost of acquiring Tanaka will be counted against the luxury tax under this new system, there is actually an argument to be made that this setup should hold down the bid price, since teams like the Yankees can’t treat an exorbitant posting fee like a de facto tax shelter.

And it doesn’t seem to be a special talent situation, as Tanaka is generally regarded as being a lesser pitcher than Darvish was at the time of his posting. Jim Bowden recently compared Tanaka to an in-his-prime Dan Haren, which is a nice compliment, but during the six year period Bowden referenced, Haren made three all-star teams and never finished higher than fifth in the Cy Young voting. He was an underrated pitcher during that time frame, but he clearly wasn’t viewed as a true #1 starter, the kind of dynamite talent that a team should break the bank for.

And yet, here we are, with Tanaka on the verge of getting paid at approximately the same level as baseball’s best players, even though he’s never played a game in the U.S. By pretty much every outlet’s official definition of the word prospect, Tanaka qualifies as one. He’s going to be ranked on Baseball America’s Top 100 next spring, for instance. He’ll be eligible for the 2014 Rookie of the Year Award. Yes, he’s got significant experience in Japan, but he’s just 25, and Japan’s professional leagues are probably as close to Triple-A competition as they are to Major League competition. While Tanaka projects as a quality pitcher as early as next year, so do several other pitching prospects, and I find the question of what his deal means for their valuation as interesting as I do Tanaka’s.

For reference, after the Rangers signed Yu Darvish, Baseball America rated him as the #4 prospect in baseball. Okay, fine, two of the guys ahead of him were Mike Trout and Bryce Harper, so it was a loaded year for high-end talent, but they also put Matt Moore ahead of Darvish. Here on FanGraphs, Marc Hulet noted that he would have ranked Darvish 8th overall in his Top 100, behind those same three, but also Shelby Miller, Julio Teheran, and Dylan Bundy, so Marc would have had Darvish as his fifth best pitching prospect that year.

Maybe this reveals some overly pro-MILB bias in these rankings, as in retrospect, you’d much rather have Darvish than any of the other pitchers listed, but I think it illustrates the point that these guys are considered to be elite pitching prospects, but not in a class of their own. Tanaka has dominated Japan, but Moore had dominated Triple-A, and even had a brief (and excellent) stint in MLB prior to that ranking. Likewise, Teheran had already reached the show after a brilliant season in Triple-A at age-20. Darvish had more experience, but Moore and Teheran were judged to be pretty similar prospects, and even with the benefit of hindsight, I’m not entirely sure those judgments were incorrect.

And remember, the general consensus is that Darvish was a better prospect two years ago than Tanaka is now. Which leads me to this question: is Tanaka a significantly better prospect, at this point, than Archie Bradley, Taijuan Walker, Mark Appel, Jameson Taillon, or Kyle Zimmer? And even if you prefer Tanaka’s ability to make an impact sooner than later, do we really believe there’s a significant gap between Tanaka and these premium young arms?

Because I’m not sure I think there’s a huge difference in expected future value here, and if we think that those guys are within shouting distance of Tanaka, what does his price say about their value? If Tanaka is worth $120 to $150 million, is it really fair to suggest that a guy like Bradley is worth less than $100 million?

And, for me, this gets even more interesting when you expand it beyond pitchers. Xander Bogaerts, for instance. Already dominated the highest level of the minors. Statistical projections rate him as an above average shortstop right now, with stardom in the not-too-distant-future. Not a pitcher, so health concerns significantly lowered. Can we really argue that a Major League team would prefer Tanaka to Bogaerts, if given the choice at the same price? For me, it’d be a pretty easy pick to take the 21 year old shortstop over the 25 year old starting pitcher, given their track records and pedigrees, so if the market suggests that Tanaka is worth $150 million, is it simultaneously suggesting that Bogaerts — a player with 50 big league plate appearances — is worth something closer to $200 million?

I know that kind of statement is anathema to the concept of “earning” one’s wages, where work is supposed to be performed first and then payment comes after as a reward for the work already accomplished. And, for a good chunk of baseball history, players have been paid based on what they have done, not what they are expected to do. For most of us, I’d suspect, this is the wage model we’re used to. Work hard, get recognized for what we’ve done, get rewarded for that work. Unions essentially codify this method of experiential pay, and often closely tie salary to length of service.

The market value of major league players doesn’t really work that way, however. That market — when a player is either available as a free agent or is offered up for trade by his current organization — is much more of a consumer/product relationship, and in that dynamic, I think we all generally understand that we pay for the product up front and hope to get our money’s worth in performance afterwards. We don’t get to down to the local car dealer, take the newest model for a year long test drive, and then send the salesman a check at the end of the year for a job well done. We decide we need a car, we evaluate the available options, we make the best decision we can, and then we give the salesman an awful lot of money and hope we didn’t screw up. MLB teams do the same thing with players, only on a much larger scale.

Because the purchase price is paid out in wages, it is easy to attach our social norms of an experiential salary structure to MLB, and it certainly does act that way for the first six years of a player’s career, but it’s also important to remember that his value as assigned by the CBA is not a player’s actual value. And what we’re seeing with Tanaka is the expression of the market value of an elite, Major League ready prospect.

This is why I suggested that Pirates outfield prospect Gregory Polanco might be worth something like $90 million in surplus value a few weeks back, and why I think the Royals decision to trade Wil Myers for James Shields was such a big mistake. Or why I thought the idea of including Bogaerts in a deal for Cliff Lee this summer was insane. Yes, these guys are “unproven”, but as Tanaka is making evidently clear, a player’s market value is not based on a proven Major League track record anymore.

The days of paying for past performance are over. With so much at stake, teams can’t simply afford to build rosters by gathering up players who have done it before and hoping they’ll do it again. Past performance matters to the extent that it informs us about what a player will do going forward. Past performance isn’t irrelevant, and a major league track record should give us more certainty about a player’s future than if we don’t have that track record. But teams shouldn’t pay for a player solely based on how long his track record is, or even if it exists.

In retrospect, nearly every major international free agent — or posted player — over the last few years was pretty dramatically underpaid by the market. What we’re about to see with Tanaka isn’t so much irrational exuberance due to a flood of suddenly rich teams; we’re about to see teams pay full freight for expected future performance without an artificial discount due to the lack of Major League experience. Maybe the price is going to end up being too high, and after a brief surge of successes, we’ll mix in a few more Kei Igawas and Dice-Ks to reset the market’s expectations, but this feels like the a market correction that has been overdue for a while.

Paying for what already happened is a sucker’s bet, as by the time a Major League player has accumulated a great track record and becomes eligible for purchase, he’s probably already on a downward slope. In Tanaka, teams see an opportunity to buy a free agent who isn’t expected to immediately get worse. When discussing what kinds of players teams should give up in trade for short term upgrades, let’s remember how much value the market is putting on players on an upwards trend. These guys, not the expensive aging stars of the past, are the most valuable properties in baseball.

We hoped you liked reading Masahiro Tanaka and Prospect Valuation by Dave Cameron!

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Max Powers
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Max Powers

“Rated rim” may be the funniest typo ever.

Jason B
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Jason B

My 1988 Donruss Gregg Jeffries “Rated Rim” is worth…

…25 cents?! Dammit.

My retirement planning is faring very poorly.