Wednesday, December 18, 2013

By Robert Cunningham, Staff Writer - 

Last off-season the Kansas City Royals consummated a trade with the Tampa Bay Rays where the Royals sent top Major League prospect Wil Myers along with 3 other prospects to Tampa in return for two years of starting pitcher James Shields and SP Wade Davis.

At the time the trade was widely panned as a loss for the Royals and there is a solid case to be made for that determination. The idea that Myers, by himself, has enough potential long-term value clearly trumps the short-term value that Kansas City received in return.

As Dave Cameron of FanGraphs recently pointed out in this article a player like Gregory Polanco, who projects to be average to above average over the next 6 years, will provide approximately $90MM in total value. If Polanco is worth $90MM over 6 years how much is Wil Myers worth?

The answer is probably close to $160MM in value over the next 6 years as roughly estimated in the table below:

This rudimentary evaluation doesn’t even account for the fact that Myers is a potential star player in right field, giving him an unspecified increase in value in terms of rarity and scarcity among all right fielders playing in the game today.

The difference in value of having Wil Myers play over a replacement-level player will likely add an indeterminate amount of value that could push Myer’s total net value closer to $200MM.

You even have to include the value that Myer’s will bring in trade 5+ years from now as, at the very minimum, he will at least receive a Qualifying Offer which will net a first round draft pick and definitely more if he is traded (which he will be without a doubt unless he completely tanks) before his controllable years expire.

So is this the latest market inefficiency similar to what Billy Beane and the Athletics took advantage of in the book Moneyball? Are the Rays (and others) taking advantage of opposing team’s farm systems through excellent in-person scouting and advanced analytics? What are the Rays doing that other MLB clubs should emulate?

The Rays clearly appear to be focusing a lot of resources in their scouting and analytics department.
A low payroll team like the Rays has to survive on a limited team budget which, by necessity, forces them to focus on keeping their farm system stocked full of fresh faces and warm bodies.

This requires good in-person scouting which allows the Rays to determine the player’s mental makeup and their will to win and succeed in the game of baseball. Scouting can see details that the analytics side may not be able to evaluate and account for in a players experience in the Minor Leagues.

However, on the flip side, implementing and using advanced analytics and data mining gives teams the ability to better identify prospects and players that have a set of characteristics or trends that the Rays have determined to be more likely to lead to a successful MLB career.

By doing this over a period of years the Rays have entered a perpetual cycle of contention or what Jerry Dipoto, in an interview with David Saltzer, referred to as a “moving window of contention”.

The Rays have accumulated so many good prospects through the draft and trade that they are now able to consistently put a contending team on the field each year while continuing to trade one or more of their top players each season for more prospects, thus perpetuating the cycle.

This deep farm system increases their chances of finding a potential star type player who can be either 1) be retained on a team-friendly contract through the first couple of years of free agency (e.g. Longoria and Moore) or 2) be retained until their walk year (or even before that) and then traded on the open market (e.g. Shields and Price).

To exemplify this point let’s talk about David Price’s current value:

There is a case to be made that an ace-level starter like Price is a rarity at the position compared to his same age-level peers which could conceivably, along with the fact he will receive a Qualifying Offer when he hits free agency, bring this total net value to just under $40MM.

So to emphasize the point about this current market inefficiency regarding trades of established MLB veterans with limited remaining controllable years for near-MLB ready prospects with many years of control I merely have to point back to Dave Cameron’s FanGraphs post (link above) or the price evaluation of Wil Myers, above:

The Rays are raping the trade market by moving their star players entering their walk years for top prospects that have already survived the lower and mid tiers of the Minor Leagues and are now ready for Major League action.

By using advanced analytics, the Rays are also able to better identify prospects that are more likely to succeed in Major League action which gives them an edge over other organizations and adds more long term value to their already overflowing coffers.

If there is any clear market inefficiency at this point in time it is definitely the prospect trade market over the last 2-3 years and likely for the foreseeable future.

To be fair there probably are some teams that can afford to part with the prospects and/or MLB players to meet the Rays asking price (which is assuredly high if you consider what Shields brought in). These teams sincerely believe in their chances to “win it all” and that is the end goal for all franchises. However they are sacrificing greater real long-term value for lesser real short-term value.

Teams need to rid themselves of the mentality that they need to try and “go for it” in one particular season. This thought process leads to the organization taking a significant step backwards because they end up trading one or more key future players away for a chance to win in one particular year.

Until the other less savvy MLB teams recognize what is happening right beneath their feet, teams like the Rays and Cardinals will continue to maintain a comparative advantage in their farm systems.

The Royals are now stuck in the “win it all” process. They went for it last season and are trying to do it again this season which happens to be the last controllable year for James Shields. It is doubtful that James will sign an extension and will likely leave in free agency after the 2014 season.

Then what will the Royals do? They will be without an ace unless one of their remaining prospects makes a monumental leap to the Major Leagues or they manage to make another trade for an ace-level pitcher which will reduce their farm system once again.

