THE BOOK--Playing The Percentages In Baseball

There is a thing going around that a creative and just answer to the compensation question is to make the Cubs take on John Lackey. I think this is a brilliant idea.

That is not creative, just, nor brilliant. Perhaps it would be deemed just in a Red Sox-centric universe, but in reality it is plain stupid.

An interesting one was Piniella for Randy Winn:

http://www.draysbay.com/2009/7/14/948899/revisiting-the-randy-winn-lou

And of course we have the recent Ozzie Guillen.

Wouldn’t value have a role to play, along with cost? I have no idea how you’d calculate it, but the best GMs (Anthopolous, Friedman, etc) have to be worth at least a couple Wins Above Omar Minaya, right? Based on the the fact that GM salaries exist in a narrower range than player salaries, a WAM would obviously be worth much less than a WAR. Of course, I have no idea where Theo fits into that continuum.

As far as we’re concerned, since every GM is a free agent at the end of his contract, any new contract by definition is being paid at the fair market price.  So, there’s no surplus value.  If there was, some OTHER team would have offered more.

I don’t follow the national media so this was a total shock to me. Can someone explain why Epstein is leaving Boston?

Theo’s not a FA. If he were, we wouldn’t be having this discussion. And the Cubs could simply have hired, say, Ben Cherington for maybe a quarter of the cost of Theo and no compensation to the Red Sox necessary. So how is Theo’s value (or at least the Cubs’ perception of his value) irrelevant to the discussion?

I think the names that have been thrown around are way too much for Epstein (or for that matter, Epstein + assistants), given how much management talent is available. That said the Red Sox would be pretty foolish not to see that Theo Epstein was a market of one for Tom Ricketts, if you read between the lines of his statements over the past year or so. I think when he kept Hendry around he was just twiddling his thumbs until his #1 target came available. Epstein himself was “blown away” at how committed the Cubs management came after him.

"Theo’s not a FA.”

You missed the point of this entire thread if you somehow got that impression.

Regarding surplus value, you assume homogeneity among those who demand Epstein’s services. This is a very poor assumption economically speaking; basic supply and demand graphs give you “consumer” surplus (in this case not a consumer strictly speaking but a firm demanding a very specific form of labor). The Red Sox should still be reaping some rent, even if they are still paying him the market rate, simply because they are not the marginal firm demanding his services. The market is simply not nearly efficient enough to make that assumption.

The market is not so inefficient that it requires a 10MM or 20MM$ prospect value to compensate, to buy out one year of someone’s contract.

In addition Redsox DO get something out of the deal: not paying Theo.  Right now, Theo will not GM the Redsox, but the Redsox are obligated to pay him.

The way to calculate the value the Red Sox are losing is to assume that Theo is worth $3.6M (because he being paid $3.6M per year in his new contract, which was negotiated in the open market) and subtract the cost of his outstanding one year contract with the Red Sox.

It’s at most 3.6MM$.  Theo is going to have more resp with Cubs than Sox. 

And don’t forget the Sox now have 2 GMs on their payroll.

A mop-up reliever is about right.

My lord.  I didn’t know that if Epstein stays with the Redsox, he gets 7MM$ for 2012+parachute.

So, the Cubs signing Epstein early takes the parachute off the Redsox table.

As far as I’m concerned, a fair compensation package is none at all.

Here are the alternatives:
1. Epstein to Cubs: Redsox pay 0$, Redsox get no players.

2. Epstein stays with Redsox one last year: Redsox pay 7MM$ to Epstein, Redsox get no players, Cubs hire interim GM for one year.

From the Redsox standpoint, if they keep Epstein, they pay him 7MM$ for an asset the Cubs value at 3.6MM$.  Hello?  That’s foreclosure city.  The Redsox should be thankful the Cubs take him off their hands.

In returning for bailing the Redsox’s a$$ out and saving them at least 3.4MM$, the Cubs don’t have to sign an interim GM.

This is win-win.

