Matt Holliday

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A couple of weeks ago over at VivaElBirdos, I got into a discussion with Nick Steiner (vivaelpujols) about the Matt Holliday trade where the Cardinals gave up Brett Wallace (now of the Astros), Clay Mortensen (now of the Rockies), and Shane Peterson, who somewhat surprisingly is the only one of the three to still remain with the Athletics.

Nick is adamant that the trade was a bad one. In fact, according to our own Erik Manning’s analysis, we gave up $28.7 million of value while only receiving $13.5 million in return, which clearly indicates the the Cardinals were on the losing side of the deal

I believe in Erik’s analysis. I fully believe that the numbers are more or less correct, and that the methodology is sound.  What I do NOT believe in, however, is that the trade was a bad one for the Cardinals.  In an isolated vacuum, with the only information being 1) What value we received and 2) What value we supplied, then Nick would win the proverbial internets.  However, I theorize that if every single other team engages in the very same kinds of trades that the Cardinals engaged in when they traded for Matt Holliday, then the Cardinals got fair value.

I took a look at several other prospect-for-veteran trades that happened over the past couple of years.  I omitted a couple of trades (Namely, the Greinke-Escobar trade, Teixeira-Kotchman trade, and the Haren-Saunders trade) because the main pieces for the trade swere not prospects; they were already fairly established Major Leaguers.  I then found analyses of the trades around the internet, who used Victor Wang’s trade values to evaluate.  I used their analysis rather than mine because it’s very difficult  in hindsight: I have more information on the trades now than when they occured, so I’m biased, and I also do not know the context in which the trades were made.  Here’s what I found:

Over at The Hardball Times, Myron Logan took a look at the trade this past season that sent Cliff Lee over to Texas for Justin Smoak, Blake Beavan, Josh Lueke, and Matt Lawson.  In order to gauge Cliff Lee’s value, Logan found Lee’s surplus performance value ((WAR projected * $/WAR)-(Salary)), then added on the playoff bonus (How much more likely they are to make the playoffs * $35 million projected value of making the playoffs), and compensatory pick value ($6 million).  To get the prospect-side value, he used Victor Wang’s prospect values, which can be seen here. In the end, he concluded that the prospects provided about $28 million of value while Cliff Lee provided only about $17.2, which is a ratio of 1.627.

Using similar methodologies, USS Mariner also analyzed the prior Cliff Lee trade, which sent him to the Mariners in exchange for Tyson Gillies, Phillipe Aumont, and JC Ramirez.  Ultimately, Dave Cameron concluded that the Mariners received about $25 M in value while giving up $15.3 in return, for a ratio of .612

That deal was actually part of a “three-way deal” that sent Halladay from the Blue Jays to the Phillies in exchange for Kyle Drabek, Michael Taylor (since traded for Brett Wallace), and Travis D’Arnaud. Dan at Beyond the Boxscore took a look at that trade (kind of… the trade hadn’t finalized yet, so the pieces changed.  I substituted the new players in and recalculated the values myself) and found that Roy brought $29 million of value to the Phillies while they gave up $46.5 million, for a ratio of 1.60

Finally, 4parl took a look at the Adrian Gonzalez-to-the-Red-Sox trade that netted the Padres Casey Kelly, Anthony Rizzo, Raymond Fuentes, and PTBNL (not counted in the analysis).  They concluded that the Red Sox received $21 million in acquiring Gonzalez while giving up $33.2 million, for a ratio of 1.58

If we average all of these out (including the Matt Holliday trade, which had an unfortunate ratio of 2.13 according to Erik’s numbers), we get a prospect value to veteran value of 1.52.* I know it’s a small sample size, but there just aren’t that many trades of this nature that occur, so I’ll be sure to add on to the study as more trades happen.

*Holy crap the Phillies got fleeced in the Cliff Lee trade.  While we found the average ratio to be 1.52, they got almost 2.5 times LESS value than the other teams who performed similar trades.  Also of note is the return that the Mariners got on the Cliff Lee.  They basically bought a house for $100,000, lived in it for 3 months, and then sold it for $250,000.

The big question is: What accounts for the difference?  In my eyes, there are simply two possibilities (Hey, look at the title!).  Let’s discuss them:
1) Market Inefficiency
Like when Brad Pitt and Jonah Hill were off acquiring high-OBP guys for pennies on the dollar, these prospect-for-veteran trades represent a market inefficiency in baseball.  GMs are continuously practicing self-destructive behavior in not properly valuing prospects, and teams are suffering for it long-term.  I think it’s clear by the tone of this paragraph that I don’t believe that this is the case.

