Thursday, December 14, 2006

America's Pastime

Apparently the Boston Red Sox will, on their own, cause approximately a 0.1% increase in the U.S. trade deficit in the month of December.

In October, the U.S. trade deficit was $58.9 billion. The $51.11 million that the Red Sox have to pay to the Seibu Lions by December 21 for for negotiating rights to Japanese pitching ace Daisuke Matsuzaka will therefore constitute a measurable portion of the December deficit if the December figure is in approximately in the same range as the October amount.

Of course, the foregoing calculation does not include the bats, gloves, shoes, etc., that the Red Sox and other Major League teams will purchase from offshore suppliers.


A commentator pointed to a discussion in The Hard Times which stated that:
Okay, no one is going to bid $51 million to negotiate with a player just because they think he’s good. Obviously, the Red Sox expect that signing Matsuzaka will give them marketing inroads in Japan, and make them a lot of money in the Far East. How much can they expect to make?

I’ll start off by saying that I have no idea, but we can still try to generate an estimate. There have been two situations in the past similar to this one: The Mariners’ signing of Ichiro Suzuki and the Yankees’ signing of Hideki Matsui. Why not examine how much money they made from that?

Unfortunately, there are no direct numbers on the teams’ revenues in Japan, so the only estimate we can make is going to be based off indirect evidence. Using Forbes reports on team revenues for the past seven years, here is what I found:

* In 2001, Ichiro’s rookie season, the Mariners made $27 million more than they had the previous year. The five teams closest to Seattle in revenues in 2000 increased their income by an average of just $6 million.

* In 2003, Matsui’s rookie season, the Yankees increased their revenues by $8 million. The five teams closest to the Yankees in 2002 revenues upped their earnings by an average of $4 million.

* Between 2000 and 2006, Seattle’s revenues have increased by $67 million. The five teams closest in revenues to Seattle in 2000 have seen their income increase by an average of $54 million.

* Between 2002 and 2006, the Yankees’ revenues have gone up $62 million, versus an average increase of $21 million for the five teams closest to them in revenues in ’02.

If average all of that together, we can estimate that signing a Japanese star player is worth something like $9 million a year. But wait, we’re not done. $9 million in 2001 is not the same as $9 million in 2007. Adjusting for inflation (in baseball, inflation has held at a pretty steady 10% a year), we find that the Red Sox should expect to see their revenues in 2007 to increase by about $14 million should they sign Matsuzaka. That’s a sizeable chunk of change.
In other words, by selling additional products, media rights, etc., back to Japan, the balance of trade flow moves in the other direction, back to the U.S.

I don't know enough about the overall economics of baseball to tell whether the Matsuzaka deal is good or bad. However, I still think that its overall effects on the balance of trade are likely to be negative.

1 comment:

Anonymous said...

Here is a link to an article that points out that Boston may gain revenue from this deal and a large part will be from the sales of Red Sox branded merchandise in a new market for them