Ah, this is better:

http://sportsillustrated.cnn.com/2011/baseball/mlb/10/18/heyman.hoyer/index.html?sct=hp_t2_a5&eref=sihp

The ideal scenario is that Epstein’s guys from a non-Sox team come over, like Hoyer and/or Byrnes, while the Cubs wait a year on Epstein.

In return for waiting, they lose a year of Epstein, but they keep whatever compensation package they would have otherwise sent the Redsox.  That’d be a big win for the Cubs.

The Sox instead have to pay Ep 7MM$ for doing nothing.  That’d be a huge loss for the Sox.

I hope common sense prevails, and this NetFlix-inspired nightmare goes away.

Jed Hoyer has a contract with the Padres through 2013, with an option for 2014.

His title with the Padres is “Executive Vice President, General Manager”.  I’m not sure how that’s different from just GM.  Dave Winfield for example has the same EVP designation.

If Sox are going to get compensation for one year of Ep, how much are the Padres going to get for 3 years of Hoyer?  Even if Ep is “more valuable” than Hoyer, is he more than 3 times as valuable?  Presumably, Ep’s contract might be 3 times that of Hoyer, so, one year of Ep and 3 years of Hoyer should be the same.

I don’t think the Padres are going to play hardball like the Sox.

http://www.mlb.com/team/front_office.jsp?c_id=sd

You’ll note two familiar names in there: Wells Oliver and Chris Long, both of whom have posted here in the past.  Just wanted to give them some props!

Great update here:

http://www.bleachernation.com/2011/10/19/theo-epstein-squeal-watch-waiting-for-president-epstein/

And I agree that the best thing at this point is cash compensation.  Clearly, using prospects as an asset value can mean that asset can be valued as close to 0$ or close to 30MM$, depending on how you want to see that asset.

But, money is money.  Redsox are on the hook for 7MM$ for Epstein.  Cubs want him one year early.  A reasonable person would say that’s win-win, and so, no compensation required.  You can even say the Sox should compensate the Cubs.  The most the Redsox should get here is 3MM$.  That’s a 10MM$ swing for them, and the Cubs get Ep one year early.

Done and done.

Reason #3894 not to trust a media member, this time, courtesy of (it pains me to say this) Peter Gammons:

http://www.bleachernation.com/2011/10/19/theo-epstein-afternoon-update-the-jed-hoyer-rumors-are-getting-louder/

Among Gammons’ pearls of wisdom: “everyone involved knows the Cubs are a bottom three farm system,” “Trey McNutt would be Red Sox prospect [number] 25,” and suggested the Cubs are acting like they don’t want to “give up the next Billy Williams.”

According to John Sickels, entering 2011:
http://www.minorleagueball.com/2011/1/25/1952171/prospect-smackdown-chris-archer-vs-trey-mcnutt

I had them very close in the Top 50 Pitching Prospect list in the 2011 Baseball Prospect Book, McNutt checking in at 20 and Archer at 22.

***

This compensation thing reminds of Homer Simpson negotiating for backend profits instead of a straight salary.  Who knows how much future revenue stream The Simpsons has?  So, asking for 0.1% (or whatever) of the backend could be a ton of dough, or it could be little compared to how much his straight salary is.

Same deal here.  Cubs are going to value their prospects more than they are worth, and Sox are going to value them less.

This is why god created money.  1MM$ is 1MM$.

The Cubs want to get started on Epstein building teams to replicate his performance with the Red Sox (2 World Series titles). How much is it worth for them to secure him as their GM for the next 5 years starting now and not wait a year and possibly lose him to another team? A mop-up reliever, right.

Wow, lotsa crazy stuff in this story and the comments.  The assumption that Theo is being paid his true value has no basis.  The comment that McNutt is worth now as much as he was before his mediocre 2011 ("Sickels, entering 2011") is crazy.  The Cubs aren’t paying him more because he wlll have a higher rank, they are paying him more, and also enticing him to come by giving him a higher nominal rank, because they think he has a high value right now.