2) Just the Market
There are several justifiable reasons why there exists a 1.5 ratio between prospect value and veteran value
  • Current WAR is more valuable than future WAR – As Dave Cameron notes (in a quote, halfway through the article), “Wins now lead to more fans, more revenue, and more chances to invest in the future.” This statement is just a simple derivative of the financial axiom that a dollar today is more valuable than a dollar tomorrow.
  • Baseball owners are risk averse – We sometimes forget that the WAR projections are simply the mean projection for the player; what’s often glossed over is the reliability/variance of the projections.  Owners, in effect, are paying a risk premium in order to acquire a player who is more likely to reach or attain their projections.
  • Traded prospects are lemons – I’ll do a post on this separately later, but nobody has more information on a prospect than the team trading him.  According to Keith Law (insider required), the problems with Brett Wallace’s swing are unfixable.  It’s possible that the Cardinals knew that, and traded him while his value was at its highest.

Going back to my argument with Nick, it seems that we were both partially right.  I was correct in that almost all teams (but especially the rich ones) engage in trades like this, and there are specific reasons that they do.  Nick was right that even considering other teams make these types of trades, the Holliday acquisition STILL seems like bad value with a 2.13 ratio.  It looks good in hindsight, but the Cardinals gave up about $7 million too much in value.

20 Responses to “Prospect for Veteran Trades: Market Inefficiency or Just the Market?”

  1. I completely understand that people have come up with values for A-F prospects and that includes risks, but I still don’t think a straight analysis at the time the trade was made will provide a true value for the trade.

    I wasn’t sure about the Holliday trade at the time, but after the last year and a half of very solid value from Holliday it would be hard to argue that the Cardinals did not get a valuable piece for the team. The Cardinals also need value NOW more then in the future.

    But here is why I would almost always rather trade for a good established player as opposed to keeping a prospect who is seen as possibly being a solid MLB player in the future: Brett Wallace would not have made Keith Law’s top 100 list this year had he still been considered a prospect this year. Now if that is the perception around the league of Wallace (no power, has trouble with inside pitches), then Wallace’s value to the Cardinals would go from being a key piece in a deal for Holliday to getting a league average player for (maybe).

    Not to mention, Wallace was always going to be a first basemen and without power was never going to be able to replace Albert even if Albert doesn’t sign.

    So I would rather take 5 WAR value from Holliday for 5 seasons then 5 cheap seasons of slightly above average value from Wallace. Because the Cardinals have the team to win now.

    • Thanks for reading, Ted

      To be forthright, I don’t think that results-based analysis is appropriate in the case of trading prospects for veterans, and let me use an extreme example to show why: If the Cardinals traded Shelby Miller for one year of Aaron Miles, and Shelby gets injured and never throws a Major League inning, while Aaron Miles goes on to post a .2 WAR year, the Cardinals would win the trade from a results-based view

      You have to analyze the trade based on the information that we know at the time and what we can reasonably project forward, not how the players actually ended up performing

      • This is flawed, because the value analysis isn’t accounting for the Cardinals increased ability to sign Holliday if they trade for him at the deadline instead of some other team.

        Chuck B has pointed this out below.

        Also, how do you factor in whether the deal gives the current organization a chance to win the World Series that year? That’s what we play the games for right? It’s not accumulate WAR over time, it’s to win the World Series. I agree that this is hard to project, but teams in all different sports make market inefficient trades to try and win a title — THAT’S the whole point of sport to begin with.

        • It isn’t accounting for the ability to sign him because it’s impossible to quantify

          And playoff-probability added analysis was included in most of the analyses. After they make the playoffs, it’s a crapshoot

          • Actually, wouldn’t it be possible to quantify it if you studied players signed by teams that they had played with previously and compared their contracts to contracts signed by players who went to unfamiliar teams?

            It seems obvious that this makes a difference: Just this offseason Cliff Lee and Jake Westbrook both took less money to play in places they liked, while Werth and Crawford got huge dollars from unfamiliar places. Would Holliday have expected a Carl Crawford contract if he hadn’t played with St. Louis?

    • Rui Xu,

      What I meant with my comment was not to say that people shouldn’t analyze trades at the time or that it can’t be helpful. What I meant to say was that when you trade for an established good player (Edmonds, Rolen, Holliday) the team getting the player has a very good idea of what they are getting, and there is a high probability they the player will play up to his predicted (and past) performance. So the risk of trading for an established player and him falling flat on his face is very low. (I’m just talking about good players here).

