UPDATE: Edwin put this better in one paragraph than I could in many paragraphs so here's his comment on why we typically overvalue our own players and undervalue others.
I think fans have a poor grasp of the market. They over estimate demand(especially for player’s they like or want to see traded), and under estimate supply. They also don’t look at all of the market factors such as contracts, remaining value over the season, control over future years, and the long term/short term value of prospects. Most fans are content to use simple logic of “we don’t need this player, Team X needs a player like our player, we get big big prospect.”
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I don't believe I've written a post here on Obstructed View explaining the trade value that you see discussed this time of year. The first thing to remember is that it's impossible to figure out how much one team may actually be willing to offer for a player. What we can figure out is how much that player is worth and using previous research we can estimate the value that player is likely to receive in return. The key word there is estimate.
What we first have to do is establish the talent level of the player being traded. For the purposes of this, I'm going to use a fictional player whose talent level is 2 WAR. This player is fictional because we know for certain that he's a 2 WAR player. Give him 700 plate appearances and he will be worth exactly 2 WAR. Guaranteed. That's ridiculous so it's fictional, but it's good enough to use for an example.
This player is in the middle of a season and has one year remaining on his contract and he's also not even going to get a year older the next season. Our fictional baseball player is league average and remains the same age for two seasons in a row. The win value in the current season is $5 million and it increases to $5.5 million the following year. We can see from this that we know for certain that at the midpoint in the season he'll be worth 1 more WAR that season and 2 more the next. He'll provide a total of 3 WAR over the remaining contract. 100% guaranteed. A little math and we find that he's worth $5 million the remaining part of this season and $11 million next for a total of $16.5 million.
Our player is paid $5 million this year meaning there's $2.5 million additional to be paid. He's also paid $5 million the following season. He's worth $16.5 million and has been paid $7.5 million over that season and a half. He's not good enough to then be offered the guaranteed minimum contract required to get draft pick compensation so his surplus trade value is simply his value ($16.5 million) minus his salary ($7.5 million).
Despite the certainty of our player being worth 3 WAR the remainder of his contract, it's entirely possible that some team out there is willing to overpay for whatever reason. That 3 WAR could be worth more to their team than another. They may just like the color of his hair. I don't know. There's any number of reasons why a team may decide they just need to have him. I don't know and neither does anybody else. We could discuss these possibilities if we wanted. We'd go nowhere in our discussion because none of us knows whether or not the Twins like light brown haired players or feel they just need to have that 3 WAR on their team.
We could discuss the supply and demand. It might have an affect on the value, but we don't know because we don't really know what the supply and demand is. We might have an opinion, but we don't know. As a result, it makes no sense to include it. It could have no impact whatsoever. It could make a huge difference.
Supply and demand works both ways too. When it comes to valuing players at trades I often hear it, but it's always in the sense that the player is worth more because of it. That's just not true. How many teams are really wanting another 1 WAR this season (that's about what you'd get from Ryan Dempster and Matt Garza)? The answer to this question is not as many as you might think.
How acurate have these estimates been? That's really the question. If they aren't accurate, what's the poing in publishing them? This past January I provided two examples for the biggest trades this past offseason.
Matt Latos: 13.5 WAR over next 4 years
Average win value: $5.39 million
Value provided: $72.53 million
Projected Salary based on arbitration 1, 2 and 3 being worth 40%, 60% and 80% of market value: $33.3 million
Projected Salary based on similar players: $26.0 million
Difference between value and projected salary (similar players): $46.55 millionBoxberger: $2 million (early in his career, but he has some minimal value)
Grandal: $10 million (probably not a top 50, but a good prospect nonetheless)
Alonso: $15 million (based on his prospect ranking at the beginning of 2011 by Baseball America)
Volquez: $15 million (projected for 3.5ish WAR over next 2 years, $5.13 per win average, $18 million value, estimated $8 million salary, $10 million surplus)Total: $52 million
You can click on that link to read the details of the Mat Latos trade. The end result is that these two huge trades saw a surplus trade value of $86.6 million traded for $82.3 million in value.
DJ recently asked about the Zack Greinke trade and I went through it starting here. The Brewers received $17.5 million in surplus value while they traded away $18.1 million.
Each of the three trades I've mentioned here were huge trades. Just as players who sign 1-year contracts aren't paid $5 million per win, we cannot possibly expect these numbers to work the same for all trades. Players who sign 1-year deals are often paid only $3 million per win or so. These numbers are just the surplus value above what he's likely to provide. That's it.
