Here’s an attempt (simplistic, yes – I welcome corrections to my reasoning as well) on how and why the posting fee for Daisuke Matsuzaka should not be applied pro-rata across his contract as an addition to each year. See the bloody mess after the jump.
For clarity’s sake we’ll assume a 40M posting fee, and a 4/40 contract. The pro-rated math shows 4 years, 80M, or 20M per year.
Now, bear with me. First of all, if one wants to see the "silly simple math", the actual (hyper-simplistic) pro-rata amounts would go something like this:
Year 1: 50M
Year 2: 10M
Year 3: 10M
Year 4: 10M
Now let’s go to reality. Say the Sox post 40M, in cash. This is a non-payroll expenditure, first of all. It counts against revenue. This is an anomaly. No other free agent signing brings this revenue sharing reduction "bonus". I don’t know the math on revenue sharing (a link to the 2002 CBA summary, the most recent documented agreement, is here, and it shows that the 2006 revenue sharing tax rate was 34.6%) but let’s assume that the Sox can apply a certain portion of DM’s posting fee to this number. Dumb math shows that if a hypothetical basis revenue is $100M, then the savings might be in the very low seven figures. The 40M posting fee is therefore 40M minus $XM. And we’re just starting. Now, let’s assume the Sox leverage an asset to come up with the 40M, not out of the realm of possibility. Not sure what the interest rates are on a "FELOC", ("Fenway Equity Line of Credit") but if the vig runs at 10 percent annually, the crude math shows an interest payment of $4M annually. That can legitimately be added to DM’s cost pro-rata, though it might count against revenue and also not towards the luxury tax. Now subtract marketing money (true for any player, not just a Japanese Leaguer – Schilling sells shirts, ads, seats, etc. for the benefit of the team too, as does Big Papi, so DM isn’t unique here) from both the US and abroad.. Now subtract something for Research and Development. Obtaining Matsuzaka is, in small part, an R&D expense, a scouting expense. And factor in that at age 26 DM is probably mostly insurable.
So the final math looks more like this, in my totally uninformed and hypothetical world:
$10M (base salary) + $4M (interest charge on financed posting fee) – marketing money (unknown) – lesser pro-rata revenue sharing (low 7 figures) – R&D defraying (don’t know) = truer DM annual costs. There are probably all sorts of other hidden money factors that I probably have no clue about as well, but indulge me this.
Bottom line: this is a lot of money for an unknown, unproven Major League player. If it doesn’t pan out, that’s a heavy gamble gone away. But the math is not 20M per year, not even close. This isn’t SF boosterism, either. It’s an effort at understanding a very odd signing of a unique player, compared with a more traditional free agent acquisition of a western player. SFs who would cry "evil empire" ought to digest this too, to be fair.
[EDIT: Subtract the t-shirt revenue – teams split all revenue generated by merchandise, regardless of team. Marketing relationships with Japanese teams and/or endorsements brokered directly by the Sox might be different, though.
Basically take everything I said with a grain of salt, as I disclaimed at the beginning. We need an in-house economist here at YFSF…