Now of course there were mitigating factors in the Shields-Myers trade. Dayton Moore was desperate to keep his job and he managed to blow enough smoke in the owner’s eyes to accomplish his short-term goal of staying employed.

The long-term damage to the organization, though, can, at least, be measured in the approximate $300MM in value that the Royals sent, in the form of Myers and 3 other prospects, to the Rays in exchange for the approximate $50MM in value they received back in the form of Shields and Davis.

It is not even clear if the Royals got enough team success out of the trade to even call it a short-term win for the team.

Now the Royals may have felt that they have sufficient prospects in their system to fill in the long-term holes that losing Myers and company created but it doesn’t appear so when you glance at their farm system and it is hard to justify that they have anyone who is even comparable to Wil Myers anywhere else in their farm system.


This idea about writing and discussing this potential market inefficiency came to me when I was writing and developing the ‘Hot Stove Trade Specualtion’ series. As part of that series I developed a spreadsheet for determining rudimentary player value in terms of total dollars across the length of their current contracts or arbitration years.

Looking at established player values versus what they returned in trade grabbed my attention because top end prospects are pretty much ready to play in the Majors and their long-term value, based on my Excel calculations, were clearly not syncing up with the smaller value they were being traded for in the form of a MLB ready player with ½ to 2 years left on their contract/arbitration clock. I expected this result but not the wide disparity in value.

The example that I used consistently in that series was the deadline deal that the Cubs and Rangers executed near the trade deadline in 2013 where the Rangers overpaid for a half-season of Matt Garza (the Angels are also guilty of this with the Greinke-Segura deal).

That half-season of Garza probably was worth about $5MM in total value. Mike Olt, alone, will probably return at least that value if not more. There were 3 other prospects the Cubs received in that trade.

Will all of them pan out? No, probably not. But the Cubs almost assuredly extracted top value out of that deal, as they rebuild their system (and are doing it rather well I might add).

I had put this article on the back-burner but then well-respected member Dochalo brought up a similar point regarding his notion that the Angels should sign Stephen Drew and then trade Erick Aybar for a good prospect.

His opinion was that if Erick could bring back a good prospect that would negate the loss of a first round pick that the Angels would have to give up in next year’s First Year Player Draft. It would even mitigate some of the risk of prospect flame-out in the farm system.

Dochalo’s thoughts were aligned with the current, apparent market inefficiency in terms of prospect value and risk mitigation. In the end there are teams like the Rays who are cherry-picking other team’s top prospects by selling off a current MLB veteran with shorter contract length and higher salary, albeit with a track record of more proven performance.

To Jerry Dipoto’s credit he recently did this exact thing by trading Mark Trumbo and A.J. Schugel for Tyler Skaggs and Hector Santiago. Using my simple estimations, he has added potential long-term value by moving about $40MM-$55MM (Trumbo and Schugel) for $64MM-$78MM (Skaggs and Santiago) in this trade with a lower degree of risk as both Skaggs and Santiago have already dipped their feet in the Major Leagues.

It appears some teams really look at their prospects as pieces on a chess board rather than itemized lines on a balance sheet. That may be an overly dramatic and/or possibly boring statement but I think it points out the observation that there are teams that look at Wil Myers as a more generic asset with less value and others that look at him as a high impact asset with more value.

If a team, like the Angels, really wants to build long-term sustainable success they need to continue making well-timed trades similar to what they just did with Mark Trumbo where they move a redundant MLB veteran for one or more near-MLB ready prospects or high-quality projectable prospects from the lower levels of the Minor Leagues.

Dochalo’s alternative, especially for a large-payroll team like Anaheim, might also be to trade a regular position player for prospects and then sign a replacement player out of free agency with a draft pick loss attached. There is a plausible case to be made that a club like the Angels, that wants to compete and win in 2014, would benefit in the short-term and would likely still win out in the long-term by losing that draft pick.

Any further evaluation would need to look at the recent history of trades to determine the relative values traded and whether or not the teams benefited in the long-term as this potential market inefficiency suggests.

It may be more difficult to evaluate Dochalo’s notion because the Qualifying Offer is a more recent artifact and is different from the old Type A/Type B compensation system that was in place previously.

The reason that this apparent market inefficiency seems to be working well in the present is probably more related to better scouting and even better analytical systems. The last part can’t be dismissed because the Rays are clear leaders in the saber metrics revolution and they are the one organization you can point to that is making some of the savviest and valuable trades in baseball at this time.

Market inefficiencies come in many different forms whether it is a depressed value market for players with high on-base ability or a wild value imbalance in the MLB veteran for top-end prospect trade market.

Thankfully the Angels appear to have a GM, in Jerry Dipoto, who recognizes some of these trends and is willing to take action on it now and in the future. Jerry is still relatively new to the GM position and these types of culture changes and long-term strategic goals take time (years) to implement and execute on, so fan patience is the operative words for the foreseeable future as the Angels try to be just as savvy and smart as the Rays have been in the past few years.
Love to hear what you think!

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