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Moneyball International: The Economics of Professional Baseball in the U.S. vs Japan

Moneyball International: The Economics of Professional Baseball in the U.S. vs Japan

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An essay for the 2012 Undergraduate Awards (International Programme) Competition by Niccolo Locati. Originally submitted for Lessons From Japan at Yale University, with lecturer Stephen Roach in the category of Computer Sciences & Information Technology
An essay for the 2012 Undergraduate Awards (International Programme) Competition by Niccolo Locati. Originally submitted for Lessons From Japan at Yale University, with lecturer Stephen Roach in the category of Computer Sciences & Information Technology

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Published by: Undergraduate Awards on Aug 31, 2012
Copyright:Attribution Non-commercial


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There exist a wide array of differences between professional baseball in Japan andprofessional baseball in the U.S. Some, such as rule differences, may not drastically affect the economic model used by NPB front offices, while cultural and structural differencesmust almost certainly change the Japanese front office decision-making framework. In thispaper I detail some of key similarities and differences between the NPB and the MLB, anddiscuss their implications for the business models of both leagues. I then take a look at empirical data and attempt to tell the story that is reflected in the numbers. Although
public data regarding the NPB’s operations is limited due to nature of the Japanese
business and the NPB in particular, it is clear that the NPB is going through a time of dramatic change. The poor current economic climate, coupled with an outflow of top talent to the U.S. has squeezed NPB profits and placed pressure on Japanese owners to modernizeand liberalize their operations. It is crucial to ask what lessons might be learned from the
NPB’s variation of the MLB and
what can the NPB do to improve. While the Japanese model
certainly has its benefits, as evidenced by players’ inherent sense of national pride,
dedication to hard work, and recent Japanese victories in the World Baseball Classic, it alsohas clear drawbacks in the form of a less competitive league and, subsequently, lowerrevenues. Over the next decade it is crucial that NPB teams speed up the twin processes of modernization and liberalization, in addition to investing in boosting the consumerism of the Japanese game.
Moneyball International: The Economics of Professional Baseball in the U.S. vs Japan
With the advent of the stick-and-ball game of 
to the United States in thelate 18
century via European immigrants, the seeds for the emergence of a national
pastime were sown. In the U.S., “town
ball” initially
developed in the early-1800s beginningas a loosely interpreted game in which two teams alternated attempts at hitting a pitchedball in order to earn the right to run around the bases and score points
. Though variousforms of the game existed in different regions of the U.S. for much of the 19
century, thegame continued to develop over time and garner growing interest. In 1845 a member of theNew York Knickerbocker Club named Alexander Cartwright spearheaded the codification
of a set of rules that is very similar to the game of “baseball” that we know and love today
.These rules, which only allowed underhanded pitching and which considered a ball caught 
Sullivan, Dean A.
Early Innings: A Documentary History of Baseball 
after one bounce to be an out, were known as the “knickerbocker rules”
and formed abaseline upon which the game continued to evolve over the next fifty-plus-years. By 1856the game was already being
dubbed America’s “national pastime” by New Yorkers,
and in
1857 sixteen local New York clubs formed the sport’s first governing body, the National
Association of Base Ball Players. Over the next 20 years the game continued to evolve,garnering interest and therefore boosting commercial potential along the way. In 1876 themore formally structured National League was formed, and in 1901 its counterpart theAmerican League was also created. The two leagues began as bitter rivals and competitorswith each leag
ue refusing to recognize the other’s legiti
macy. The National Agreement of 1903, however, served to formalize relations between the two leagues and in 1905 theWorld Series was created, stipulating that the top team from the National League wouldplay the top team from the American League in a series to determine an overall champion.As baseball grew from a game to a business and as teams became increasinglyprofitable, the relationship between players and owners began to strain. For a greater part of the 1900s the owners maintained overwhelming power over the pay and movement of the players, causing growing discontent amongst the players. In fact,
it wasn’t until 1954that the current union’s first ancestor, the Major League Baseball Players’ Association
(MLBPA), was formed. While the player
s union initially wielded only limited power, thefirst Collective Bargaining Agreement was signed in 1968,
marking a fundamental shift from a system in which the owners and the commissioner had absolute power, to astructure, forged under the auspicious of labor law, in which power is shared between theplayers and owners
. The first half of the 1900s is often called the reserve-clause era, as all
Snyder, David. “Automatic Outs: Salary Arbitration in Nippon Baseball”
3major league contracts included stipulations that the team had the ri
ght to the player’s
services for as long as he played in the league. The players were essentially forced to enterinto incompletely specified multi-year contracts, in which at the end of each year the playerhad to attempt to renegotiate his next year
s pay but was restricted in his movement and at the mercy of his owner. This gave the owners strong monopsony power by reducingcompetition from other teams in the labor market and gave owners the ability tosignificantly depress salaries. Throughout the 1970s, however, owners lost a significant portion of their previously unchecked power over the players, as the salary arbitrationprovision was enacted in 1974 and free agency was implemented in 1975. Arbitration is ameans of resolving various grievances that can arise between owners and players in theMLB. It is important to note that the players association fought tooth and nail for years towin the right to independent arbiters. Arbitration, the product of collective bargaining, isused in the MLB to review disciplinary rulings, to resolve ambiguities in the CBA, and todetermine fair and equity salaries for arbitration eligible players
. The rules are complex,but in general players with between 3-6 years of MLB service are eligible for arbitration.Free agency, on the other hand, is only available to MLB players with at least 6 years of service under their belts. Whereas arbitration allows a player to re-negotiate his salaryprior to becoming a free agent, free agency essentially dismantles the reserve-clausesystem by giving players freedom of movement after 6 years. Because new CollectiveBargaining Agreements are agreed upon every few years, the complex rules surroundingMLB labor relations are ever evolving.
Snyder, David. “Automatic Outs: Salary Arbitration in Nippon Baseball”.

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