I don't pretend that these numbers are always going to be accurate. It's silly to think that because so and so has this much value that every team will only offer this much value. I don't think that at all. Look at them like you would an over/under. A team favored by 7 may win by 21. They might lose by 14.
But comments like the one below are bullshit:
I fully think these projections are stupid because they dont deal with supply and demand. If there was a projection system that could deal with service time vs. other pitchers on the block it would be better. But teams in contention will always pay a premium on top not pitching if they think it can get them over the hump.
Where is the research to show that teams in contention overpay? It may well be true, but saying it as if it is does not make it so.
People have said this regarding the free agent market and they're wrong. The New York Yankees do not spend more per win on the free agent market than the Kansas City Royals do. What happens is that when the Royals stop spending because it no longer makes sense to buy additional wins (additional win doesn't result in the same increased revenue) the Yankees keep buying wins because they are still earning more revenue with each additional win. The Royals, A's and Pirates stop buying wins and the large markets keep buying them. For the same cost as they were when the Royals were buying them.
I don't really have any idea what factors are involved in teams deciding how much to give up for a certain player. I'm not convinced we should treat this differently than we do free agents. If someone wants to show that contending teams regularly overpay in trades I'd love to see the research. Until I see it, I'm going to assume they do not. I don't know how supply and demand affects the negotiations or if it affects them at all. If someone does I'd love to incorporate it into the articles.
My guess is that it doesn't affect it much. If I had to put money on this I'd say the one thing that most affects the value teams receive in return is this: stupidity. Some executives do get desparate and may give up more than they should. That's believable because people are stupid. I don't believe it's going to turn a commodity like Matt Garza into twice his real value. I suppose it's possible, but I think there's a limit for stupidity. At some point even the stupid have to put their foot down and say, "that's stupid."
But I don't know. I don't talk about those factors in these articles because I don't know and have no way of knowing.
minor league stuff is saved MD, just run it when you need it.
Thanks. I’ll post it in about an hour.
It’s weird how teams tend to make pretty even trades regarding value, but when it comes to FA signings it seems like they just completely ignore cost. Look at Pujols & Fielder this past season, Ryan Howard, A-Rod, Crawford, or Soriano. I guess with those huge contracts though you are always going to lose.
Sounds like Randy Wells, starting pitcher might be a thing of the past. Sveum was making noises that Volstad or Rusin might replace him in the rotation.
@ WaLi:
I really think trades work out so evenly because every GM who has ever talked about them has stressed how important it is for both teams to feel like they win in a trade. No GM wants to be the guy who always wins a trade because he’ll never make any more trades. A GM can afford to lose on free agent signings because players are still going to sign if they offer the most money. Always winning in a trade can make it more difficult to trade while players sign for the most money.
@ Berselius:
Wells is an example of quickly a baseball player can fade into worthlessness.
I kind of hope Chris Rusin is called up so he can challenge Dolis for the worst strikeout rate in the big leagues.
@ mb21:
He was great in that final spring start, so he’d have a 2.94 SIERA in the majors. You’re forgetting about the power of spring trainings stats MB.
@ Berselius:
TRANSFORMATION
@ mb21:
And speaking of high-profile trades, so is Matt LaPorta.
@ mb21:
That’s a really good point. Also, when you sign a free agent, you’re just giving up black ink. If he wants more than you were budgeted you make a call to your owner and say “we really want this guy, can you approve a larger abstract number?” he says yes and you put some ink on paper. That ink may cost you your job, so you can’t afford to be stupid about it, but when you trade, you’re giving up players you may have drafted and worked on developing. The money may be the same, in terms of value, but there’s that hesitation to give up a possession that you already have. Basically, I think that there’s some psychology at play in trades where GMs are going to be much more hesitant to overspend.
That’s why when you get an Ivan DeJesus for Ryne Sandburg type trade, it feels like winning the world series.
I think the number of truly stupid people in baseball is diminishing as well. Some may get put in situations where they are desperate, like a GM may really need a postseason appearance to keep his job, but I think that MLB owners are finally figuring out that dumbasses cost them money.
@ josh:
GMs are smarter and smarter all the time, but you still have stupid ones since it’s all relative. And we don’t know what impact the owner has on being stupid.
@ mb21:
For sure. The Fielder signing struck me as kind of stupid, in terms of money. But will Theo be able to win the stupid lottery? We’ll find out.
I also think losing a trade looks a lot worse to a GM than losing a free agent signing. In 20 years nobody is going to remember the Zito, Soriano and Howard contracts (except a select few). The lopsided trades are remembered forever (see Brock, Lou).
@ mb21:
This. You get used to free agents not being perfect, but you can’t forgive giving up a future hall of famer.
