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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.