The next month will bring plenty of scrutiny to the Rangers over their spending for Yu Darvish. Everyone will have an opinion on whether or not the signing was a smart move. Nobody can predict the future, but there are several important things to consider when making a judgement.

Rangers Win!

On Monday night, as Rangers fans all waited to see who would win the rights to Darvish, Joey Matschulat tweeted that BBTIA had more users in its chat than it has ever seen, including during the World Series. After all, Monday night was the most exciting baseball night for Texas fans since the Fall Classic.

As if I were actually watching a game, I found myself rooting for the Rangers to win. For a brief period, it became less about the player Darvish, and more about winning.

Texas prevailed, and the announcement gave me an adrenaline rush that ended up costing me a couple hours of sleep.

The next day, I came to my senses, and found myself wondering whether the Rangers actually won at all. When it comes to free agency, or Vickrey-sealed-bid auctions, a win is often a Pyrrhic victory.

The Winners Curse

The Winner’s Curse is an economic dilemma in auction theory that suggest that winning bids often exceed true value, and the bidder who most overestimates value will prevail.

Robert Stonebraker wrote in The Joy of Economics:

In any auction there is some uncertainty about the true value of the item up for bid. Each bidder will estimate what she thinks is the true value. Given the uncertainty, some people will underestimate the true value while others will overestimate. Since the person with the most optimistic assessment of the object’s value will be the high bidder, the auction winner is likely to have overbid. In other words, if you have no inside information, yet outbid 100 other people on an item, you should worry. If you paid for than anyone else was willing to pay, you probably paid too much.

More Than Meets the Eye

Did the Rangers overpay? Probably. Was it by as much as many seem to think? Probably not.

On the latest Business of Baseball podcast, Maury Brown says that this could be a good deal for the Rangers. He thinks Darvish will help the Rangers generate tens of millions in sponsorship dollars in Asia, and that the posting fee will be viewed simply as an administrative cost to bring in new revenues that can be written off.

A hallmark of the new Rangers ownership group has been a welcome obsession with expanding the team’s brand. In 2011, they actively marketed to all of Texas and neighboring states with slogans like, “you don’t have to be from Texas, to be for Texas”, and “My Texas. My Rangers”. After all, marketing prowess was a primary reason for Chuck Greenberg’s inclusion in the original ownership group.

A relevant vestige of Greenberg’s reign still exists. Greenberg hired current Executive Vice President Joe Januszewski in February from the Red Sox to guide business partnerships and development. Coincidentally or not, Januszewski was instrumental in Boston’s marketing efforts in Japan following their signing of Daisuke Matsuzaka.

Over the course of the next thirty days, we are likely to hear large numbers thrown around regarding Darvish’s salary demands. Observers will undoubtedly add the sum of Darvish’s posting fee and salary and look at the average dollars when measuring his value. Some will think the Rangers were winners, and some will think they were losers.

We won’t be able to predict the future. We will probably never know how the profits and losses added up after his contract expires. But there is one thing we can be sure of – the posting fee and salary won’t tell the whole story.