In conversation, I once estimated my impact on an MLB team in terms of wins and (tongue mostly in cheek) translated it into worth by multiplying by the FA $ / win factor. I got a huge round of laughter from the other three people in the room. Who were Theo Epstein, Josh Byrnes, and Jed Hoyer. I think it was Theo who said “yeah, well none of us are getting paid like that.”

Tom’s being a bit disingenuous here unless he’s willing to take his compensation and back-derive his worth to the team. In which case he’d have to conclude he’s got one of the most pointless jobs on the planet.

So, no, you really can’t compare front office and player compensation. The value in wins is translated into compensation based on the perceived rarity of the resource.

Trey McNutt took a pretty big hit this year with his poor performance and constant problems with blisters. His performance since he reached AA leaves a lot to be desired. I agree with the commenter above. The idea that McNutt’s pre-season ranking is in any way representative of where he is now is silly. A lot changes in one year. At the same time, it’s equally silly for Gammons to say he’d be the Sox 25th ranked prospect. He’d probably be their top pitcher in AA/AAA and would easily be a top 15 in that organization or most any other. He may even be a top 10 in the Sox organization. I doubt it, but it’s possible.

I’d also add that the Cubs farm system took a huge hit this year. If you look at Sickels top 20 Cubs prospects for 2011, nearly every single one of them had a bad season. Some of them dropped way off the map, others just dropped a little. Only 2 or 3 of them had good seasons. I would say, based on Sickels own top prospects list that the Cubs are a bottom 3 farm system. That can change quickly and might this next year as the Cubs spent a lot of money on amateur talent this year. They had a good draft so if some of those guys have good seasons the Cubs farm system is a lot better than it appears right now.

Jim/20: I never said that.  I didn’t even imply it. 

All I said is that I can’t trust a media guy who takes someone entering 2011 has that high, and then after that season somehow makes that guy #25 prospect of some team.

But this is par for the course for people who want to take a political position, that you need to read between the lines what I wrote, and then filled it in to make me look as bad as possible.

***

Eric: It’s really irrelevant if you can prove that me or you or Theo is worth 20MM$ intrinsically.  What matters is how much we can earn in the open market.  And Theo, in the open market, would get up to 20MM$ over 5 years.  That’s his value, even if you can somehow prove that he can generate 100MM$.

The important part is that on the OPEN MARKET he gets 20MM$.  So, that’s his FAIR MARKET value.

***

To all: What’s on the table is having access to that asset one year before he’s a free agent.  How much can you possibly pay for a 20MM$/5yr asset, one year early?

Furthermore, the Redsox were having 7MM$ of payments removed as an obligation.  This is enormous.

So, what has more value: not paying 7MM$, or getting an asset one year early?  It seems to me that you can argue either way, but more toward that the Sox were going to win bigger on the deal with NO compensation.

Or, how about this.  Answer this question if you want to be really honest and not political about this.  Check your ego at the door for this ok?  And if you can’t answer this question, then don’t talk about something else.  Have a discussion with me, and don’t go off on a tangent.

Here we go: how much of a golden parachute would the Sox have to have had for Epstein in order for the Sox to think it’s fair to not ask for compensation for letting the Cubs have him 1 year early?

Tango - Why do you frame it that the Cubs are doing a favor for the Sox by taking Theo? If a dollar is a dollar then he’s still a great bargain, late season collapse or not to remain in Boston. I don’t see him as a salary dump.

Suppose the Redsox are on the hook for Epstein for a 100MM$ golden parachute.

But, if Epstein quits a year early, he gets nothing.

In that case, would you agree that it would be in the Sox’ interest to let him go to the Cubs?

Tango, I think it’s more informative to think of this transaction similar to how the posting fee works for Japanese clubs. The Red Sox paid a $51 million posting fee to negotiate with Daisuke Matsuzaka. That was a lot more than he was worth to his team, but at least two teams were willing to go absurdly high.

The difference here is that there isn’t a bidding war. Only one team (Cubs) is doing the bidding, but the Red Sox are wanting more than Theo is worth in the same way that Japanese clubs want more than the player is worth when they post players.