      However, when dealing with prospects, they have not established their actual value in the majors. So when you have a talent like Wallace, who was probably considered an A- at the time we traded him, his value is completely based on potential in the majors. He has not established himself and therefore no one actually knows what kind of player he will become. Therefore, his risk is significantly greater then the good player you are trading for. And with a prospect like Wallace, his ceiling is much closer to all-star then it is to becoming an MVP one day.
      A player like wallace also holds the possibility of stalling on his way to the majors or on his way to becoming a very good major league player.

      Therefore, it I believe it is better to trade a prospect like Wallace for an established good player, then to keep him most of the time. Especially when the player is not strong defensively, and blocked in his position in the majors.

      In addition, a player like Wallace, who is already older and who’s value comes completely from his ability to hit, if scouts fall out of favor with him, his value to the club can drastically fall in a very short period of time. Law stated this year that Wallace wouldn’t have even made the top 100 list this year had he still qualified.

      If we still had Wallace this year do you think we could have traded him for Holliday? I don’t.

      Prospects like Rasmus and Miller are different because they have potential to be great, and the cardinals need cheap great players (are at least very very good ones). But when a prospect’s potential is not A+ but merely A-, i think on average it is better to trade him.

  2. Good stuff, Rui. I also think that analysis of the Holliday trade as well as the Halladay and Gonzalez trades fail to incorporate the increased likelihood of signing the player long term. If the Holliday trade increased the likelihood of signing him by 10%, then the Cards should get 10% of any surplus value from his signing added to their trade value. Now, there probably isn’t a lot of surplus value from the Holliday signing and we have no idea how much, if any, it increased the team’s likelihood that they would sign him, but there’s some value there.

    Halladay, on the other hand, signed a very team-friendly deal with the Phillies after the trade so analysis of their end of the deal should include the increased likelihood that he would sign that deal times the surplus value of the deal. As for Gonzalez, I think that most of the parameters of his long term deal (yet to be finalized, I think) were in place when the deal went down. There’s some value that should be included into the BoSox’ valuation of the deal.

    I also think there’s a lot to the notion that present wins are worth more than future wins and that the trading team knows more about their prospects than the receiving team and all other prospect evaluators do.

    • You know Chuck, that was a point that I considered including, but it was just impossible for me to quantify how much advantage the team actually got when resigning the player. It was easier for me just to assume that all teams had an equal shot at signing him

      That said, there no doubt IS a value you to that, but like intangibles, it’s just impossible to quantify to put into the analysis

      • In this case, you should leave the future value of the prospects out of the equation as well then. You’re merely projecting them based on past evaluation of prospects LIKE them and by where various experts have ranked them, not on the prospects themselves. That’s just as difficult to quantify, imo, as the chances of the Cardinals re-signing Holliday to a long term deal, which was CLEARLY factored into the organization’s decision to make the trade.

        • Victor Wang used a specific scout (John Sickels), whose biases and ratings of certain types of prospects tend to remain constant

          The prospect valuations, while maybe not perfect, have explicit values, while any attempt at quantifying how much better of a chance the Cards had at signing Holliday would be implicit

        • I disagree entirely. The prospects’ values are 100% relevant. On the other hand, it’s impossible to know how much the Cards’ likelihood of signing Holliday increased. We could guess, I suppose but that’s all it is…a guess. Your suggestion is that we pretend that prospects have no value, as if the A’s traded Holliday to the Cards for nothing. That’s ridiculous.

          It’s important to note that Holliday’s projected surplus value over the length of his contract is very small — probably $5-10 million if it’s even positive. The increased likelihood of signing Holliday as a result of the trade is also small — at most it’s 20%. So we’re talking about the difference of about a million or 2 at most. It’s almost negligible. That’s not at all true for the prospects’ values.

          • This still doesn’t account for “asymmetric market valuation” or the “time value economic” issue.

            Also, attempting to to value a prospect for 6 full years is the definition of a crapshoot. Half the talent evaluators I read miss about 40% of the time from YEAR TO YEAR. And I’m supposed to believe on someone’s value for the next 6? C’mon — no mathematical model is that good.

