David's Blog

On this page, I'll share my thoughts, and any articles or information I think are of interest.  Feel free to use the comments section to join in the discussion!


“The numbers that really matter”

 

 

The Value of Deferred Money in the Chris Davis Deal

On Saturday, the Orioles agreed to re-sign star first baseman Chris Davis, and the price tag was staggering given his limited market: $161 million over seven years. Except, they aren’t really paying him $161 million over the next seven years; as part of the deal, the Orioles have deferred about a quarter of the contract, pushing $6 million per year of his annual salary into the years after the contract has expired, and pushing some of it way into the future. Under the terms of this deal, Baltimore will now be sending Davis checks for the next 22 years, with the $42 million in deferred money being paid out from 2023 through 2037.

So while the $161 million number is a headline-grabber, the actual value of this deal is quite a bit lower than that, since money loses value over time. We talked about this last year with the Max Scherzer deal, and not surprisingly, Davis and Scherzer are both represented by Scott Boras; he’s clearly willing to create long-term payment structures in order to get a larger total payout numbers when the deals are announced. And for the owners, these types of deals help them acquire (or retain) star players while potentially pushing the future costs of the deal onto another ownership group; Peter Angelos is 86 years old, and will probably not be alive for the entire duration of Davis’ payments.

But to compare these deferred-money contracts to deals signed where the money is paid out during the time the player is actually under contract, we need to use some accounting techniques to create apples-to-apples comparisons. Using net present value (NPV) calculations, we can measure just how much money the Orioles saved by deferring $42 million of Davis’ contract, and see what an equivalent contract without deferrals would have been.

In last year’s post on Scherzer, I used a 7% discount rate, but that was too aggressive on my part; the league and the MLBPA have agreed to use a 4% discount rate for calculating the present value of long-term deals. Since that’s what they’ve agreed upon, and they have better access to future cash flow numbers than we do, it’s probably best for us to accept their discount rate calculations than argue for some other number. So, using that 4% number, we can calculate not only the net present value of Davis’ deal, but also the equivalent value of different payment structures.

 

Chris Davis Contract Structures

Year

Deferred

Flat

Backloaded

EqualNPV

2016

$17,000,000

$23,000,000

$17,000,000

$21,127,300

2017

$17,000,000

$23,000,000

$17,000,000

$21,127,300

2018

$17,000,000

$23,000,000

$22,000,000

$21,127,300

2019

$17,000,000

$23,000,000

$24,000,000

$21,127,300

2020

$17,000,000

$23,000,000

$25,000,000

$21,127,300

2021

$17,000,000

$23,000,000

$28,000,000

$21,127,300

2022

$17,000,000

$23,000,000

$28,000,000

$21,127,300

2023

$3,500,000

     

2024

$3,500,000

     

2025

$3,500,000

     

2026

$3,500,000

     

2027

$3,500,000

     

2028

$3,500,000

     

2029

$3,500,000

     

2030

$3,500,000

     

2031

$3,500,000

     

2032

$3,500,000

     

2033

$1,400,000

     

2034

$1,400,000

     

2035

$1,400,000

     

2036

$1,400,000

     

2037

$1,400,000

     

Total

$161,000,000

$161,000,000

$161,000,000

$147,891,100

NPV

$126,807,204

$138,047,257

$136,091,513

$126,807,210

Because of the deferred money in the deal, the NPV of Davis’ contract at a 4% discount rate is $126.8 million; that’s the equivalent lump-sum payment that would have the same value as the payment structure he accepted. And this number lines up almost exactly with the number Buster Olney was given by a management source about the value of the deal from their perspective.

Clearly, $127 million is a lot lower than $161 million, and if we just stopped there, it’d be much easier to defend this outlay on the Orioles part. After all, $127 million is almost exactly what I predicted Davis would get back before the off-season began, and that was on a five-year contract, not a seven-year deal. But we don’t want to just take the NPV of this deal and compare it to other total contract numbers, since teams aren’t making lump-sum payments on those deals either. The numbers that really matter are the ones in the other columns; the NPVs of the alternate payout structures, and the total dollars that the team would have had to pay to come up with an equal NPV to this deal.