It may indeed be in the Sox’ interest simply to let Epstein go - they may want a front office shake-up, and they don’t want to pay him a golden parachute.

But even if they might prefer that to keeping Epstein another year (or paying him to go away), if they sense the Cubs want him badly, while they still have him under contract, then why not negotiate for some compensation?

There’s a wide range of prices at which both teams think they benefit. The negotiation is to determine where in that range an agreement happens.

I like David/26’s analogy. What matters isn’t simply that a move is beneficial to you; it’s what you think the market will bear.

Requesting compensation here does seem to go against a “gentlemen’s agreement” among clubs to let front office people out of a contract to take a promotion with another team, and it will be interesting to see whether that now continues, or whether requesting compensation becomes standard.

I thought I read that the Padres wanted some compensation to let Jed Hoyer out of his contract, so this may become the new normal.

Again, why avoid what I am asking?  Why don’t we start with what I am asking, and after we resolve that thread, then we’ll discuss the other threads that are popping up?  Otherwise, everyone is just throwing their opinions in the hat, and nothing moves forward.

So, focus on my question, at the end of Tango/23, and the related Tango/25: where’s the breakeven point at which, the Sox would think that being saved from their golden parachute is balanced by what getting a player one year early is worth.

There is no single breakeven point, there’s two: one at which the Red Sox would decide they’d rather just keep rights to Epstein, and another at which the Cubs would decide they don’t want him at so high a price. Where between those points a deal is struck is the point of the negotiation, as any point in the middle benefits both teams at least a little.

To get at the first, Epstein’s Red Sox contract/golden parachute is a liability which could be reduced to a present value. They have these options:
1. Keep employing Epstein and paying him for the remainder of the contract.
2. Buy him out early under the golden parachute.
3. Unconditionally release him to sign with the Cubs (he presumably agrees to give up the golden parachute/contract for free to do so).
4. Try to extract some additional compensation from the Cubs in exchange for releasing him.

Presumably option 2 should be at least a little cheaper than option 1, thought experiments aside.

Option 3 costs nothing (presuming Epstein is agreeable).

Option 4 gains you something of value (a player asset that you could put a dollar value on), presuming the Cubs are willing to pay something for Epstein’s release.

Assuming the Sox simply want to sever ties with Epstein now, then option 3 is clearly better for them than either 1 or 2, but if they can use the fact that they hold Epstein under contract to convince the Cubs to pay something, then option 4 becomes the best.

The other unknown is how much the Sox would value simply keeping Epstein in their own front office. This is the asset you’re giving up by releasing him. I think Tango is saying that so long as the Sox value him at less than what they owe him, then shouldn’t they be happy to be rid of the obligation?

And that’s correct, but then might they not also be even happier if they can extract something of value in compensation for releasing him early?

If Epstein’s contribution could be distilled to a WAR value, we could price that, and determine how much that was worth. But his WAR may be greater for the Cubs than for Boston (which, late season swoon notwithstanding, already has a well functioning player development/analysis system).

So the question becomes how to divide up the surplus from a mutually beneficial trade.

To know at what point the Red Sox would be better off simply letting Epstein walk for nothing, you’d need to know how much the Red Sox would value keeping Epstein. The difference between that and what they owe is the first breakeven point.

Similarly for the Cubs, the difference between what they perceive as Epstein’s value to their organization and what they would pay him as an employee would be the second breakeven point: they wouldn’t pay more than that for his rights.

Geoff, excellent, thanks for keeping the conversation going.

At this point (or the point when Ep was still under contract with the Sox), keeping Epstein as a GM for the Sox has either no value or negative value.  He didn’t want to be there, so the Sox are not going to get any value out of him.  They could have him as a “special advisor”, but again, you can make the argument that he has negative value because of how everything went down.  He’s like a cloud of doom.

So, the breakeven point might simply be 0 dollars at this point: Epstein provides no value to the Redsox under the circumstances of their relationship.  You can argue he might offer 1MM$ as a “special advisor” or he can offer negative value in terms of the “cloud of doom” scenario. 

