Iwakuma and the Inefficiency of the Posting System

It’s been a while, so let me refresh your memories: Hisashi Iwakuma and Oakland were unable to come to terms on a contract, and the righty will remain in Japan next season. Iwakuma earns the somewhat dubious distinction of being the first posted NPB player not to sign with the team that had won his rights.

This is actually not a purely negative outcome for any of the three parties involved. Iwakuma’s inevitable move to the Majors is delayed by a year, but when he hits free agency he’ll be have all the leverage that comes with it. Oakland won’t have Iwakuma’s services, but recouped their $19.1 million posting fee, which was a large amount to wager on a 30 year-old pitcher with no MLB experience. The Rakuten Golden Eagles, Iwakuma’s NPB team, come out the worst since they’ve missed out on a revenue source that would have covered about 73% of their 2010 payroll, and can expect to lose Iwakuma uncompensated next year. But they only posted Iwakuma reluctantly, and retaining their ace gives them a much better ability to compete in a very balanced Pacific League.

The first thing that jumped out at me in this case is the particular inefficiency of the posting system. It’s a closed bidding process, which means that in theory, none of the bidding teams know the amounts of other bids, or if there are other bids. Speculatively, if the bidding process had been open, the A’s could have outbid their nearest competitor by a small amount and offered Iwakuma a more reasonable contract. Instead, the A’s submitted and outsize bid with the intent of using their leverage, while Iwakuma’s camp took the bid amount as an implication of the size of the contract he could command. I don’t buy any conspiracy theories on this one, I just think that it was a case of mis-matched expectations.

The other thing I noticed about this posting is that a confluence of things have to exist for a posting to be beneficial for everyone. For the posting using to be worth using for the player, pros of getting in MLB quickly must outweigh the cons of only being able to negotiate with one team. For it to be worth it (financially, at least) for the acquiring MLB team, the team must be able to sign the player at a salary low enough to counterbalance the cost of the posting fee. For it to be worth it for the NPB team posting the player, it must be clear that the player is going to eventually depart anyway, or that the player’s absence won’t affect the team competitively. Judged by these criteria, only a few postings have really worked out well for all parties involved: Ichiro, Ramon Ramirez and Akinoris Otsuka and Iwamura.




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Patrick Newman is a veteran enthusiast of Japanese baseball who happens to write about it at npbtracker.com, and on Twitter @npbtracker.


47 Responses to “Iwakuma and the Inefficiency of the Posting System”

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  1. Matt K says:

    They need to get rid of the posting system. Let the player sign with anyone, but when the player signs, the team gets the contract amount as the posting fee. essentially doubling the player’s salary. And guaranteed free agency after the contract is over.

    Either that, or us team has to simply trade for the player for cash, and the rest of the player’s contract with the old team plays out, and again, free agency after that contract is over.

    Of course, that means big market teams are going to get most of these players, but it’s not like that’s any different now.

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    • vivalajeter says:

      Problem with scenario 1: Player can sign a one-year deal, then cash in a year from now. Let’s say he’s worth $20MM/year, but he’ll only get $10MM through this process (with the other $10MM going to his old team). He can sign a 5 year, $50MM contract as one option. Or he can sign a 1 year, $10MM contract – and next off-season, sign for 4 years and $80MM. He risks injury (or futility), but can make an additional $40MM by signing a one-year deal.

      Problem with scenario 2: If the player is underpaid, he shouldn’t be penalized in the US for that – he should be able to get what the market will pay.

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  2. DIVISION says:

    Here’s an easy fix.

    The Japanese team has the right of first refusal in terms of accepting bids and can move on to the next team in line if they don’t like how the negotiations are progressing.

    The onus needs to be on the MLB club because they have no leverage, not the Japanese player.

    Perhaps start banning teams from the bidding process if they have a history of not signing the player.

    Easy fix.

    I can tell you one thing.

    Billy Beane wouldn’t keep bidding on players and then trying to lowball them if there’s a penalty.

