Pro Yakyu Finances

I posed the original question about baseball finances. I guess I can elaborate on my research proposal a little bit to provide more context.

My basic premise is that the ability of owners to spend money as they will and to internalize the costs and benefits of their activities can be conceived of as property rights. Starting with that, MLB and Pro Yakyu can be investigated as two different property rights regimes. There are certain characteristics that can be predicted based on the amount of freedom a property owner has under a given regime. My totally unsubstantiated hypothesis (that's what the paper is for) at this point is that Pro Yakyu probably does a better job of having the overall salary disitribution correspond to the talent distribution because it operates with fewer external restrictions on owner behavior. So anything that acts as an artificial restraint on investment is important, not just a salary cap, revenue sharing, or luxury tax. The tax on free agents is a perfect example of this. So any information that might fit in to this discussion is welcomed.

If the property regimes are different enough there are a lot more differences that should arise such as different scouting expenses/total expenses ratios. Ultimately I would like to make predictions based on this data about what MLB should expect from the new CBA as well as what changes MLB might experience if it were organized more like Pro Yakyu.

Thanks for the information that has already been provided and for posting the message to the community as a whole.

Adam Humphreys

- There are certain characteristics that can be predicted based on the amount of freedom a property owner has under a given regime.

Hi Adam. Just out of interest, could you give some examples of what you mean by "characteristics"? Thanks. (Very interesting theory, BTW).

<Humphreys-san>- There are certain characteristics that can be predicted based on the amount of freedom a property owner has under a given regime.

<torakichi-san>- Hi Adam. Just out of interest, could you give some examples of what you mean by "characteristics"?

I learned about this outside of the context of baseball so I will explain it in other terms. I guess one of the tricks in my paper is going to be to figure out analogous situations in baseball. Anyway, I think the easiest way to explain this is for you to imagine two different (admittedly extreme) property regimes:

• Regime #1: no one is excluded from using the property so everyone has access.
• Regime #2: the property is privately owned, and the private owners have the right/ability to exclude others from using it.

Under Regime #2 there will likely be more investment because the benefits from investing are internalized. For example, if I own a piece of farm land, I will be inclined to build irrigation because it will allow me to grow more crops. However, under Regime #1, I would not build irrigation because I don't have exclusion rights, so other people could come and use my irrigated land. I (literally) wouldn't reap the benefits of my investment.

Another farm example is that under Regime #1 I will rotate my crops to keep my land in good shape whereas under Regime #2 I will use up the land and then move on to another piece because it is all open access. [Note by Admin: I think he means the other way around. Does this need correction?]

The main characteristic I will look at in the first run through with the paper is efficiency. Because the costs and benefits are more fully internalized in a private property regime they are more likely to be efficient in terms of producing near the point at which marginal costs=marginal benefits.

Now, the way I am going to try to apply this to baseball is to say that the property rights of owners in Pro Yakyu are probably more similar to the private property regime than MLB is. That is not to say that MLB is like an open access property regime, but just that the luxury tax and revenue sharing make MLB more like a common property regime than Pro Yakyu is. I think there should be some inefficiencies resulting from that, and one place I will look for it is in the salary distribution. Three other areas I might look at are scouting expenses as a percentage of total expenses, marketing expenses as a percentage of total expenses, and finally competitive balance.

Thanks for the question. I hope this helps.

I do have those numbers backwards. Sorry about that. I should have read it more carefully before I posted it.

> Thanks for the question. I hope this helps.

Very interesting. It'd be nice to hear what kind of conclusions you reach as your study progresses.

- [...] Pro Yakyu probably does a better job of having the overall salary disitribution correspond to the talent distribution [...]

Shukan Baseball had a special on 2003 salaries last week that I'll share with you, to help show the imballance of salary distribution in Pro Yakyu based on team, rather than talent.

Note: I use two units when talking about salaries that take some getting used to for people who haven't lived in Japan. The first in man yen. 1-man is 10,000. The second is oku yen. 1-oku is 10,000-man or 100,000,000. Western mathematics jumps a unit every thousand, Japanese every 10,000. And with as many 0's as there are, these units are much easier to deal with.

Note 2: These salaries are based on signings up to mid-January. Those who had not yet signed were calculated with their previous year's salaries.

First of all, let's take a look at team salaries for 2003 in order of how they placed in 2002. (Winning teams tend to have pay hikes.) Values for Totals and Highs are in oku yen. Averages are in man yen.

