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What If Japanese Players Were Compensated With Equity?

by Patrick Newman (Feb 17, 2014)

When Rakuten was mulling over what to do with Masahiro Tanaka last December, a thought a occurred to me: what if Rakuten came up with a compensation package that included company stock? Obviously Rakuten was never going to approach what Tanaka ultimately got from the Yankees, but if they had offered him, say, a grant of one million shares in Rakuten (TYO: 4755), that would have been a little more creative than just offering to double his salary. Of course in the end they did neither.

Unlike Major League teams, which are mostly owned by groups of wealthy individuals, Japanese baseball clubs are mostly subsidiaries of large corporations. While a few clubs are significant sources of revenue, many are operated as marketing loss leaders for their parent corporations. Rakuten’s Golden Eagles club, for example, seems to fit in to the latter category.

In my industry (technology/software), it’s commonplace to compensate employees with company equity, usually in the form of incentive stock options or restricted stock units. Japanese companies seem to prefer cash bonuses as variable compensation, but that bit of reality wasn’t enough to dissuade me from this thought exercise:

What if Japanese teams partially compensated their players with company stock? Would the players be better or worse off?

To explore the question, I took a player drafted at some point over the last ten years from each team owned by a publicly-traded company, and estimated how much money they’d have today if they had taken 10% of their draft signing bonus in company stock. I deliberately chose first round picks that haven’t panned out for this exercise.

The results are below, but before we get to them, here are some points to remember:

  • This is a thought exercise. I’m not suggesting that anyone should do this.
  • The starting share value is December 1 of the year the player was drafted.
  • Share values are as of market close on February 14, 2014.
  • Lotte, Seibu, Yomiuri, and Chunichi are privately held, so they aren’t included here.
  • The currency unit is Japanese yen. If you’re more comfortable with US dollars, JPY 100m is about $1m, and JPY 10m is about $100k.
  • I didn’t account for dividends, and fortunately none of these stocks split over the periods I looked at.
  • If you find mistakes in my calculations please let me know.
  • I cheated for DeNA. Kota Suda was drafted and played his rookie season under Yokohama’s previous Tokyo Broadcasting System ownership. But this is a thought exercise, and it wouldn’t be fun looking at TBS’s stock, or a very recent DeNA draftee. So we’re clear, I denoted Suda with **.
Team/Parent CorporationPlayerYear DraftedSigning Bonus2014 Share Value (est)% ChangeNotes
RakutenShingo Matsuzki2005JPY 80mJPY 13.504m68.8%It was a pain to get this data, since Rakuten switched from the JASDAQ to the Tokyo Stock Exchange
SoftbankShingo Tatsumi2008JPY 100mJPY 47.596m475.96%Softbank is the clear financial winner here
OrixDaisuke Nobue2006JPY 70mJPY 3.6211m-48.32%Orix took a beating in the financial crisis of 2008 but followed the market up a bit in 2013
Nippon Ham (Nippon Meat Packers)Ken Miyamoto2006JPY 90mJPY 11.574m28.6%Stagnant until Abenomics kicked in in 2013
Hanshin (Hankyu Hanshin Holdings)Ikketsu Sho2008JPY 100mJPY 10.905m9.05%Hankyu/Hanshin an old, mature business
Hiroshima (Mazda)Michito Miyazaki2006JPY100mJPY 6.097m-39.13%Mazda is profitable, but share price was diluted by a large public offering in 2012
Yokohama DeNA**Kota Suda2010JPY 100mJPY 8.764m-12.36%DeNA seems to be performing well financially but in an inherently risky market (mobile games)
YakultMikinori Katoh2007JPY 100mJPY 17.721m77.21%Yakult finished in last in the standings in 2013, but the parent company’s stock surged

To my surprise, most of the players would have come out ahead, with only Orix and Mazda really taking a beating. And even then, both were casualties of the 2008 global financial crisis and clawed back share value in 2013.

It’s not much of a surprise to see Softbank and Rakuten at the top of the growth table, as both are giants consolidating positions of global leadership in their industries (mainly telecommunications and e-commerce, respectively). It is a bit of a surprise to see Yakult up there, I haven’t looked into that one. I thought DeNA would have grown more, but they do seem to have a diversification problem and are in a notoriously fickle market (mobile games).

It would be irresponsible to write a post like this and not point out that much of the growth listed here happened in 2013, fueled by Abenomics monetary policy. While Abenomics seems to have coincided with stock market growth, there has also been some volatility, and it obviously remains to be seen if it leads to the end of Japan’s long problem with stagnation.

Tags: Daisuke Nobue, Ikketsu Sho, Ken Miyamoto, Kota Suda, Masahiro Tanaka, Michito Miyazaki, Mikinori Katoh, Shingo Matsuzki, Shingo Tatsumi

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