For the Cubs, they get the asset one year early.  They are paying him close to 20MM$ for 5 years (almost 4MM$ a year).  How much can you value an asset like that one year early?  It’s going to be less than 4MM$.  After all, if he’s worth 4MM$ in 2013, and in 2014, 2015, 2016, 2017, then question is having him in 2012 rather than in 2017.  (They’ll still have him in 2013-2016.) So, how much can that be worth?  2MM$?

Therefore, the Redsox have an asset that is worthless to them, but they owe 7MM$ in mortgage.

The Cubs want access to an asset early, and they should probably pay 2MM$ for it (but certainly at most 4MM$).

Under this presentation, the Cubs are doing the Redsox a favor.

To have this discussion, you have to tell me the breakeven point: the point at which the Redsox would not require compensation, so that they would be able to trade him to the Cubs for nothing.

And I’m saying that at somewhere around 2MM$-3MM$ remaining in obligation from the Sox to Epstein is where that breakeven point is.

In that case, the Sox derive as much value in getting rid of Ep as the Cubs derive in getting from Ep one year early.

***

Now, you can also argue that getting Ep one year early might have even more value to the Cubs, so they don’t have to compete with the other 28 teams.  That might be worth another 1MM$ or 2MM$, maybe.

We’re still far short of the 7MM$ in negative value the Sox have here.  So, even if you can argue that the Cubs getting Ep one year early and under a non-bidding process, the Cubs value there is going to be maybe 4MM$ in surplus.  It’s still nowhere near canceling out the Sox negative value.

You seem to be implicitly assuming the two teams should split the surplus evenly: the Red Sox face a deficit of $7MM, the Cubs get a benefit of $3-4MM.

But an agreement might happen at any point where either side gets a benefit, depending on many external factors.

Your framing raises another (at least theoretical) possibility: the Cubs might demand compensation to take responsibility for Epstein’s contract, sensing that the Red Sox are worse off now being forced to honor the current deal. Given your numbers above, the Cubs might argue for an asset worth $2-3MM so the teams split the surplus evenly.

While the Cubs would pay Ep $4MM/yr, they presumably value him at least a little more than that, quite possibly much more. So perhaps the surplus is larger, and the Cubs might give up some prospect and still have half or more of it.

But in a negotiation where both parties see positive net value from a transaction, a 50/50 split may seem “fair”, but it’s not always the outcome. First, the two parties may evaluate the surplus differently, either than each other or than a neutral observer; second, different leverage may cause one side to take more of the surplus than the other. The side more willing to let the deal fall apart can likely capture more than half the surplus.

And I suspect the Red Sox are more willing to eat Ep’s contract and have him as a “special advisor” than the Cubs are willing to rethink their long-term strategy with Epstein at the helm.

You seem to be implicitly assuming the two teams should split the surplus evenly: the Red Sox face a deficit of $7MM, the Cubs get a benefit of $3-4MM.

But an agreement might happen at any point where either side gets a benefit, depending on many external factors.

Yes, that they split it evenly.  But even if they didn’t, the maximum the Cubs should give up is 4MM$.  And that means some very low-level prospect.

Ok, Selig says if this isn’t resolved by Nov 1, HE will resolve it:

http://espn.go.com/mlb/story/_/id/7142737/bud-selig-sets-nov-1-deadline-chicago-cubs-boston-red-sox

He pretty much is going to have two choices:
1. Establish a monetary value to the compensation, which presumably is going to be some percentage of the contract, say like 10% of the contract, or 2MM$ total.  Something like that.

2. Allow Cubs to protect a certain number of players (maybe everyone on the 40-man roster, plus x more players, maybe 5 more players).  Something like that.  And the Sox choose from one of the remaining.

Presumably, the monetary one is the easiest/fairest/cleanest way.  Money is money.

Let’s see what happens…

What’s interesting to me is the notion that GMs are underpaid, so of course, the Cubs should give up alot to get Epstein one year early.