League    Team      Total  High Avg. 
======  ========   ======= ==== ====
Central Giants     44.9880  7.2 6816     
        Yakult     22.1775  2.0 3360
        Chunichi   31.8770  3.0 4688
        Hanshin    23.2470  2.4 3369
        Hiroshima  17.7230  1.7 2606
        Yokohama   23.6755  2.5 2441
Pacific Seibu      27.4610  3.5 4359
        Osaka      26.7710  5.0 3937
        Daiei      20.9930  2.1 3280
        Lotte      21.8690  2.1 3264
        Nippon Ham 20.3870  3.0 3185
        Orix       19.6420  2.0 3069

I couldn't find yearly team salaries after a few Googles, but the Giants are consistantly #1 in salary, finishing first or 4th. (I don't remember them ending any lower.)

Nonetheless, you can see how most of the money is in the Central League, and how the Giants have most of it.

The three factors you proposed to research bear much less into Pro Yakyu owners' behavior than The Giants Factor. At least, that is so for the Central League with a range from 17.7 to almost 45 oku yen.

The Pacific League may actually pan out to support your hypothesis. The top teams have the top salaries, and the difference from top to bottom is less than 8-oku yen.

Another important factor that you're leaving out is how the ball club is thought of in terms of the parent corporation. Yokohama, under Maruha, was moving toward being independent of the parent company for several years. However, with TBS (Tokyo Broadcasting System) buying them last year, there's a chance that they'll become tightly regulated by non-baseball corporate types. (I'm not saying that's good or bad, but that the way in which they're managed may change.)

I think Daiei makes a good example of a team put under pressure from its parent company. They've got the 4th lowest salary over all, and had been Pacific League champions as recently as 1999 and 2000. Even when they won, their salaries didn't inflate that much due to Daiei Group's financial troubles. And the really strange thing is that the team brings in huge crowds in Kyushu. They're adored by their city on a level only the Giants and Tigers can beat. As a ball club, they've got to be in better financial shape than most others. Yet because they're part of a corporation that isn't fairing well in the down-turned economy, the team suffers with the rest of the Daiei Group.

I don't know if I explained all of this very well. I'm lacking sleep lately. This was the only data I could come up with that might aid in your research. And these other points are not only important to your question, but most questions that researchers (from junior high reports through Master's Thesis writers) have. I just hope someone can elaborate on these ideas in a more coherent manner.

I think that the guy's thesis has one really big problem: what those ball-clubs are there for.

The teams really aren't there to stand by themselves as money making assets, but as part of a parent company's advertising strategy. For example, the Kintetsu Buffaloes lose $10-15 million a year. Yet, the team itself is only about one-tenth of one percent of the parent company's total revenue. Even with them bringing in sponsors (such as Acom this season or am/pm in seasons past) to shore up the team's bottom line somewhat, the fact still remains that even though the Buffs are hemorrhaging money, there is no interest in selling the club. And they gave Norihiro Nakamura a nice, relatively fat contract.

Daiei is another example. Right now, the Hawks are drawing over 3 million fans a year, but yet, Kenji Johjima absorbed a huge pay cut despite having a fine year, even with the shoulder injury he suffered. Daiei finished third, and so the club went on what appeared to be at times an indiscriminate salary reduction regime despite the fact that the club makes money. The $2-3 million that the Hawks saved in expenditures by cutting salaries was barely an atom of spit in the more than $100 billion debt that the parent has outstanding. That is because the Japanese government and the banks who are in deep with Daiei are being allowed to stay in business when the company should be deep sixed. It is always a good investment to retire debt. Yet, Daiei has refused time and again to sell the team in order to make back some of that red ink. Again, The Hawks advertising value, apparently, outweighs their value as a company asset.

Orix' attendance declined by around 40% in 2001. And it wasn't too hot (though it rebounded a bit) in 2002, either. Why? Because it has advertising value. There is zero talk of Orix selling the team. Plus the parent company owns the players' image rights, so if gets a popular player, all the benefits of his image accrue to the ball-club and not to the player, even though it is the player's labor, i.e., his property, that makes him popular (and maybe his charisma in some cases). That player is just a cog in an advertising regime. He is like a Disneyland character. And both the outfits that own a Disneyland, Disney and Orix, have baseball teams.

Advertising departments are money losers, by definition, in any company. That's why most companies outsource it. The Japanese ball-clubs are treated like the tissues that you see handed out at train stations and on sidewalks on the commute to work every morning. They are not self sufficient entities (except, and you can argue that, Seibu) meant as revenue generating property (except, again, Seibu) in themselves. It is another vehicle to build prestige for a brand name, like a TV commercial in the USA. For example, Seibu owner Yoshiaki Tsutsumi is a hockey nut. He really doesn't care about baseball that much. Yet, the Lions have brought his company, through being competitive every year (and even dominant at times) a favorable image. He is pretty much the only one of all the owners who absolutely insists his team makes money. If making money were an issue, you would say goodbye to half of the Japanese pro clubs at least.

