THE BOOK--Playing The Percentages In Baseball

The ordering of the list threw me off a bit - particularly the Werth rationale. His contract isn’t as bad as Crawford’s because they knew Werth wasn’t all that good in the first place?

---

As is the case with many prospect trades, it doesn’t necessarily make sense to limit the analysis to a question of production value. The ~12 years of production from a pair of blue chips may often exceed that of the star traded for, but if a world series is won, it’s “worth” it. Most of these major deals seem to operate on the same paradoxical premise: ‘overpaying will be worth it’.

It’s complex but at the same time the concepts are simple.  First, you have to ask what the utility or goal is.  It could be maximizing profits or it could be maximizing chances of going to the post-season, it could be simply maximizing some other aspect of winning (e.g., wins per season), or some combination thereof.  The funny/sad thing is that I think that many teams themselves don’t know what the hell their utility is.  Don’t forget that many of the teams are owned/run by very rich men with very large egos who do not necessarily have any idea how to successfully “run” a baseball team (whatever that may be).

Now, even if you identify your utility, it can still get complicated. For example, say I want to maximize profits.  How much risk/fluctuation am I willing to take.  A simple general example of that would be, “Would you rather have 1000 in your pocket or roll a die and if it comes up 6, you get 10,000 and if it comes up any other number you get nothing.” What about if I maximize profits for the next 2 years, but that hurts my profits in the following 5 years?  Teams, like most businesses, have to look very far into the future when making every-day decisions.

If a team is only interested in maximizing profits, then the maximum value of a player/win is very different for different teams (depending on the size of their revenue stream and how sensitive that is to winning). It might be 10 mil for the Yankees and 2 mil for the A’s.  So if I am the Yankees, how do I decide how much to pay a player?  If a win is worth 10 mil, then I can pretty much get any player I want, but at the same time, if I can get a player or players for 6 mil a win, why should/would I pay 10?

And if I am the A’s and a win is only worth 2 mil to me, what the heck am I supposed to do?

Then when you throw in the idea of the value of a win being very variable for all teams depending upon my expected win total with or without that win, and thus my chances of getting into the post-season (the so-called notion of a “sweet spot"), things get even more complicated.

If I owned a team, I would certainly have some kind of economist or someone like that working for me.  Then again, if I were a billionaire and I just wanted to win a championship or at least field a popular, winning team, I might just wing it like I think many owners do…

Also, just so people understand, there is no magic to an aging player who is getting paid way more than his expected performance would command on the FA market. You play him or don’t play him the same way you would play or not play the same player regardless of how much he was making.

There is nothing special about his trade value either. The difference between a home that is under water and a player that is under water is that you can walk away from the home and not pay the mortgage (if you don’t mind a foreclosure on your record, plus in some states, the lien holder can sue you for the money owed less the value of the home in a foreclosure sale), but you have to pay the player no matter what.

That means that the player always has “trade value”.  For example, let’s say that you have a 1 WAR player and you owe him 15 mil.  Let’s say that another team wanted this player and hopefully, they overvalue him or they can afford to play more for that win than you can or want to.  How much would you subsidize that team for that player’s salary, while giving them that player? It is simple. If you typically pay 4 mil for a win and can replace that player with another 1 WAR player (or not) for 4 mil, then you subsidize the team that takes the player for something less than 11 mil.  Or you trade for another one win player who is making less than 15 mil. Or any combination of players and salaries that has more equity than negative 11 million dollars.

And yes, it is likely that all of your FA players signed to long-term contracts will be well over-paid in the last year or two…

What is the downside to paying it in decreasing salary per year, like the Yanks are doing with Arod:
08:$27M, 09:$32M, 10:$32M, 11:$31M, 12:$29M, 13:$28M, 14:$25M, 15:$21M, 16:$20M, 17:$20M
-
I understand a dollar today is worth more than a dollar tomorrow, but why don’t more teams do this so they are paying more in line with what the player is actually producing?

I don’t think the player thinks in terms of present-day value.

Let’s say he should get paid like this:
20
17
14
11
8
5

That’s a total of 75MM$.

The present-day value of that, given 3% discount, is 71MM$.

If he gets 12.75MM$ per year, that’s also a present-day value of 71MM$.  Total cash outlay however is 12.75 x 6 = 76.5MM$.

So, which would the player rather have?  76.5 or 75?

He’ll choose the 76.5, even though it’s the same thing as 75.

Also it shouldn’t matter to the team so why should they do that?  Plus no player wants to think that he might only be worth 5 or 6 mil in the last year of his contact.  He might consider it an insult to have a contract structured like that.

wouldn’t it also matter for luxury cap considerations? Say you have a team that in two years you think is going to be contending for a WS (presumably because there are a lot of good players on it, who will be in their primes around the same time). If you were paying players what they were worth that year, it might be hard to also sign the FA pitcher in his prime. But if you can spread it out over five years, then you never reach the luxury tax level.

Sure, there are probably some other subtle considerations…

It *shouldn’t* matter to the team, but in reality, I think it might.
Teams keep the bad contracts on the roster when they should probably release the player, but don’t want to eat a lot of money.
Paying $20m in year 1 (Tango’s example) allowing the team to only have $5M in the final year, might make the team less likely to keep the albatross on the roster (not to mention, easier to trade).

It shouldn’t really make him easier to trade.

So that you want to get rid of the guy in his last two years.  He’s got 13MM$ of value left, but 25MM$ due to him.

But in the first 4 years, he generated 62MM$ of value, at a cost of only 50MM$.

Therefore, the team accepting the player knows that the team who had the player has a surplus of 12MM$ whose payments was deferred to the last 2 years.  They’d expect those deferred payments to STILL be picked up by the original team.

That said, it MIGHT make it easier to trade him if the contract was initially structured as I laid out, and the player’s performance progressed as we’d expect.  There’s no implied deferrment under the structure I proposed.

I think it makes more sense from a fan perspective.  The fans simply miss the boat on the implied deferred payments, and simply look at it as an albatross in the last couple of years of the contract.