As you can see from looking at those columns, the NPV of a seven year, $161 million contract with a flat payout structure, paying $23 million per season from year one through year seven, is $138 million. In other words, the Orioles saved about $11 million in long-term value by deferring the $42 million well down the road. The savings is more like $9 million if we think they could have heavily backloaded the deal instead, starting the contract at $17 million but ending up at $28 million in the final two years of the contract; the NPV on that kind of structure would be $136 million.

But the fourth column is probably the one we care about the most. Generally, we care about contract values because we’re using them to answer the question of what else the team could have done, and we want to know the currency value of this contract; what they could have spent on someone else if they wanted to use this money to sign another player, perhaps one less open to deferrals. So, by fixing the NPV at that $126.8 million figure, we can come up with an equivalent total contract number. Using that 4% discount rate on a seven-year deal, a $147.8 million contract with a flat payout structure would have the same value as the contract Davis just signed.

So, realistically, the deferred money in this deal makes this contract equal to a seven year, $148 million deal that was paid out over the time that Davis is required to play for the team. That’s the real value of this deal when comparing it to other contracts signed this winter. Of course, the fact that he didn’t get an opt-out also has to be factored in as a positive for the Orioles, but he did get a no-trade clause, which has some additional value to Davis. No contract comparison is as simple as what we did above, but when looking at the total dollar figures being bandied about, it’s better to think of Davis’ contract as a $148 million deal. That’s the non-deferred equivalent.

http://www.fangraphs.com/blogs/the-value-of-deferred-money-in-the-chris-davis-deal/

 

"Knowledge is Power (and Money)"

January 19, 2016

Baseball Therapy

Let's Figure Out What a Scouting Department's Entire Product is Worth

by Russell A. Carleton

Last week in Federal court, former St. Louis Cardinals executive Chris Correa was indicted on, and pleaded guilty to, charges that he improperly accessed the Houston Astros’ database, Ground Control, on multiple occasions. Before we go any further in this article, let’s get something out of the way. What Mr. Correa or anyone else involved in the case did or did not do is a matter for the FBI to investigate and the courts to adjudicate and I will leave that in their hands. Correa is quoted in the article as saying that he “trespassed repeatedly” and that he accepts responsibility for the case. Everyone else, not surprisingly, has largely declined to say much else.

(And yes, for those of you who are longtime readers of the site, let’s just get this one out in the open. There is a well-known pipeline of people who have previously written here at Baseball Prospectus and who now work for the Astros. Ivery specifically did not ask them anything about the case, mostly because I knew that the answer would be “No comment.” Everything in this article is either a matter of public record or my own conjecture.)

According to the Associated Press:

Among information Correa viewed was 118 pages of confidential material, such as notes of trade discussions the Astros were having with other teams, summaries of evaluations written by scouts of amateur players the Astros were considering drafting; the not-yet-completed amateur draft board for 2014 and summaries of college hitters and pitchers that the Astros regarded as top performers. 

Leaving aside the whodunit details of how Correa gained access to the Astros’ database or what he did with the information, there were a couple of sentences in the reporting that I found endlessly fascinating.

U.S. Attorney Kenneth Magidson said the hacking cost the Astros about $1.7 million, taking into account how Correa used the Astros’ data to draft players.

“It has to do with the talent that was on the record that they were able to have access to, that they wouldn’t have otherwise had access to,” he told reporters. “They were watching what the Astros were doing.”

Ladies and gentlemen, the Federal government has finally gone too far, reaching even into Sabermetrics! It’s the sort of overreach that makes me so angry that I want to occupy a remote wildlife refuge in Oregon. That’ll show ‘em!

Whether the Federal government wants to admit it or not, they’ve accidentally tried to answer one of the more perplexing questions about baseball. How do we place a value on what a front office does? We have really good models for the value of each of the 25 guys wearing the funny pajamas and hats, but what about the contributions of the scout who found him, the minor league pitching coordinator who taught him the wipeout slider, and the analyst who made the crazy algorithm that identified him as a potential breakout candidate?