            I’ve read Victor Wang’s analysis. Can’t argue with the math, can ABSOLUTELY argue with the projected “value” of prospects. If you can’t admit that valuing things this way is flawed, you’re also saying that all baseball GM’s are dumb as a box of rocks. No veteran for prospect trade, under these assumptions, is ever good for the team getting the veteran in terms of “value” because the prospects are always valued for 6 full years. I would also guess that, in hindsight, 90% of the prospects valued this way are actually overvalued as well. There will be exceptions (Hanley Ramirez, to name one, John Smoltz, to name another) but overall I think that veteran for prospect swaps do what they’re intended to do: help one team try to win currently (Red Sox in ’06,’07, Tigers in ’87) while helping the other team acquire pieces to compete in the long run. Calling one of these a “failure” is missing the point of why the deal was made at all.

            This analysis overvalues “faberge eggs” in the long run while undervaluing veteran players in the short run.

          • FWIW, Mozeliak was quoted as saying that the Cardinals thought they had a 50% chance to sign Holliday at the end of the 2009 season. How is using that kind of probability any different than using the rating of a baseball scout on a prospect?

            And I’m not saying that the prospects have no value at all, I’m saying that the point of the trade was to improve the team in the short run, so given the time constraints, those prospects have NO VALUE as players to the Cardinal MLB team in 2009. Their value is secondary, in that their future value might entice someone to give up present value that can help the 2009 club within the constrained time period. Which is exactly what happened. Using these time constraints, the only way for the Holliday trade to be a “bust” is for him to have not performed well or gotten injured in the last two months of 2009.

            If you’re going to use the future value of those prospects against the present value of the veteran player, you are comparing apples to firetrucks, and you’re throwing out the time constrained portion of the equation. Do the Cardinals make that trade if they were in last place? No, absolutely not. So you have to take that into consideration.

  3. I had a number of discussions with VEP and Erik over at VEB at the time of the Holliday trade. In hindsight, I was making basically the same argument you are here (that Wallace was a very good prospect, and the package was probably full of too much value, but that the club felt they could reap the best overall benefit by trying to win now), and that Erik and VEP are probably right in that the club gave up too much “prospect value”. Here’s my problems with this entire analysis (setting aside the fact that none of those three prospects have turned out to be better than replacement level as of yet):

    1. The “value” they’re talking about has no Time Value Economic function in it — it’s a straight present value for present value evaluation, and that’s a shitty way to evaluate any trade like this one.
    2. The analysis presents “value” as an objective term, when it’s anything but. Player value is subjective: what has value to the Cardinals doesn’t have value to the A’s, because the organizations have different modus operandi for running a baseball club.

    For instance: Let’s say Brett Wallace stays and hits 40 homers playing 1B for Memphis in 2010. What value does that have for the 2010 Cardinals? 0. What value does that have for the 2011 Cardinals? 0. I’m making the assumption that he can’t hack it at 3B, which seems consistent with every other opinion on that matter from professional coaches in four different organizations (and counting). Does Mortensen really have any value for the 2010 or 2011 Cardinals? Probably not. Petersen has the least value of any of them. So in terms of actual MLB WAR in those seasons, the Holliday trade is a huge win for the Cardinals. Considering that those clubs were/are expected to contend for the NL Central, how is that not a substantial win when considering that the Cardinals were operating from a “value now with the ballclub we currently have built is better than perceived (but not proven) value later”. Not only that, our farm system is BETTER now than it was at the time of the trade, so it’s not like we’ve gutted it to the bare bones.

    Also, if we assign a constant to the formula to factor in the implied odds of the club improving its chances to sign Holliday long term (say 20% as a WAG), that makes the trade look even better when you factor in Holliday’s production over a 5 year contract with that constant applied. If your point is that we could have signed him anyway, I agree, but we would have given up Zach Cox to do so, who might be a better prospect than Wallace due to positional flexibility. Now, the club couldn’t have known who that pick was going to be for, but they did know that they would be giving up a #1 to make a run at Holliday in the offseason, that they would be giving up 2 months of Holliday value if they did so, and that the 2009 team looked like a playoff juggarnaut with an additional MVP level bat in the middle of the lineup with the pitching that we had that year. Look at the the 2006 team, then look at 2009′s roster? Who looks like a bigger threat to win the World Series? On paper, which is how this trade is being evaluated, that 2009 team looked like a team that was one stud LF short of being the best in the National League.

    If we want to talk about the Cardinals getting waxed in a trade, there’s plenty to talk about: Greene for Gregerson, Ryan for flamethrowing prospect X, etc. This one turned out pretty good for us, imo.

