01 Mar 2014
How major league teams maximize revenue from their Japanese playersRe: Mickey Mikitani (MBA 1993)by Daniel MorrellTopics:
Photo by Shizuo Kambayashi/AP
by Dan Morrell
Perhaps the biggest free agent target in major league baseball this off-season was 25-year-old Masahiro Tanaka, a pitcher in the Japanese professional league with a devastating split-finger fastball who made international headlines by winning a record 30 consecutive games. Ultimately, says HBS professor emeritus Stephen A. Greyser, the Yankees—who signed Tanaka to a seven-year, $155 million deal—were looking for what every team seeks in a free agent: a player who can help them win more games. But ever since pitcher Hideo Nomo signed with the Los Angeles Dodgers in 1995—kicking off the modern era of Japanese players in the American major leagues—Greyser says team owners have also become acutely aware of how Japanese players can boost their clubs' bottom line.
Of course, just acquiring players doesn't necessarily translate into revenue, says Greyser, who founded Harvard's Business of Sports course and has conducted research for both professional teams and leagues. In a new HBS working paper, he and Isao Okada—a journalist and former Fulbright visiting scholar at Harvard's Reischauer Institute of Japanese Studies—analyzed the careers of several Japanese star imports and found a number of broadly applicable factors that allowed clubs to amplify their investments.
SIDENOTE: Tanaka's former team is the Tohoku Rakuten Golden Eagles, established in 2004 by the Rakuten Group—a company founded by Hiroshi Mikitani (MBA 1993).
A few of the conditions they detail are geographic: Japanese stars who come to US cities with a large Japanese population—Los Angeles and New York, for example—can convert those populations into increased ticket and merchandise sales. (All major league teams share national TV revenues as well as sales of merchandise not sold on stadium grounds, so getting people to the park is key.) And for tourists looking to make the trek from Japan to catch a game, cities like New York and LA have the added benefit of offering an attractive destination. "It's obviously a long commute," says Greyser. A trip from Tokyo to Tampa Bay to catch a Rays game, for instance, would require more than 15 hours of flight time.
But for a starting pitcher like Tanaka, who may only appear once every five days or so, frequency is also an issue. With that kind of a schedule, sponsors may only be able to get exposure using branded postgame interview backdrops once a week, limiting a team's revenue from Japanese firms. Contrast that with recently retired Hideki Matsui, who could play every game, patrolling the Yankee Stadium outfield with ads for Japanese companies on the wall behind him—visible both at the ballpark and on TV.
Greyser and Okada note that this kind of successful marketing has led to some outsized returns for clubs and the cities that house them, with the Seattle Mariners reporting that the presence of longtime star Ichiro Suzuki—"the Ichiro effect"—was worth more than $55 million a year in increased ticket sales, souvenirs, and advertising over his first four years with the club. Matsui's presence reportedly brought $500 million in five years to New York City, measured by everything from hotel bookings to restaurant sales.
Of course, no amount of marketing in the world can save teams from the financial costs of on-field failure. "Making incremental revenue—in other words, commercializing—that's secondary," notes Greyser. "I would be surprised if any major league club made a signing decision with the thought that commercialization is going to be an important counterbalancing revenue stream." In other words, selling sponsorships and signage in the ballpark, finding a way for Japanese tourists to come on preplanned trips handled by a team subsidiary—those are valid propositions that will make teams money, says Greyser. But they won't be enough by themselves for the Yankees to breakeven on their $155 million investment. "Especially," says Greyser, "not for a pitcher." Winning, in the end, really is everything.