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    • Bryz says:

      “Perhaps start banning teams from the bidding process if they have a history of not signing the player.”

      The posting process has existed since 1998 (according to the Wikipedia article linked by Patrick), and Iwakuma is the first player to be posted and fail to sign with the team that won the post. Your rule may never have the chance to be enforced.

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    • jimmy1138 says:

      IMO there’s an easier way to fix this: the Japanese team is guaranteed one half or a third of the posting fee.

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  3. Mike says:

    I don’t know what Ramon Ramirez you speak of. Therefore, I am confused.

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  4. Eric R says:

    But who decides whether the team is low-balling or the player/agent is crazy?

    If Iwakuma and MLB team believe that the player is worth the same kind of contract that middling 30yo starters get in the majors [like a 3/$30M deal], there will still be the posting fee that the player feels isn’t his problem and the MLB team doesn’t want to tack on to that contract amount.

    If the player/agent is firm on that $30M deal and maybe the team is looking at more like 3/$21M because of the posting [and putting them at the equivalent of a 3/$40M deal], is that low-balling?

    I think the whole process requires that the player is willing to accept significantly below market value while the MLB team has to be willing to pay significantly above market value between salary and posting. In general I wouldn’t figure the two would come together all that often absent fairly small posting fees [granted until now they always have]…

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  5. Phillies Red says:

    did you mean to use the word “ineffency” in the title? Or did you mean “inefficiency”. If you meant ineffency, can you direct us to a definition, or a usage note; I’m not familiar with this form.

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  6. Gary says:

    The New Oxford American Dictionary has no entry for “ineffency.” Does this word exist? What does it mean?

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    • Pig.Pen says:

      ineffency / verb/ The inability of a team to sign a player after winning the right to negotiate with them through an exorbitant posting fee, because said player doesn’t care what they had to pay to negotiate with him, only what he will actually earn; conversely, said team doesn’t care what said player makes, but only what said player costs them overall.

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  7. patthatt says:

    It didn’t go well the first time Akinori Otsuka was posted.

    “Oakland won’t have Iwakuma’s services, but recouped their $19.1 million posting fee, which was a large amount to wager on a 30 year-old pitcher with no MLB experience.”

    If he plays in the majors in 2012, he will be a a year older and, barring injury during the ’11 season, the team that gets him will have to pay $19 million+ in a multi-year contract. Yes, the total commitment on a team’s part should be less than a combined posting fee/contract, but it’s still will be a big gamble, especially after he comes off another NPB season in which the Rakuten club will use him as much as possible.

    Playing on a one-year deal in NPB doesn’t do any good for Iwakuma’s long-term financial success. And it can’t be a good situation for Iwakuma to return to a team that essentially said “good-bye” to him. Yes, he should help the on-field performance to a certain extent, but I also remember Akinori Otsuka’s difficulties with his last year in Japan when he had expected to be in the U.S.

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    • He’s making about $3.6m (300m JPY) in Japan this year. I’d call that a financial success by most measures.

      Otsuka had a 2.09 ERA, 0.83 WHIP and 11.72 K/9IP in his last year in Japan.

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      • patthatt says:

        Yes, but he was expecting to be making much more on a guaranteed multi-year contract in the majors from next season so, no, his forced return to Rakuten for another season does not help him long-term financial prospects, especially with the injury risks involved.

        When Daisuke Matsuzaka’s contract situation seemingly reached an impasse near the signing deadline, I remember very clearly how much people in Japan said it would be very “strange” for him to return to the Lions for another year after they said “good-bye” to him. (I was there in Japan about 15 minutes away from the Seibu Dome.) Therefore, I have the opinion that Iwakuma’s return to the Eagles may not go particularly well for this reason and others. To be fair, his impact on the Eagles and NPB overall has not been anywhere near the same that Matsuzaka’s was, but when he said he was moving on, he needed to go.