You have also got to figure this into the equation: when he can't get his way, Yomiuri owner Tsuneo Watanabe threatens to start a new league. This threat is usually successful. He reigns over Japanese baseball as a kind of feudal lord. The rest are really just subsidiary daimyo (the other owners) and retainers (the players). Now if George Steinbrenner made that threat, he would be laughed at loudly and frequently reviled by almost everybody for an almost Pythonesque sense of self-importance. Consequently, when you can't make changes because it doesn't benefit the king, then do you really have property rights? No. You possess at the sufferance of the king, as we saw when a subsidiary of Fuji Television tried to buy the Yokohama Bay Stars. There is little property investment anyway in Japanese baseball since the parent wants to use it as the cheapest possible advertising vehicle. And they can get away with it. There really is no other game in town, unlike the NBA and NFL in the U.S., to encourage investment in the teams.

Therefore, even though we look at property as something to be both improved to build value and exploited in the U.S., the parent companies of Japanese teams are only interested in the latter with as little of the former as possible. And the labor market is rigged since there is no free competition for it in the case of Japanese ballplayers. So at the end of the day, I don't find NPB as property in the sense that Americans think of it. Think of them as living magazine ads.

You bring up a lot of factors that might be important to my analysis. I am looking at it first from the perspective of the rules they have in place, and maybe I will have to include some more informal influences after I have done the initial run through.

Still, I am curious as to whether you are overstating your case a bit. I legitimately know nothing about Japanese baseball (except that I think DT Cromer is playing there now and we went to the same university), so maybe it is as bad as all that. Anyway, I don't doubt that a large function of Japanese teams is to generate revenue beyond the gate receipts in the same way that the Cubs and Braves make a lot of money for their owners through their television exposure. But I am not sure that this creates a fatal flaw in my thesis. The owners in Pro Yakyu still appear to internalize more of the benefits of their investments than the owners in MLB do, and that is ultimately the key premise. In some sense, I don't think it matters what form those benefits come in as long as they are factored into the decision making.

Thanks a lot for the information, and I welcome any other comments or insights that anyone might have.

Another thing is, do we really know that the Buffaloes are hemorrhaging money? American baseball teams have long used creative accounting to understate their earnings for tax purposes. How do we know that the Buffaloes aren't doing the same thing? Couldn't that be the reason why Kintetsu has made no reason to cut it off, even though they are supposedly losing money off it?

I'm doing a similar topic about comparing items such as competitive balance and team dominance to restrictions such as the luxury tax, free agency, the reserve clause, the sportsman's effect, and the invariance proposition, and using MLB and NPB as comparisons.

I was wondering if anybody knew a good site where I can find out values such as payrolls, etc. for Japanese baseball.

By modifying my queries from this thread I can show the total salaries for each team:

+--------+------+----------+---------+
| League | Team | Sum     | Players |
+--------+------+---------+---------+
| CL     | CD   | 363,610 |      70 |
| CL     | HC   | 191,340 |      69 |
| CL     | HT   | 268,970 |      71 |
| CL     | YBS  | 277,595 |      68 |
| CL     | YG   | 461,280 |      68 |
| CL     | YS   | 235,975 |      68 |
| PL     | CLM  | 227,290 |      69 |
| PL     | FDH  | 232,070 |      65 |
| PL     | NHF  | 210,870 |      66 |
| PL     | OBu  | 276,110 |      70 |
| PL     | OBW  | 200,920 |      66 |
| PL     | SL   | 286,110 |      64 |
+--------+------+---------+---------+

The sums are in units of man (10,000) yen and include the field manager, but no other staff personnel (coaches or front office).

If acuracy is important, I'd recommend writing (snail-mail or faxing) the teams. Contact information is here. (And, no, none of the teams have an e-mail address to the best of my knowledge.)

It seems that the half dozen or so people who have done research on this in the past have kept the information to themselves as none have ever returned to share the information with us. If you do find one that's posted his/her report to the Web, please let us know. And feel free to be the first, too (on your own site or post it here - even the raw data without the report would be useful).

I want to thank everyone for their insights. At this point I think it is fairly obvious that there are enough differences in the two systems that those differences might have detectable consequences. The big issue in front of me now is that I have been unable to find a good resource for the data I will need to analyze: player salaries, revenues, marketing expenses, scouting expenses. I also have not been able to track down a cite-able source for the proposition that Pro Yakyu doesn't have revenue sharing, etc. This information is clearly crucial to the project, and I am beginning to think that I might need to scrap the research if that information is not available. So, if anyone knows of a website, book, periodical, etc. that might have any of that information please let me know either on this board or via email. Thanks again.

Also, I have become addicted to the rest of this website despite my formidable ignorance of baseball outside the US.