With the trade season beginning, it is important to understand the rationality behind why teams make decisions that will affect the trajectory of their organization for this season and seasons to come. The goal in any mid season trade is to maximize value between contending and rebuilding teams.
In this article, I am going to take a look at a few huge mistakes that people make when thinking about baseball trades. This can serve one of three purposes. First, it can help you figure out whether your GM helped or hurt your team by making a trade when one does happen. Second, it can help you figure out whether a trade rumor being floated makes any sense. Third, it can help you invent a ridiculous rumor to float around on the internet that you can pretend is plausible.
1. Salary Matters. Stop simply comparing numbers and trying to trade players for others of a similar caliber. You need to take into account the actual cost of spending money on a certain player.
2. Years Under Contract Matter. The most ridiculous trade rumors come when people do not consider how many years are left on a player’s contract. Mike Trout with all expenses paid is worth six wins per season. So are two players who are worth three wins. So is one player who is worth three wins for two years in a row. The counterargument to this is that sometimes the extra three wins gets you over the hump, but the first three wins do not get you into the playoffs on their own. However, this ignores the fact that the standard deviation of a team’s win total will be about six or seven wins different than their true talent level.
There is too much variance to know exactly where you and your divisional rivals will finish. Therefore, the value of two years of a three-win player is very close to the value of one six-win player when we ignore everything else. Trading a young player with half a season under his belt, who has a pretty well understood skill level is a very valuable thing. Players do not reach free agency until they have six full seasons under their belt. That player is going to get the league minimum for three years and three years under salary arbitration where they will get salaries of approximately 44 percent, 61 percent, and 64 percent of their market value (according to John D. Burger and Stephen J. K. Walters of Loyola College in Maryland). Therefore, getting six years of a player only requires “paying” for 1.7 years of their actual value. So, it’s like getting 4.3 years of their value for free. Thus, even a 1.5-win player with six years remaining on his contract can be worth as much as Trout.
3. Differing Estimates of Player’s Skills are Not Necessary for a Trade to Happen. Although sometimes GMs will trade two similar players because they both feel that the other’s player is better, these trades are far less common than a situation in which two teams have comparative advantages in different things and swap with the intention of helping each other out. The most common trade is a “win-now” team trading prospects to a “rebuilding” team for their current star. This is a situation where the relative marginal value of a win is higher for one team now and the other later. These are obviously common at the trade deadline when certain teams no longer have a chance of winning.
Sometimes teams trade when they both have a surplus at a position that the other team has a deficiency-again this is an example of comparative advantage. The most illogical fake trade rumors are the ones in which one team is not getting any obvious value in an area where they would need it. In both of these common types of trades, the teams probably have very similar expectations with respect to the players dealt, but they do not value this production equally because of differing player alternatives available to them, or different years in which they plan to be more competitive.
4. Quantity Does Not Make Up for Lack of Quality. The most obvious fake trade rumors are the ones where one team gets one superstar player for fifty of the other team’s players. There is such a thing as replacement level, and trading fifty random guys who may or may not land on a big-league bench for an ace does not give the other team any production that they could not replicate from players on the waiver wire or in the high minors of their system.
5. You Cannot Apply These Rules to Deadline Deals Without Adjustments. The methodology specified above where you consider the number of years that the players have left on their contracts, the free agents that would be available for the salary spent on those players, and the draft picks that a team would net by acquiring a player who will soon reach free agency are all good rules for the off-season. However, they make no sense during the regular season.
The dollar value of a win is based on the probability that that win determines whether a team makes the playoffs. We have seen the graph of the marginal value of a win before, which is largest at the point where the win is likely to determine whether a team makes the playoffs. Clearly, most free agents are acquired by teams who are near that breaking point. However, with only 60 games left in a season instead of 162, the odds of one win being the determining factor can be much higher. At the beginning of the season, there is a strong possibility that a team will fall well behind the pack or get out to an insurmountable lead, but in the middle of the season a team with a slight division lead or deficit has a lot to gain by adding a star player because they know that the odds of those wins affecting whether they make the playoffs are higher.
6. The Owner’s Bank Account Does Not Matter. The question of whether a team will sign a big free-agent contract or trade off an expensive player is frequently characterized as whether the owner is “willing to pay for a winner” or “can afford it.” These are silly red herrings in the discussion. Although team owners probably prefer winning to losing, they spend money in accordance with whether it will add to their profit. If they think that adding a free agent will bring fans to their games and playoff games with even more fans, they will do it. Similarly, the state of the owner’s finances rarely has anything to do with baseball. The amount of money that they just made or lost in the market almost definitely has nothing to do with whether their team will spend money on a free agent that will be paid out over time as the player brings new money in. Owners are neither being cheap or nice, they do not spend money to fix your life; they spend money to get your money.
These six rules should provide a nice framework for readers to analyze the trade market or to make up rumors of their own. The important thing to remember is that the quality of talent involved is only a small portion of the issue at hand.
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