Clear communication is a hallmark of good business. So why are some parts of the multibillion dollar free-agent system conducted partially in secret?
Here’s how it works: If a baseball team in the U.S. wants to hire an impressive player from Japan, they’re not allowed to make an offer directly. Instead, the league organizes a silent auction and any interested party can place a bid. Some commentators believe this secrecy is inflating the market, making foreign players unreasonably expensive.
Sports writer Tim Kurkjian at ESPN magazine explains how Daisuke Matsuzaka successfully secured a whopping $51.1 million from the Boston Red Sox. Because the auction was conducted in secret, the winning team ended up bidding 20 percent more than the second place team to ensure their lead. Still, this figure ended up in negotiation, driving up the final price to just over $100 million.
The backstory is fascinating. From the article:
“It is silly,” said one major league executive. “It is stupid.”
The posting process originated from the Padres’ controversial signing of pitcher Hideki Irabu in 1997. The Padres entered into a working agreement with Irabu’s team in Japan, the Chiba Lotte Marines, guaranteeing exclusive rights to him, which angered a number of major league teams that wanted to bid for him. The Padres traded Irabu to the Yankees three months later, but from Irabu’s signing, the posting process was born. Now teams make one secretive bid. The team with the highest bid is given 30 days to sign the player. If the team fails to do so, the player goes back to his Japanese club, and the posting fee is retrieved.
The posting process was adopted in part because the small-market teams didn’t feel they had a chance to compete in open bidding against the big-market clubs. But what we’ve learned from the Matsuzaka case is that the blind bidding by teams can produce an even more outrageous offer. When the Mariners posted $13.1 million for Ichiro Suzuki in 2000, they were afraid that they had overpaid for him, but they knew they had to offer at least $10 million to have a shot at getting him. As it turned out, Ichiro has earned his money.
Many believe the posting process will be changed, but the fundamental challenge for Major League Baseball is the question of secrecy. Any organization which attempts to create a positive economic climate without total openness is always in danger of such imbalances. Keeping details under wraps is very rarely the best move for everyone involved.
This is a classic problem in economics, dating back to the era of Adam Smith. It’s sometimes called information asymmetry. If you know more than the other guy, you may have the upper hand. But that also means the other guy may be frustrated or feel the need to retaliate.
There’s a lesson for everyone, not just baseball managers and economists. Companies and nonprofit entities should always attempt to ensure that news of incentives, rewards, and opportunities is made available to affected stakeholders. That means if there’s a promotion available, a bonus upcoming, or a chance for something new, be sure and share it as widely as you can. Otherwise, people may feel left out and bad decisions might get made.
The opposite is true as well. Holding off bad news or keeping it isolated to a few people is probably not the right move. Share, deal with the issue, and move on.
If your company is facing difficult internal outcomes due to a lack of trust, consider a business consulting firm to assist in evaluating your workflow and information management. Because usually, it’s about the system. If the rules are the game are fun, everyone wants to play.