This is weird for one reason: Epstein could have tried to get more money from the Redsox on his last deal, but wasn’t able to.  So, because Epstein is getting paid less than he’s “worth”, the Redsox hold a huge surplus value in Epstein… and the Redsox are going to benefit from it.

However, since Epstein negotiated the highest possible value possible for a GM when he did it with the Redsox, this means that virtually every GM is underpaid, and so, every team should try to extract this huge surplus value.

But, teams always let their execs walk freely to other teams, and, if the GMs really worth that much, wouldn’t there be one team that would get the one guy that was the best?  Indeed, one would think that when Ep signed his last team, that was the Sox/Ep signing Ep at the highest possible worth.

To then think that he was STILL underpaid, AND the Sox then hold the surplus value for compensation purposes is rather insulting.  Ep couldn’t extract the surplus value for himself when he signed his last deal with the Sox, AND the Sox will extract the surplus value for themselves in trading him to the Cubs.

No.  All these things that may make sense in isolation happens to fall apart when you try to put them together.

the maximum the Cubs should give up is 4MM$.  And that means some very low-level prospect.

No, it’s about a Grade B prospect. A little bit less than that as the Grade B hitting prospect is worth $5.1 million*. $4.2 million would be two Grade C pitchers 22 and younger.

*I tried to post this comment with a link, but it wouldn’t take it.

Entering 2011 that would be Josh Vitters, which was the 3rd overall pick in the 2007 draft. After looking at what the Marlins gave up to get Guillen, I came to the conclusion the Cubs would give up Josh Vitters and Chris Carpenter. Both of them were ranked similarly in each system by Baseball America entering the season. One of them dropped considerably while the other dropped a little. Vitters is more like a C/C+ prospect at this point and Carpenter is about the same. That has a combined value of $2.2 million. Both also have considerably more potential than the average prospect. Carpenter can hit 100 mph and has good secondary stuff. Vitters can hit for average and power and scouts still rave about him. Neither would be considered a “low-level” prospect. The combination of both of them is worth half of the $4 million.

Brett Jackson and Trey McNutt were the only prospects in the Cubs system who were graded higher than a B (both of them B+). Jackson may even be an A- at this point, though there are enough question marks about his game that I’d say he’s still a B+. McNutt had blister issues all season, performed poorly and since reaching AA has been less than impressive. It’s likely he’s dropped to a B. Both of them are still very good prospects. Neither of them are worth considerably more than the $4 million you mentioned. Jackson would be a reach, but McNutt isn’t worth much (if any) more than $4 million at this point. Neither of those two are available leaving only prospects who are worse.

If the Cubs come out of this not giving up Brett Jackson or Trey McNutt it’s very difficult to argue the Cubs made a poor decision. I’d have trouble arguing it even if they gave up McNutt. It would be relatively easy to argue if Brett Jackson was the compensation, but that’s not happening. It’s highly unlikely that Trey McNutt will be involved either.

If we are using the Victor Wang translations:

http://www.beyondtheboxscore.com/2009/3/3/777412/al-west-farm-system-values

4MM$ would look to be a B- hitter or a C+ pitcher.

(In the link above, a B hitter is 5.5MM$ value.  A B pitcher is 7.3MM$ and a young C pitcher is 2.1MM$.)

There are around 160 players that are B and above each year.  Players in the B- and C+ categories are a combined 330 player.  Even if you want to stick to just the B- players as the 4MM$ players, that’s 90 players a year, or ranked at #161 to 250.

So, a 4MM$ compensation would be someone that is ranked somewhere around #200.

I called that a “low-level” prospect.  I should have said “a #200 ranked prospect”.

So I did a present value calculation, five years of value at $4 million a year (a) starting now and (b) starting a year from now.  I used a discount rate of 7.5%.  Case (a) has a present value of $17.4 million, while Case (b) has a present value of $16.2 million.  Looks to me like getting the asset (Theo) one year earlier is worth about $1.2 million.  A mediocre mop-up reliever sounds about right.