I think fans have a poor grasp of the market. They over estimate demand(especially for player’s they like or want to see traded), and under estimate supply. They also don’t look at all of the market factors such as contracts, remaining value over the season, control over future years, and the long term/short term value of prospects. Most fans are content to use simple logic of “we don’t need this player, Team X needs a player like our player, we get big big prospect.”
@ Edwin:
I think that’s spot-on. Well said.
@ Edwin:
This x1000
Edwin wrote:
Exactly. We’re biased as Cubs fans so we think there are few Dempster’s and Garza’s and that’s probably not true. When you consider what Dempster will bring in less than half a season there’s little reason to think that another team couldn’t find something similar for less. The same isn’t necessarily true with Garza who has another year of club control, but it’s not like he’s a great pitcher to begin with.
@ Edwin:
I updated this post with your comment at the top of the article. Very well said.
@ mb21:
I sort of favor just keeping Garza. I don’t think he’ll net much of a return, and I’d rather have a solid rotation for the bad years then to have to watch the revolving door of 4-5 guys all season.
@ josh:
I’m OK with keeping him or even signing him to an extension if it’s team friendly.
You could have just named the post Bubbles is a piece of shit
@ bubblesdachimp:
I don’t think you’re a piece of shit, but the comment I quoted is bullshit. You don’t know if it’s true, but you said it as if it was in order to support an argument that you had.
new shit: http://www.obstructedview.net/minor-leagues/the-children-are-the-future-cubs-minor-league-update-sponsored-by-sadies-dog-bar-grill.html
@ mb21:
I am too lazy to research my position and not smart enough in math.
@ mb21:
Of course I’d trade anyone if the value is right, but this is who I’d like to keep around for next year.
C – Soto (Don’t think the market is too good for him)
1B – Rizzo
2B – Barney (Don’t think the market would justify his value)
SS – Castro
LF – LaHair (Cost controlled, hit or miss player. Need someone to play the position)
CF – Jackson
SP – Garza (Don’t think trade value is there and we really don’t have another top of rotation starter)
SP – Wood
Don’t really have any more cadidates after that (dying laughing)
bubblesdachimp wrote:
/fixed
(dying laughing)
Wins to the cubs this year are pretty worthless, and probably the next year too. I’ll use the tigers as an example because they are often cited as a possibility. To the tigers, every additional win gives them a much larger percentage chance of going to the playoffs, AL championship, and world series. Clearly a win this year for the tigers increases the possibility for increased revenue much more than a win today for the cubs. This is clearly what makes a trade likely in the best interest of both clubs. The tigers give the cubs prospects which should produce more wins than Garza produces for the tigers. The reason I say should produce more wins is because the cubs should get some interest for giving the short term loan of wins right now. I think I agree largely but i think the variation largely accounts for how teams value prospects vs “proven” commodities. I think while many teams value prospects at the level you suggest, some value them less and some value them more. For example, I think the Rays would say prospects will give more value than the Yankees. This i believe is where supply and demand influence the trade the most. if there is a lot of demand and only the cubs are suppliers, more teams will be interested, therefore there is larger possibility that one of those teams values prospects less than the cubs do and “overpays” in the eyes of the cubs.
I definitely think prospects are more valuable to the Cubs than to a contender right now, but I’m not sure that means that a contender is going to place less overall value on individual prospects. In other words, if it takes an A prospect to get Garza, they could move on and get someone who isn’t quite as good for a B prospect and be just as happy.
I do wonder if the overpaying is more about GMs being idiots than anything else. That or individual GMs overvalue a certain player for some reason. He has leadership abilities, wants to win, plays with heart, etc.
@ mb21:
I think it has less to do with them being idiots, than them simply not agreeing with a certain players projection. If a player looks like he has bad mechanics and therefore looks injuryprone, the gm might undervalue him more even though the projections based on stats say hes worth more. It’d be really interesting to see some retrospective looks at how some trades turned out in terms of surplus value for each team. The Gonzalez and Latos trades will be interesting to look back at in say 3-5 years when the players on each side will have actually provided some sort of surplus value to the teams they play for.\
I personally think the Reds overpaid for Marshall, but only time will really tell. The Reds seemed to have gotten a team friendly extension with him and that may not have happened without the trade. Then if Marshall moves to the rotation and has success (and there are incentives in his contract that hint that that is at least in the Reds GMs head) then theres a chance Marshall gives them more surplus value than wood and the prospects do for the cubs. There is so much variation in predictions that if the GM sees something that might not show up in stats, that leads to a player being “overvalued” according to the projections.