    P.S. I would side with the argument that young talent for veteran talent is a market inefficiency, albeit one that gets a bit less inefficient every year due to better and better tools for evaluating young talent. I mean, could you see a Bottenfield/Kennedy for Edmonds trade? FWIW — if you evaluate that trade based on where Adam Kennedy was ranked at the time of the deal, we probably come out on the short end of that one too. How many Cardinal fans would agree with that now?

    • fourstick,
      All are great points, and I wouldn’t say that I would disagree with any of it other than the end of the last paragraph. That’s results-based analysis, and I know that you know better than that

      • Sure it is, but most Cardinal fans I know thought we got a great deal on Edmonds at the time of the trade. But if you value it this way, we were getting jobbed because of Kennedy’s surplus value as a top 3 prospect in our farm system. Kennedy was a SS with good BA and OBP and a slick glove — a B+ prospect at the time of the deal.

        Know what I mean? Nearly every trade you look at is going to favor the team getting prospects, because you always have to overpay in prospect talent to get veteran talent because you’re trading an unproven commodity for a proven commodity. The team getting veterans is taking on more of the risk, therefore, you have to overpay. If you’re a GM and you’re looking to make every trade work out even or in your favor, you’re not going to get any trading done, and the other GM’s are going to talk about you like we all talk about that one douchebag tightwad in our fantasy baseball league who won’t trade with anyone unless he’s getting way more value than he should.

  4. I’ll interject some thoughts into this thread if I can tonight, but for the time being I’ll just drop this link for everyone’s perusal. Interesting construct

    • This makes more sense to me — if I plug in numbers for Holliday for just the end of 2009 (EWAR of 1.8 for those two months as he was a 5.7 WAR player in 2008 and 33% of 5.7 is 1.8 and Salary value of $4.5M for those two months via prorated salary) I end up with $11.7M of value, which is less than what the original analysis came up with. So either I’m using different numbers, or this model is underrating present value more than Erik and VEP’s analysis was initially.

      Still, I disagree that we overpaid, and I vehemently disagree that this was a bad trade, simply based on the fact that the prospects we gave up do NOT have $28.7M in value TO THE CARDINALS over the next 6 years. We’re determining their market value (what they should be worth to other teams) but we aren’t determining their club value (what their value is to the Cardinals). Those are not the same thing, but this analysis is treating them like they are exactly the same thing.

      Key takeaway for me is this:

      “what I’ve found is that teams’ current records have zero predictive value of their record five years from now and beyond.”

      Yet, in order for Wallace and Co. to have $28.7M in value, we’re projecting THEIR talent out SIX FULL YEARS into the future, and that’s making the reasonable, best-case assumption that those players would be giving that value within the next year. We’re not accounting for the fact that these players might not be in the big leagues until 2-3 years from now or whether the Cardinals have a spot for any of them to play at the MLB level.

      Why am I the only one that seems to find this valuation model insane? If this is the best we can do with “provable” data (and by “provable” I’m assuming that Victor Wang’s math, not assumptions, are correct), then we should expect that the evaluation will favor the team getting the prospects around 80-90% of the time for trade deadline deals. I would also guess that this would be the case in all the other major sports as well. Pricing risk is tricky in an open market, even more so in a closed market where human beings are the capital we’re pricing the risk on.

      • Prospect value, especially value of late arbitration years or value given to very young prospects, should be discounted at the same rate as inflation, although this inflation would be somewhat counteracted by the inflation of $/WAR values in the future.

    • I also see Wang’s model used mostly by people who are in the “build from within, stockpile prospects, wait for the future to arrive” camp…..which is awesome, because it completely agrees with their ideology and does so in neat mathematical formulas that are hard to argue against because complicated stuff like “human capital” is very hard to quantify without devolving into subjective measures like “intangibles”. Most of the arguments I see from these people involve piling up as much excess value as is possible, but I don’t necessarily ever see them talk about how they plan to deploy that capital.

      Billy Beane is this type of guy: He compiles massive amounts of prospect and player value by exploiting inefficiencies in the market and always seeming to get the better “value” in trades, but that doesn’t always net him gains on the field in terms of wins and losses, and I think part of the issue has been the deployment and development of those resources that are acquired.

      I think Rui does a good job here of comparing this deal to other deals that have been made in the past couple of years. The findings are pretty clear: Teams “overpay” for veterans pretty frequently in trades. So either they don’t know what they’re doing (market inefficiency) or that’s just the market (Adam Smith). I think there’s a mix of both here, but a third issue that isn’t discussed is that there are certain teams with a “value/win” ratio that is just simply different from others. If the market was perfect, the value/win ratio would be nearly the same for all teams. It clearly isn’t.

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