I figure $5.5 million is close enough to the $4 million you mentioned that it would be difficult to claim it a was a bad deal on the part of the Cubs. Consider, for example, that players who are traded tend to perform worse (was this from Phil’s Lemon Study?). It seems reasonable that the same would also be true of prospects, though we don’t know for sure. Certainly the team trading the player knows more about the player and has a better idea of his actual talent. Either way, if the Cubs give up $5.5 million in value to get Theo, I’m not going to be the least bit upset. It’s a farm system that has, in my opinion, been overrated last year and it appears the consensus is that’s been an accurate assessment. So I’m skeptical of the Cubs prospects. I believe Brett Jackson could be a star, but he has a higher than usual chance of not reaching the potential for a number of reasons. Trey McNutt was really good in the low minors, but has stumbled since reaching AA. Much of his rating was based on that early performance and based on how players remain in a team’s top 10 or the overall top 100 beyond the point that they should, I’m convinced that those who are making the rankings have trouble recognizing when the prospect has dropped.

Josh Vitters is a great example of that. Each and every year the ones who do the rankings say something like, “I’m losing faith in his ability.” They’ve been saying that since 2009 and I read it recently by Kevin Goldstein (and Baseball America will say it and so will Sickels). I guess what I’m saying is that I think being ranked in the team’s top 10 leads these people to keep them in the top 10 regardless of whether or not they have really dropped. It’s easier to move up the rankings than down. Trey McNutt went from a 32nd round pick to the Cubs number 1 pitching prospect. Obviously you can’t drop him off the map, but I don’t believe he’ll be dropped as much as he should.

I think most Cubs fans will tell you that as long as the Cubs don’t give up Starlin Castro, they’d mostly be happy with the transaction. I’ve been a Cubs fan since 1980 and I’m thrilled the Cubs have hired someone as intelligent as Theo. It means more to me that they’ve gone in that direction than it would mean to me if they gave up a little too much. It’s a huge step for the Cubs.

That’s $1.2 million in value to the Cubs; it ignores any cost or benefit to the Red Sox.

David: I’m bending over backwards to make the value as a worst-case 4MM$.  A B pitcher is 7.3MM$.  So, no, I’m not going to just accept that a B pitcher is equivalent here.  It’s B-, maybe C+.

Regardless, #200 prospect is around where 4MM$ fits in.

Your point about evaluator bias is interesting, and worthy of a look.

Donald/37 - Thanks for crunching numbers, but in the current interest rate environment 7.5% seems like quite a high figure to use for discounting when 5 year treasuries yield barely 1%. If I use 1%, the present value of the difference is just $200k.

But the value to the Cubs of getting Epstein now as opposed to later likely has little to do with the present value of what they’d pay him. If they get him now, they remove the risk that he may go elsewhere (or demand a higher price to come to Chicago) next year. Also the team begins its rebuilding a year sooner. Just as Epstein staying as a lame duck in Boston might have a “cloud of doom” effect on the Red Sox, if the Cubs don’t get a clean deal now, they might well face a year in limbo before the new regime truly begins, even if he simply agrees to the same deal one year later.

Or maybe Chicago switches to a plan B, and hires Billy Beane away from Oakland. There would be poetic justice in that, since Beane backing out of the Red Sox job is what gave Epstein his shot as GM in the first place!

Geoff/41:  1% would be OK as a discount rate if it were a risk-free asset we were talking about, but this is a fairly risky asset, more like a Baa or Bbb bond.  Human performance is inherently riskier, so I used a higher discount rate.

I was talking about a B hitting prospect ($5.5 million). As for McNutt, he’s at best a B prospect. He’s closer to C+/B-. His numbers are not at all good since reaching AA and some scouts now think he may be a late inning reliever (last year they thought he could be a number 1 or 2 starter).

Donald/42 -

With a Baa bond, you use a higher discount rate because of risk of default of the borrower.

Sure, there’s risk in human performance, but that doesn’t change what the Cubs would have to pay Epstein. So if you’re valuing the liability, the risk-free rate makes more sense.

