Financial implications of the Yu Darvish deal

The Texas Rangers have made Yu Darvish the highest paid MLB pitcher to come out of Japan, signing him to a six-year/$60 million contract. This, combined with the $51.7 million posting fee the Rangers paid for the rights to negotiate with Darvish, brings the average annual cost to the Rangers to a little more than $18.6 million. Darvish has the ability to opt-out of the deal after the fifth season and there are performance bonuses which could add up to $10 million more. Boston Red Sox pitcher Daisuke Matsuzaka was previously the highest paid pitcher hailing from Japan when he signed back in 2007. His average yearly cost to the Red Sox was more than $17.185 million. Darvish is considered to be one of the most dominating pitchers to come out of Japan. Will Darvish’s production on the mound translate to a positive performance value for the Texas Rangers?

By all accounts Darvish is considered the real deal. He has been scouted for a couple of years by clubs and showed immense skills in the last World Baseball Classic. There have been pitchers from Japan who have shown the ability to have success in the U.S. Unfortunately, they came with so much fanfare and with large costs, that they never seemed to fulfill the contract they received, especially from a financial perspective. I’m not a scout nor am I going to try to pretend I could derive a performance comparison for Darvish based on pitchers who previously began their professional careers in Japan. I do not think it is fair to suggest that Darvish is going to be like any of the recent Japanese pitchers who have come to the U.S. to pitch for MLB teams. We can review their contracts from a performance and win-value perspective and then speculate what Darvish needs to do in order to generate a positive return on investment for the Rangers.

We can all agree that the New York Yankees made at least one and maybe two mistakes with acquisitions from Japan. First came Hideki Irabu. The Yankees traded Ruben Rivera, Rafael Medina and $3 million in cash to the San Diego Padres for the rights to Irabu and Homer Bush. The Yankee’s then signed Irabu to a four-year/$12.8 million contract. He lasted three seasons in the Bronx and was eventually traded to the Montreal Expos for Ted Lilly, Christian Parker and Jake Westbrook. He accumulated a 3.3 WAR over the three seasons with the Yankees. While Irabu was disappointing and never amounted to the hype, he might not have cost the Yankees much financially.

The Yankees’ next endeavor into Japanese pitching talent was Kei Igawa. Igawa is the definition of epic fail. Igawa’s posting came after Matsuzaka’s and at the time it just seemed like the Yankees were trying to keep up with the Red Sox. However, Yankees general manager Brian Cashman professed that they had done their homework on Igawa. The posting fee for Igawa was $26,000,194 and he was then signed to a five-year/$20 million contract. For just over $46 million the Yankees received 71 2/3 MLB innings pitched and a -0.2 WAR. That equals $641,833.32 per inning in the majors.

In Matsuzaka’s five seasons to date, he has accumulated 10.6 WAR for the Red Sox. This is not what Boston’s then general manager Theo Epstein anticipated. According to FanGraphs this equates to $44.9 million in performance value. This leaves the Red Sox short slightly more than $41 million to date. In order to catch this up in the last season of his contract, Matsuzaka would have to generate an 11.64 WAR this season (assuming 1 WAR = $5 million) to allow the deal to break even. It is safe to say this will not happen. Remember, these values are performance based and do not take into account anything Matsuzaka’s initial introduction to Boston generated in merchandise revenues etc. The amount was no where near $41 million and these extras quickly slipped away as did Matsuzaka’s performance.

Another Japanese import who has actually had a decent amount of success is Hiroki Kuroda. Kuroda was signed as a free-agent by the Los Angeles Dodgers in December 2007. His initial contract was three-years/$35.3 million and then he signed a one-year/$12 million deal for the 2011 season. During his time with the Dodgers, Kuroda managed a 12.2 WAR. His performance value is estimated to be worth $52.8 million. He provided the Dodgers with a net positive of $5.5 million.

There were varying degrees of success for some of these pitchers on the mound. We’re not solely concerned about the players’ production, but also the price that performance failures cost the teams. Matsuzaka did help the Red Sox to a World Series title. Kuroda is on the positive side of performance value. What does Darvish have to bring to the Rangers in terms of WAR and performance value so that the Rangers investment becomes whole? For the sake of this review, we will solely use the term of 6 years/$111.7 million. Below is the break even analysis.

The model shows a 5% increase of the value of 1 WAR beginning with $5 million in the upcoming season. Obviously this could fluctuate, but this gives a general understanding of where Darvish’s performance has to settle in for the Rangers to not lose money on the deal. I’ll repeat this does not factor in any additional money Darvish may inject into the Rangers revenue streams. The total is just under 20 WAR or about 3.3 WAR per season on average.

What does a season of 3.3 WAR look like? Well, two of Darvish’s new teammates each recorded 3.6 WAR in 2011. Derek Holland had the following line; 198 IP, 16-5, 3.95 ERA, 3.94 FIP & 162 Ks and Alexi Ogando pitched to a line of; 169 IP, 13-8, 3.51 ERA, 3.65 FIP & 126 K’s. Darvish would have to perform at this level for 5.475 seasons to reach 19.71 WAR. I’m not saying this can’t be done, but he certainly has his work cut out for him.

MLB teams take on a risk by signing pitchers from Japan. The risk becomes enormous if there was a posting fee attached. The only measuring stick they have is their scouts’ eyes, a few games from the WBC and some statistics from an AAAA league. It has always seemed strange to me that any team would invest so heavily in any player who has not pitched at this level. Teams like the Yankees and Red Sox can absorb the flubs. The Rangers have a very lucrative television contract now, so maybe they can too. I would be willing to bet Rangers team president and CEO Nolan Ryan and general manager Jon Daniels calculated these figures over and over and determined the upside was too great to pass up. We also have to figure the Yankees and Red Sox did the same. Upside is not risk averse, ask Cashman and Epstein.

For more on the Texas Rangers visit Nolan Writin’. Be sure to check out all of Call to the Pen’s transaction breakdowns for the 2011-12 offseason. You can follow Call to the Pen on Twitter at @FSCalltothePen or like us here on Facebook. You can also subscribe to our RSS feed. You can follow Chris Carelli on Twitter at @Chris_Carelli.