Ground Control, in addition to being a tribute to the recently departed David Bowie, has been described by Astros General Manager Jeff Luhnow as “the repository of all our baseball knowledge.” And not just that Jose Aluve’s batting average was .313 last year, but also all the juicy stuff that no one else is supposed to see. In some sense, it’s like the Astros collective private diary. A place where they can spill their innermost secrets and not worry about who’s reading it. You can read it and find out whom they have a crush on. It’s supposed to be secret, but someone found the key and read it.

How can we put a price on unfettered, uncensored access to all of an organization’s most private thoughts?

Warning! Gory Mathematical Details Ahead!

Let’s for a moment take a look at the number provided by the Federal government of $1.7 million. According to quote above, that was the “cost” to the Astros based on Correa’s alleged use of the ill-gotten data just in the draft. He may have accessed other areas, but the Feds didn’t include that in the price of admission. Presumably, it means that the Federal government believes that Correa accessed files related to Houston’s preparation for the draft, including scouting reports and preference lists. In theory, there are two ways that Correa could have used the information. One would be that he used the information from the Astros database to strategize on which players to take. For example, if the Cardinals knew that the Astros were interested in Player X, and that the Cardinals were trying to make a decision between taking him now or waiting another round, the Cardinals could have pulled the trigger then, thus depriving the Astros of the guy they really wanted. That doesn’t seem to be an efficient strategy, because the Cardinals still don’t know whether any of the other 28 teams were interested in Player X. (Surely if the guy is any good, at least one of the other teams would have an interest.)

But the other way is that Correa could have used any information he accessed to simply look at someone else’s homework. The Cardinals might have been interested in Smith and/or Jones, and of course, they sent their own scouts out to look at Smith and Jones. But now, Correa could have looked at what the Astros brain trust thought of them. Maybe they had info that the Cardinals didn’t get. By doing that, they were able to grab a guy whom they had rated too low or perhaps avoid a guy whom they had missed something bad on.

Now, it’s not clear from the media coverage what the alleged use was. But let’s play some of these scenarios out. Correa would have had full access to the analogous Cardinals database of scouting information, and so the information from Ground Control would have been a second opinion. That suggests that there was enough data in the Astros records that the Cardinals didn’t have that it was worth $1.7 million extra. You have to figure that the Cardinals and Astros would have had a good amount of the same information. They both have scouts and cross-checkers and all that, so there wasn’t that much extra to be gleaned. Let’s say that for players scouted by both the Astros and the Cardinals, the teams shared 90 percent in common, and so the Cardinals would have gotten the benefit of the extra 10 percent of information. That would mean that the entire Astros database related to the draft would be worth $17 million.

I’d encourage the reader to pause for a moment. The calculations that I just did involve a lot of estimation. Not unreasonable estimation (says the guy who did it), but still not something where I’ll fight to the death for these exact numbers. I think in this case, the more important piece of information is the order of magnitude that we’re talking about. Given our information, it’s likely that the information on just the Rule 4 Draft portion of the database has an overall value that has eight digits in it. That right there is pretty powerful information. Ten to the seventh power.

Now, consider that there’s probably information in there about international free agents, minor leaguers from all the other teams (aka potential trade targets), evaluations of current major leaguers, advance scouting reports, strategic gambits, and a few recipes for chocolate cake. If we make the assumption that all of those “sections” of the database have similar value, then we have a database that’s worth a lot of money. If we consider that the effective job of a front office is to gather knowledge and act on it, and that knowledge is worth eight or nine figures, then a front office writ large is a very valuable thing.

But let’s calculate that the other way around. The Federal prosecutor may have put the value at $1.7 million, based on "the Astros’ scouting budget and the number of players included in the database," but that doesn’t mean that he’s a good Sabermetrician. If we assume that being able to access the repository of a team’s knowledge has added value, we have to ask “compared to what?” We assume that a great deal of the information that would have been available in Ground Control would have been known to Correa anyway. If we’re asking what a front office or a database is worth, we need to know whether the baseline is the general public, or another front office, or whatever the waiver wire/Triple-A/bench equivalent is in front officers, or perhaps the baseline is zero.