If instead you’re using the value of the contract as a proxy for the value of the asset, Epstein’s performance, then a higher discount rate makes sense, but in that case I’d also argue that the Cubs expect more in value than what they’re paying him, and so that larger value should be discounted, as that’s their expected benefit.

I haven’t got a good idea on quantifying how much more than the contract the Cubs might value Epstein…

Epstein lays out the historical context:

http://fullcount.weei.com/sports/boston/baseball/red-sox/2012/01/12/theo-epstein-talks-decision-to-join-cubs-carl-crawford-compensation-and-all-things-red-sox-collapse/

Basically, somewhere between nothing and almost nothing.

As we get close to the finish line, I’d like to remind how the NHL handled the improper discussions between new team Blues, and Mike Keenan, still under contract with the 1994-Cup winning Rangers.

http://www.nytimes.com/1994/07/26/sports/hockey-bettman-justice-everyone-loses-everyone-gains.html?pagewanted=all&src=pm

Rangers got young Nedved for two older players, as compensation.  The rest of it was Bettman issuing fines.

But, that’s for a coach that was still under contract, and he never got permission to talk to the Blues.

In this case, permission was GRANTED to Epstein.  How you can have compensation after the fact is bizarre to begin with.

In any case, the fair thing to do is nothing to next-to-nothing compensation.

This thread was started FOUR months ago.  Four months.  Wow.

Anyway, my position still hasn’t changed.

I will say this though: the idea that Bud Selig will determine compensation will always certainly preclude a MLB player.  Some scuttlebutt was Reed Johnson being one of those players.  I can’t imagine a player being treated as something like property any more than a guy who just signed a free agent contract.  The union would have a huge fit over the idea that a guy signs a free agent contract, but then the commissioner will use him to settle a squabble. 

I THINK this should probably preclude ANYONE on the 40-man roster as well.  That is, anyone in the union would have a grievance in being treated as property by the commissioner.  It’s one thing for the teams to agree to a trade of a player, which is something that the players accept.  But, for the commissioner to do so?  Seems outrageous.

In any case, given the huge salary relief the Redsox got out of being let out of Epstein’s contract, and the common practice of all teams to let their people go to other teams (promotion or lateral move), it would seem absurd that there should be anything done here.

But, a token is what will at least happen, and that would mean some prospect that is outside the top 5 of Cubs, maybe outside top 10.

Really, Selig should just establish monetary compensation as an alternative, and let the Cubs choose whether to protect their top 5 prospects, or forego say 3MM$ in compensation.

What about giving the Red Sox’s the Cub’s first round draft pick (sixth overall in 2012 - was a protected pick in the old CBA free agent compensation scheme). There are a lot of precedents for draft picks in baseball (e.g., free agent signings) and other sports (e.g., the Patriots had to give the Jets their first round pick in 2000 for hiring Bill Belichick). I wonder how the value analysis compares a first round draft pick to a year of Theo Epstein?

But the Cubs got permission!

Please, let’s not be ridiculous here.

The Red Sox get Chris Carpenter and a player to be named later. I also think the Cubs are getting a player to be named later.

Carpenter projects as a reliever. Good fastball, but questionable command to put it nicely.

Sanity certainly prevailed.  Sickels has him ranked as #14 in the Cubs system:

http://www.minorleagueball.com/2012/1/6/2688854/chicago-cubs-top-20-prospects-for-2012

14) Chris Carpenter, RHP, Grade C+: Power arm pitched poorly in Triple-A bullpen due to command issues but looked much better in Arizona Fall League. Dominant when his command is working.

***

My guess is that Selig must have asked the Cubs to protect the guys on the 40-man roster, plus another 5 or 10 guys, and then let the Sox choose one of the unprotected.

As I said, I couldn’t see the union allow its members to be used as pawns to settle a “gang rivalry”.

Re-reading this thread, and it looks Selig would make an excellent saberist!  I called for a B-/C+ prospect at best, and that’s exactly what Selig delivered.