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The Next Market Inefficiencies: East Asian Talent


Source: The Washington Post

Consider this: The MLB’s opening day rosters were 72.3% America-born and, therefore, 27.7% foreign-born. Moreover, my diligent Googling skillz have suggested that 42 million Americans play baseball — recreationally, collegiately, high schoolally, professionally, or otherwise. So, that is 7 out of every 10 MLB players coming from a stock of 13.4% of Americans (24 42 million players / 313 million Americans).

In other words, the pool for American baseball talent is large and well-tapped (because it fills the most roster spots). High school and college teams have done an excellent job of vetting young American talent, ensuring that only the best reach the minors — and then the best of the best reach the majors. Despite this considerable pool of American talent, the teams that want an edge know they cannot let the local talent satisfy their needs. Enter: East Asia.

If there is just a single 2 WAR player (a starting-quality player) stuck in Cuba, it is worth signing 10 minor league Cubans (at $1M each) to find him. It is no wonder, then, that MLB teams have begun constructing Latin American academies and prolifically signing Cuban refugees like Aroldis Chapman, Leslie Anderson, and the like. Not only do these players represent a relatively untapped pool of baseball talent, they are also not subject to the minor league draft — so it is, as they no doubt say, finders-keepers.

The advantage of Latin American academies — which both educate and train their student-athletes — has become apparent to nearly every franchise at this point. For instance, the Tampa Bay Rays have even built an academy in Brazil. When I think of Brazil, I do not think of the word “home run,” but instead “goal” — spelled with 18 o’s. Nonetheless, the Rays are attempting to be the first to take advantage of a nascent baseball community in the nation holding more Japanese ex-pats than any other.

America and Canada combined total about 350 million people. Latin America constitutes 580 million people, so the advantages of entering this market are potentially huge. But if finding talent is a game of numbers, then the western hemisphere is losing:

Source: CIA World Factbook

Oh, the possibilities! We presently get most of our east Asian talent from the last three nations on the graph (Taiwan, South Korea, and Japan). Imagine if China had a proper professional league — even one comparable to just Low-A quality talent.

In 2007, the New York Yankees made waves, signing two Chinese-born prospects, Liu Kai and Zhang Zhenwang. The experiment did not last long, however, and the two never made it to A-ball. Later that same year, the MLB announced it would open a baseball academy in a city outside of Shanghai, Wuxi (a small city by Chinese standards, with an urban population of 2+ million; y’know, about Chicago’s urban population, no big deal). In 2008, the MLB played its first games in China, a two-game exhibition series featuring the Dodgers, Padres, and a slew of confused fans:

Chinese fans struggled to understand baseball, cheering foul balls and sitting silently for a seventh-inning chorus of “Take Me Out to the Ball Game.”

Nonetheless, baseball has begun in China. This is a powerful movement because, unlike India, China boasts a more culturally homogeneous population (in comparison to ethnically diverse India) and the economic incentive of learning English (whereas the means to learn English already exists widely in India) — a powerful asset for MLB teams wanting to build an academy. Together, this means the MLB has an easier task in integrating with the Chinese culture and economy. Moreover, the Chinese population boasts the world’s largest labor force (read: potential athletes):

Source: CIA World Factbook

So if 13% of Americans create 70% of MLB athletes, then what could 13% of China produce? Better yet, what about just 5%? Just 5% of the Chinese population would produce 66.8 million baseball players, compared to America’s 42 million. Right now, an estimated 4 million Chinese citizens play baseball, a mere 0.3% of the population. But that number is bound to grow as the MLB and business owners actively pursue the sport’s development.

Chinese academies are coming. They make too much sense. And the first teams in will enjoy the largest bounty of China’s offerings. Consider:

1. Population: It is big. A larger population means a greater chance at finding premium talent.

2. Geography: Despite the vastness of the nation’s boundaries, the heft of the country’s population is compressed along the eastern coast:

Source: Wikipedia

This means coaches and scouts will not need to travel far to find recruits for the academy or teams to play against. In America, scouts spend 8 hours on the road to watch a single pitcher in another state. In China’s east coast, you are almost invariably a half-hour train ride away from a completely new set of 10 million people.

3. Economy: The Chinese government (of which I am not a huge fan) has been deliberately suppressing its exchange rate in an effort to boost its exports industry. As a result, Chinese goods and labor have been exceptionally cheap over the last decade.

For baseball teams, this means building an academy in China will be more inexpensive than doing so in Latin America — and certainly the European Union or Australia. As China’s economy grows, however, the government no doubt eases closer and closer to a revaluation of their currency. This would sap the potential financial leverage a team would enjoy in establishing a Chinese academy.

In other words, teams who buy the land, build the academy, and hire the staff now will have a huge advantage over those who come late to the game. Wages in China have been rising lately too, so MLB teams must compete with factory wages (which are generally quite good) in order to secure the best staff and young adult athletes.

4. Draft Status: As noted before, Chinese citizens are not eligible for the MLB draft. The team which uncovers the talents keeps the talent.

Conclusion
China, as well as India, Taiwan, and South Korea, represents one of the next great market inefficiencies. India, with its vast population, offers a strong pool of athletic talent — and could possibly have the beginnings of baseball interest considering its affinity for the sport’s European sister, Cricket. However, India offers as many obstacles as it does opportunities (in the form of geographic complexity and cultural/linguistic diversity).

India is a tougher egg to crack, but no less valuable. The path to Chinese academies, however, is obstructed by tolls, not mountains. And the first team to pass through will no doubt explore the future of baseball. And we can rest assured on one fact: The future of baseball will have fewer Johnsons and more Wangs.