        I don’t have a link right now, but I remember the first time Akinori Otsuka was supposed to be posted, it was bungled by his team. Maybe it was while he was still with the Buffaloes and they still had bad feelings about their players moving to the U.S. after the Nomo situation. (You might want to look into this since you are writing about the posting system in this article.)

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      • I am familiar with the Otsuka posting — he was with Kintetsu, and it was reported that the made a mistake with the filing. There were no takers for him, and he and Kintetsu couldn’t agree to a contract after that. So Chunichi picked him up in a cash trade, and he had a very good year and was posted for a small amount.

        As for Iwakuma returning to the Eagles, we’ll just have to see how it goes.

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      • patthatt says:

        Some reports said Otsuka made mistakes, but the Otsuka side blamed the team, from my recollection. It’s hard to know who was telling the truth, but it was pretty clear to me at the time that the Buffaloes didn’t want to lose a key pitcher to an MLB team. (If you recall the Jeremy Powell contract situation a few years back between the Buffs and the Hawks, it’s easy to see how the “he said, they said” thing can get going, even when the paperwork should make it clear who was right, and who was wrong.)

        To Otsuka’s credit, he pitched well to finish out his time in Japan, but my initial point about him was to say that his first posting failed.

        Yeah, we’ll have to see how Iwakuma’s 2011 season plays out. To his credit, Otsuka pitched well his last two years in Japan, even though he had a tremendous amount of animosity towards the Buffaloes. (I was off a year.) He pitched well for the Dragons, but it was widely reported about how unhappy he was to still be in Japan. One would think Iwakuma to have plenty of motivation to pitch well heading into his FA year. (He’d better keep his fingers crossed to avoid the injury bug, though.)

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  8. short says:

    The current system also allows a smaller-budget team like Oakland to block the player from ending up with a rival by posting a huge bid, then lowballing the player until he refuses to sign. Then none of the bidding team’s rivals get the player, and the bidding team pays nothing.

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    • Barkey Walker says:

      Yes, that is the inefficiency in the method. The first price sealed bid auction is perfectly efficient. His example of seeing the other teams bids completely ignores tons of auction theory. Obviously, other teams could then see Oakland’s bid too then and would change their bid accordingly.

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  9. kamikaze80 says:

    easy solution is to use the system they use in european soccer. the team holding the player’s contract is free to accept as many bids from other teams as it wants, though it obviously would only receive a transfer fee from the team that agrees to terms with the player. teams are free to price discriminate – you might demand a higher transfer fee from the yankees knowing that they are flush with cash. if terms are not agreed, then no transfer fee is paid.

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  10. Eric R says:

    How about the posted player can negotiate with any MLB team they’d like and their former team takes a percentage of that?

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    • short says:

      That makes so much sense it’s impossible to imagine it ever being implemented.

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    • vivalajeter says:

      Posting fees are in the tens of millions of dollars. What’s to prevent the player from signing a one-year deal – which would only bring a small posting fee to the original team – then cashing in the next off-season? Plenty of players would take the risk if it means they’d be receiving an extra $20MM instead of their old team making that money.

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  11. Two of the best Japanese free agent signings have been Kaz Sasaki and Takashi Saito. Were either of them posted?

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    • patthatt says:

      Sasaki went to the Mariners as an FA. IIRC, the Yokohama BayStars really misused him his final season when he had an injury. This is something Iwakuma needs to be careful about considering that Rakuten can expect no compensation after their top pitcher leaves for MLB in ’12.

      Saito was an FA too-from my memory. I remember seeing him work as both a starter and a reliever his last year with the BayStars. He really found his niche in the majors as a full-time reliever.

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  12. notsellingjeans says:

    The top-tier starting pitching market is thin next year, as a result the extensions that Verlander/Felix/Josh Johnson/etc. signed.

    If Yu Darvish is posted, I think he’ll have a $75M posting fee. And the two teams with the greatest incentive to pay that are the Yankees and the Red Sox, because it wouldn’t count against their lux tax payments.

    Since the Yanks lost out on Lee and the Red Sox entire rotation is signed long-term, I’m going to guess that Darvish is posted next winter, Yanks win the bid for $75M, and he signs a 6 year, ~$70M deal.

