Have you ever won an auction only to realize later that you overbid for the prize? In competitive bidding situations, it’s easy to get carried away in the heat of the moment and overpay.
How the Boston Red Sox Negotiated the Deal for Japanese Pitcher Daisuke Matsuzaka
The Boston Red Sox 2006 procurement of Japanese pitching phenomenon Daisuke “Dice-K” Matsuzaka offers a lesson in keeping cool in these high-stakes situations, according to Harvard Business School professor Michael Wheeler and research associate Jason Mahon, who analyzed the deal for the Negotiation newsletter in September 2007. Key to the team’s success: shrewd participation in a hybrid auction-negotiation process and an awareness of Matsuzaka’s unappealing outside options.
How Leadership Styles Impact Negotiation Styles: A Bold Bid
At the close of the 2006 baseball season, Matsuzaka’s team in Japan, the Seibu Lions, agreed to officially “post” him in Major League Baseball (MLB). According to the rules it had established with Japanese team owners, MLB held a four-day, sealed-bid auction among its teams for exclusive rights to a 30-day contract negotiation period with Matsuzaka, widely considered one of the top young pitchers worldwide.
This type of two-step process resembles a “negotiauction,” an increasingly common choice for sellers of high-value assets. Harvard’s Guhan Subramanian and Richard Zeckhauser wrote in our February 2005 issue of Negotiation. Sellers prize negotiauctions for their ability to identify serious bidders (and drive up prices) while also permitting discussion of more complex issues.
Contract Negotiations: No Going Back?
At first blush, the Sox’s winning bid for the right to talk with Matsuzaka – $51.1 million – looked like a desperate attempt to keep him from ending up with the Yankees, especially when it emerged that the New York team had just bid $32 million. The Lions would receive the Sox’s transfer fee only if the Boston team reached a deal with Matsuzaka. In the event of impasse, the pitcher would head back to Japan and wait to be posted to the MLB the following year.
When contract negotiations opened, the two sides were light-years apart, with the Sox offering $7 million to $8 million per season, with Matsuzaka’s agent Scott Boras, demanding more than twice that, according to the Boston Globe.
Boras insisted that his client was prepared to go home if he wasn’t adequately compensated, but it was obvious that the pitcher’s best alternative to a negotiated agreement (BATNA) was poor. “We had strong indications that he didn’t want to go back to Japan and would be motivated to sign.” Former Red Sox General Manager Theo Epstein told Sports Illustrated.
What’s more, the Sox’s high bid meant the Seibu Lions did not even want its star back. Consider the Lions’ 2006 player payroll was only $17 million, as reported by the Washington Post, just one third of the $51.1 million transfer fee. The lure of the money explains why – as former MLB and Seibu Lions player Mike Pagliarulo told the Boston Globe – the lions apparently let Boras know they didn’t want Matsuzaka to rejoin the team and, further, that they would not post him to the MLB the following season.
The Final Score
The results of the eventual 11th hour deal back up this analysis: a six year, $52 million contract for Dice-K means that Boras blinked and the Sox emerged with the final advantage. Coupled with the transfer fee, the Sox paid $103.1 million to get Matsuzaka for six years. That’s a lot, but it is justifiable based on comparable deals and possible marketing opportunities in Japan – not to mention the premium of keeping the pitching ace away from the Yankees.
“By understanding the rules of the game and the broader set of stakeholders better than their competition,” says Professor Wheeler, “the Sox set up a beautiful negotiation.”
Another big winner? The Seibu Lions, of course.
Related Article: Expanding the Pie- Integrative versus Distributive Bargaining – How to expand the pie in negotiations by using cooperative, integrative negotiation tactics at the bargaining table. In this article drawn from negotiation research, the Program on Negotiation at Harvard Law School offers some bargaining advice for creating (and claiming) more value from negotiation.