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Trades, leverage and value

Let's roll back the calendar a few days and talk about some trade deadline stuff. Two of the most interesting stories of this year's trade season involved National League players — I know, boring, it's like talking about the CFL, right? — but bear with me, and I'll get around to talking about the Indians' trades eventually.

This past weekend started with a rush of stories about, of all things, a waiver claim, as some unidentified team claimed Andruw Jones [cough cough Red Sox cough] from the Braves. As the story explains, now that the Braves had put Jones on waivers and another team had claimed him, the Braves essentially had three options:

  • Work out a trade with the claiming team.
  • Withdraw Jones from waivers, which would prevent the Braves from trading Jones at any point this season.
  • Accept the claim outright, sending both Jones and his contract to the claiming team for nothing.

Actually, the article says the Braves only had two options. It doesn't mention the third option, because it would be considered unthinkable in this case. But after all the squawking about Bobby Abreu last week, you have to wonder just what really is unthinkable in the 2006 baseball economy, where even teams like the Braves and Phillies are spending a lot of time thinking about their cash commitments for next season.

Just take a look at this column by Mark Bradley [reg. req.] of the Atlanta Journal-Constitution. Bradley writes:

The Braves have a decision to make. Chances are, they've already made it. Chances are, they won't trade Andruw Jones -- this month. But they might in November, or next July. Assuming Jones goes nowhere this weekend after being claimed on waivers, the Braves will only have tabled the greater issue.

But Bradley is wrong. In not trading Jones now, the Braves almost certainly have not just "tabled" the question of trading Jones. They very likely have ended it, permanently, by passing on the last opportunity to get full value for Jones. And in fact, odds are they already made that decision in the last week of July, when their options were more or less unlimited. Now that the Braves have withdrawn Jones from waivers, his trade value plummets considerably and permanently. Jones will assume full trade veto rights as of August 15 as a "10 and 5" player, and since he can no longer be traded this season, the situation is now set. The Braves no longer have 29 potential trading partners for Jones, they have as many as Jones wants to give them, which may be ten, or three, or one, or zero.

Just look at the Phillies situation with Abreu, who had trade veto powers not because he was a 10-and-5, but rather because the prior GM was something of a moron. Abreu decided to limit the Phillies' market to two teams, and in fact extracted a $1.5 million payment even to allow that much. There were few enough teams with even a slight interest in paying Abreu to begin with. According to PECOTA, Abreu is expected to be worth about seven marginal wins between now and the end of 2007, when his contract expires. According to their "MORP" stat, that translates economically to about $12 million worth of big-league production based on recent free agent contracts. Yet Abreu is owed at least $21.4 million.

So whatever Abreu is worth as a player, his contract is worth almost $9.4 million in the negative — minus the value-reducing effect of Abreu's no-trade clause, which carries over to his new team and, as we have seen, is worth at least $1.5 million.

As any GM will tell you, teams don't trade players, they trade contracts. In fact, as a general rule, here are the four main things being exchanged with each player in a midseason trade:

  1. The player's on-field value for the current season. Fairly predictable but still a crapshoot.
  2. The player's on-field value for any later years of his contract (or reserve years). This includes his upside and downside, factoring in the odds of this particular player actually reaching either extreme, his median projectable performance, his durability and injury risk.
  3. The economic value of the player's contract. Based on his on-field value, is he underpaid or overpaid, and by how much?
  4. The value of acquisition, of not having to compete or spend any further to acquire a comparable player in the free agent or trade market. This is fairly low for any two-month rental player, and for players who are only marginally better than replacement level, but should be considered for others. (Some might think of this as the inverse of opportunity cost.)

(I've deliberately left out an oft-cited factor with regard to two-month rental players, which is the idea that the acquiring team can play footsie with the player and his agent for two months, giving the team a leg up over other teams in free agent negotiations. Unless the player is being traded to St. Louis, where they actually cheer for players mired in slumps, I regard this as virtually worthless, no matter how endlessly other writers prattle on about it. Purely from a business standpoint, it makes no sense for the player to allow this to affect negotiations, and it's not like these guys don't have agents.)

So the Phillies had in Abreu a player of (1) some this-season on-field value (about $3.5 million), (2) some future on-field value (about $8.5 million), and (3) $9.4 million of negative contract value. His acquisition value is worth considering, as he is a player of significant on-field value and not a two-month rental, but there were other comparable players also avaialble, such as Carlos Lee and Alfonso Soriano. Considering all angles, the strange truth is that Abreu was simply not that valuable of a player, and there was virtually no market for him. Yet many writers have ripped into Phillies GM Pat Gillick for getting so little in trade for him.

These writers know about the terrible contract, of course, and they know about Abreu's trade veto rights. But just as the columnist Bradley above treats Jones' trade veto rights as a parenthetical detail (literally), critics of the Abreu trade fail to see Abreu's bad contract and trade veto rights for what they really are — not tiny details with a little influence over the situation, but critical details that completely transform the dynamics of any possible trade situation, for either Jones or Abreu. After all, it's likely that no team but the Yankees would have even claimed Abreu on waivers. How can it also be true, then, that Gillick should have gotten more for him?