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    • I’ll go on the record as saying I’d be pretty surprised if Darvish attracts a posting bid that high.

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      • halebm says:

        ^^^^ i have to agree, as its rather high.

        now i do believe Yu Darvish will most likely be coming to the MLB next season( assuming no injuries, posting/contract issues, etc..), but does this devalue Iwakuma when contract time roles around next year?

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  13. patthatt says:

    I don’t think there would be a posting fee paid for the rights to Darvish under any circumstances in excess of the $51 million paid for Matsuzaka.

    Depending on his pitching and health by the end of ’11, I can imagine a few teams putting in hefty bids in the $40-50 million range. But I doubt any team goes as far as the RedSox did several years ago-regardless of Darvish’s potential in the majors-because it’s easy to imagine Darvish wanting $60-70 million of whatever a team is going to invest in acquiring him for his own money.

    Yu Darvish is also getting divorced from his wife, Saeko, and we’ll have to see how that affects his thinking about an overseas move, taking into consideration his two children, and how different Japan generally is from the U.S. on child custody going to one family and the other side having little, if any, contact or visitation rights. Maybe it will be a problem for him, maybe not.

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    • My echo and bunnymen says:

      If he’s an MLB player, the ball is most likely to drop on the “it won’t be a problem for him” side. Strange he’s getting a divorce (if he truly is), in Nihon/Nippon that’s looked down upon, much more so than in the U.S.A.

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  14. Joe says:

    I would also suggest Aki Iwamura as a successful posting and resulting performance.

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  15. PL says:

    Japanese agents should not be allowed to compare their players’ talent and track record with MLB players. That Barry Zito comp was a giant red flag that Iwakuma would never be in an Oakland uniform.

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  16. jimmy1138 says:

    A’s overpaid hugely on the posting fee, so possibly just tried to block Seattle and Texas. That’s a big hole in the posting process: teams are not penalized for doing that.
    A possible solution (apart from the one I posted below): the MLB team is forced to accept the player with him retaining his contract from Japan but gets the possibility to negotiate a contract extension.

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    • vivalajeter says:

      jimmy, my understanding is that he didn’t have a long-term deal in Japan. He re-signed with his old team after things fell through with Oakland. So your solution wouldn’t have any impact here.

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      • Actually Iwakuma was going in to the third year of a three-year contract. They would have released his rights if he agreed to a deal with Oakland.

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      • vivalajeter says:

        Thanks for the info, Patrick. I saw that he re-signed with them and assumed that his contract had ended.

        In this case, I think it makes jimmy’s idea even worse. No team would pay a huge posting fee if it meant they can potentially be stuck with a one-year contract. When the Sox posted $51MM for Dice-K, they figured they can average that out over the course of a long contract. They wouldn’t have paid that much if Dice-K might only be around for one year.

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    • Bobby Ayala says:

      Obviously the A’s just blocked their AL West rivals– their posting fee was almost 3 times as much as anyone else, then they immediately offered him an unacceptably low deal which they wouldn’t budge on. I don’t think they ever had any intention of signing him.

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    • David says:

      really blocking a 30 year old 5th starter with No MLB experience. I really doubt the blocking texas and seattle theory.

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  17. My echo and bunnymen says:

    Where do you get your total team salary data? I’ve seen some websites say most teams only have $2 million in payroll and another say $20 million and up.

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    • I got it out of an edition of a print magazine called Weekly Baseball that was published last spring. NPB payrolls range from about $18m (Hiroshima) to $45-50m (Yomiuri). Most payrolls are in the $20m’s.

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  18. BillWallace says:

    I don’t understand why this A’s thing doesn’t happen every time. Why don’t the Rays just bid $300 million on every good player? And then offer them a contract for the remaining length of their prime at MLB minimum. It must be like…. ethics or something

    Regardless, this system is retarded.

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  19. dimass says:

    Dima logistics post how are you men ?

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