Japanese Internet companies hit home run

Tohoku Rakuten Golden Eagles pitcher Masahiro Tanaka (C) celebrates with teammates after defeating the Yomiuri Giants 3-0 to win the Japan Series professional baseball championship in Sendai, Miyagi prefecture, in this photo taken by Kyodo on Novembe
Tohoku Rakuten Golden Eagles pitcher Masahiro Tanaka (C) celebrates with teammates after defeating the Yomiuri Giants 3-0 to win the Japan Series professional baseball championship in Sendai, Miyagi prefecture, in this photo taken by Kyodo on November 3, 2013. With their win, the Rakuten Eagles cemented the rise of Internet companies in the world of baseball, underscoring the changes in the economy as traditional businesses saw their margins crimped even as the online economy began to bloom in the last 10 years. -- PHOTO: REUTERS/Kyodo

On the evening of Nov 3, many Japanese received an insistent alert on their mobile phones usually reserved for notices of strong earthquakes.

The Rakuten Eagles – a professional baseball team – had won the Japan Series championships for the first time.

While it was not an earthquake, the news is earth-shaking by Japanese standards. The upstart Rakuten Eagles, barely 10 years into their formation and backed by an Internet company, had upset traditional favourites the Yomiuri Giants with a 3-0 win in the last of a best-of-seven games playoff.

Founded in 1934, the Yomiuri Giants are a Japanese institution that is owned by a media conglomerate, and supported by a host of department store and retail chains. It has dominated Japanese baseball for decades.

With their win, the Rakuten Eagles cemented the rise of Internet companies in the world of baseball, underscoring the changes in the economy as traditional businesses saw their margins crimped even as the online economy began to bloom in the last 10 years.

Out of the baseball team-owning game: Daiei, a once high-flying supermarket chain that underwent restructuring and acquisition in 2005, broadcaster TBS in 2011 and regional railway company Kintetsu in 2004. All three struck out when they were unable to justify spending billions of yen on a baseball team when profits were meagre or losses were made.

In: Online retail conglomerate Rakuten in 2004, telecommunication and Internet giant Softbank in 2005, and Internet and e-commerce company DeNA in 2011.

Rakuten’s entry into the game began with financial woes at the Kintetsu Railway in 2004, leading it to merge the Kintetsu Buffaloes with the Orix BlueWave to become the Orix Buffaloes.

The Nippon Professional Baseball authorities felt compelled to grant a new franchise to maintain a balanced two-league system of six teams each.

Only two companies dared to jump at the opportunity, and to vie for the new franchise then – Rakuten and an Internet service provider Livedoor.

It was a daring, attention-grabbing act as owning a baseball team in Japan is not for the financially faint-hearted, and has long been seen as the domain of traditional businesses with cash to spare, and burn.

By one Japanese sports magazine’s count, Softbank had paid some 20 billion yen (S$250 million) for the Fukuoka Hawks, and shelled out another 87 billion yen for the team’s home stadium.

These numbers do not yet take into account the players’ salaries, which run into many more millions of dollars.

However, with most traditional businesses still reeling from years of overexpansion and the pain of restructuring that followed in the late 1990s and early 2000s, no one from their ranks were able nor willing to put themselves forward for the honour then.

When Rakuten won the new franchise in 2004 – to form Japan’s first new pro-baseball team in 50 years – critics questioned whether a mere Internet company should own a baseball team.

The then chairman of the baseball team owners’ association Takuo Takihana felt compelled to note that Rakuten “possesses the ability to withstand (the team’s) red ink... as it has a stable business”.

The Rakuten Eagles’ win thus symbolises the end of the nine-year journey towards its acceptance as a major player in professional baseball, and Rakuten as a major player in the economy.

Along the way, Rakuten and Softbank have also shown that Internet companies have great synergies with their baseball teams.

For one, they have shown that they are not just an online presence but have a physical connection with the people through their involvement in the regions the teams represent.

“Rakuten in Sendai and Softbank in Fukuoka... are warmly welcomed by their communities,” noted baseball analyst Koji Tasaka in a commentary.

In Sendai, especially, the Rakuten Eagles’ win is all the more meaningful as it draws its fan support from the Tohoku region, which was badly affected and still recovering from the March 2011 earthquake and tsunami. Fans interviewed in the local media have spoken of the win as inspiring them with confidence to face the post-tsunami challenges.

In Japan, owning a baseball team is one of the keys to becoming a household name – polls regularly show that one out of two Japanese considers himself a baseball fan.

Rakuten and Softbank have, by most accounts, managed to better channel the goodwill of fans across the nation into purchases, unhampered as they are by issues of accessibility, stock availability at a fixed location or opening hours compared to brick-and-mortar retailers as they all seek to cash in with the de riguer post-game sales. One clear advantage is that fans can buy online right after a winning game, late at night.

And just as the Rakuten Eagles have chalked up impressive game-win statistics in the last few years leading to their victory on Sunday, e-commerce and Internet companies are equally reaching new frontiers in profits.

During Rakuten’s nine-year ownership of its baseball team, its profits, mainly from fees collected from sales in its online marketplace, have surged from 15 billion yen in 2004 to 72 billion yen last year, an increase of almost five times.

It has shown that it is not only able to absorb the huge expenses associated with funding a baseball team, but is also reaping the benefits of doing so.

Mr Takihana’s vote of confidence has been more than proven right.

Internet companies are not only here to stay – they will increasingly be the new cornerstone of Japan’s economic future, taking over from the traditional manufacturing companies that once helped Japan to rise after World War II.

In a nod to the inevitable, supermarkets and convenience stores are starting to offer their goods online as well.

Whether these traditional businesses can hit home runs in the future will depend on whether they can adapt to the world around them.

boonlai@sph.com.sg