The fact that a smart GM like Gillick got so little for Abreu — the fact that Gillick took this deal — should be considered a powerful illustration of how un-valuable Abreu really was. Unlike Scheurholz, Gillick could have walked away and still been in the same situation in the offseason, but $4.4 million lighter in the pocket. He didn't foresee himself getting an offer $4.4 million better — nor should he have. The fact that so many writers fail to take note of this — instead viewing the Abreu trade as evidence of incompetence on the part of the most successful GM of this era — indicates some combination of arrogance and cluelessness on their part.

Even Chris Kahrl of Baseball Prospectus, generally not known for either of those qualities, nevertheless tumbles headlong into all the obvious (and wrong) conclusions:

... by failing to get value for Abreu, Gillick has failed in his responsibility to help his club, and has perhaps betrayed a fundamental disinterest in the team he inherited from Ed Wade ... all Gillick got from a major move is a major-league-ready lefty, three guys who fit right in as far as populating a farm system longer on hype than talent, and financial freedom.

Kahrl calls Gillick a failure, and in fact speculates that he has a damaging bias affecting his judgment. Yet she makes no attempt to construct a plausible scenario where he or anybody else could have done any better, given the circumstances. Kahrl falls into the trap of calling this a "major move" — I can only assume because Abreu is what we would all call a "major player." But while this may have been a "major move" on the two teams' balance sheets, perhaps even a "major upgrade" on the field for the Yankees, it was not the trade of a major asset on the part of the Phillies. It was the trade of a major asset attached to a major liability, and the net is only a minor asset.

Some writers went one step further to proclaim the great value of Cory Lidle, a mediocre NL starter who could not crack the Indians rotation even if he played for free. In the final analysis, Abreu and the contract bolted to his bat simply were not worth very much, and not very much is about what Gillick got for them. Once Andruw Jones gets vested with trade veto rights, he won't be worth much more than Abreu — some, but not much — and smart GMs know this. So I'll betcha Scheurholz has already made up his mind about Jones.

Which brings us, finally, to the Indians' trades, which understandably were greeted with less fanfare than Abreu's, or even the Jones waiver claim. Yet the same basic value concepts apply. As we all critique the bounty our GM dragged home in exchange for our jettisoned veterans, it's only natural that we overvalue our own guys, even the ones we're happy to be rid of. But just like the wildly media-overvalued Jones and Abreu (and Soriano while we're at it), each of the recently traded Indians had significant flaws in their overall value portfolio.

  • As two-month rentals, Wickman, Perez and Belliard had no future value to their acquiring teams.
  • Perez and Belliard had virtually no acquisition value.
  • Wickman had trade veto rights, limiting his market.
  • Due to a shaky first half, Wickman's current value was also questionable, and he was owed $2 million.
  • Broussard has questionable future value.

On top of those drawbacks, the fact is that none of these four could be considered a lock to play much above replacement level for the rest of this season. There was no Bartolo Colon for Shapiro to trade this season, and you could argue there wasn't even a Chuck Finley. Given that not one of these players was without significant blemish as a tradeable asset, the Indians' haul of two young major leaguers and at least two legitimate prospects could be considered a very impressive result.

Amusingly, some fans have managed to be disappointed for only getting a well regarded Single-A prospect (Max Ramirez) for Wickman, but then also disappointed for getting a major league player (Hector Luna) for Belliard. In Wickman's case, fans said they'd have preferred a Triple-A prospect, and in Belliard's, they wanted draft picks. This is odd, because a major leaguer is more valuable than a Triple-A prospect, and a Single-A prospect is worth more than two draft picks. How can it make any sense, then, that a Single-A prospect is considered disappointing, but draft picks would be more satisfying than a major leaguer?

To oversimplify things, a couple draft picks just aren't worth much. Out of a dozen second-round and sandwich-round draft picks by the Indians this decade, only Brian Tallet has made it to the major leagues. Adam Miller is as great of a compensation pick as anyone could pray for, and while he could be a great player for the Indians someday, he won't do it until some five years after the departure of Jim Thome, the player for whom the Indians were compensated with his pick. Had the Indians intended to compete in 2003 or 2004, that draft pick would have been worthless in that cause.

And it's not like it's all Adam Millers out there in that sandwich round. Far from it. There's also Derek Thompson, Mike Conroy, Matt Whitney and Micah Schilling. Many compensation picks don't make it as far as Max Ramirez, and very few end up being real major leaguers. Which, by the way, is what Hector Luna is. We tend to think of a great prospect like John Drennen as more valuable than a decent player like Luna, but it isn't true. Drennen may never hit as well as Luna. Alex Escobar didn't.

A few thoughts to ponder next time a real head-scratcher comes across the transactions wire. It only takes one Wrong GM for a team to overpay for a player, whether by trade or free agent signing, because that one Wrong GM will just outbid the 28 Right GMs. That basic dynamic drove the Bartolo Colon trade and other classics like Zambrano/Kazmir and Pierzynski/half-the-Twins-pitching-staff.

But it takes 29 Wrong GMs for a team to underpay for a player, because it means that even the high bidder out of 29 teams was still undervaluing the player. And while that can happen — Vlad Guerrero comes to mind — as professionalized as modern front offices are, it sure isn't going to happen much.

But all of this assumes that there's an open, 29-team market with no trade veto in play. When there's a trade veto, the market very often shrinks to one — Abreu, Griffey, Vizquel — and the player's value is essentially dictated by the team doing the buying. The selling team can walk away from the deal, of course. But in the case of a two-month rental player, what good would that do?