It’s a very different question to ask what would happen if some random fan were given access to a database like Ground Control (even magically granting her/him the knowledge he would need to even use it) and how much it would expand her/his mind than how much it would benefit someone who was already on “the inside.” In this case though, the alleged accessor was already an accomplished front office type.

Still, we know that teams are actually really bad at figuring out which amateur players in the draft are going to become competent major leaguers. Mike Trout was taken with the 25th pick in the draft his year. Clayton Kershaw went seventh overall and was the sixth pitcher after Luke HochevarGreg ReynoldsBrad LincolnBrandon Morrow, and Andrew Miller. It looks like there’s a lot of room for improvement for everyone. It’s not just the funny anecdotes that tell the story. Systematically (i.e., when you do the proper #GoryMath), teams are really bad at this stuff. Could peeking at someone else’s homework help… perhaps to the tune of $1.7 million?

First of all, it’s worthless to use the “$7 million per win” reflex here. That’s the price of wins on the free agent market, and in the draft, by definition, we’re specifically talking about gaining control over a player’s cost-controlled years, and cost-controlled years—on average—check in at about half the price per win as free agent years. Still, the $1.7 million value that the U.S. Attorney placed in the information that he alleges that Mr. Correa improperly viewed suggests a value of about half a win. If the extra information helps a team to draft one slightly better player than they otherwise would have gotten, and slightly better being defined as a tenth of a win in each of the six seasons that he’s cost-controlled, then that’s slightly more than half a win. Or another way, if it gives a team a 10 percent greater chance of taking the guy who will actually produce five wins over the course of his first six years rather than the guy who’s a dud, then yeah, that’s $1.7 million. It’s impossible to get a specific read on the matter, but it actually wouldn’t take much to hit the number suggested.

Knowledge is Power (and Money)

I’m sure some of you were hoping that I would value a front office at exactly $73,490,872.39. Sorry to disappoint. But this case gives us a rather unique way to think about the value of the sum total of the collected baseball knowledge of an organization (and by extension, the people who gather it). And while we don’t know the exact amount, a little reasoning puts us in the neighborhood of something in the eight to nine digit range, when you define “information” broadly. Consider for a moment that number is around the same order of magnitude as the MLB player payroll.

There are probably a few wrinkles on this question that might make for some interesting theory. Mr. Correa is only alleged to have hacked into the Astros. What if he could have done the same for the 28 other teams. What would that level of information—perhaps we might call this the “God mode” scenario—have been worth? Perhaps there’s a point of diminishing returns on the scouting side. What would you do with 30 sets of scouting reports on the same player? At the same time, a team would always be able to figure out what exactly would be the best deal that they could get in a trade and they’d have plenty of extra information about the prospects in each farm system.

Fun to think about on a cold January day, eh?

We still don’t know how to divide up the credit among the various actors in the front office. The number of people who could theoretically lay claim to some of that value is rather large. There are the decision-makers, the scouts, video guys, the coordinators, the analysts, the programmers, and anyone else who lent a hand. But it’s pretty clear that the folks who wear the polo shirts with the team logo are about as valuable as the guys who wear the hats with the team logo. The problem is that while the players produce their value out in the open (they charge admission!), the front office guys do it in secret, behind firewalls.

http://www.baseballprospectus.com/article.php?articleid=28251

 

“People have a different definition of what hard work is”

 

Reed Johnson signed with the Nationals in November and hopes to continue his career at the age of 39. Don’t bet against it. The well-traveled outfielder has never been a star — he’s hit .279/.335/.405 over 13 seasons — but year after year he finds a way to earn a job and contribute to a team.

Much of his success — ditto his longevity — can be attributed to his work ethic. As cliched as that sounds, it’s an accurate assessment.

“People have a different definition of what hard work is,” Johnson told me this summer. “It’s said that you go to your grave regretting certain decisions you made, and that’s probably true. But while I think the majority of guys will look in the mirror and think they did everything they could, they probably could have taken it to another level.”

The effort level he espouses doesn’t directly translate to the batter’s box.

“Baseball isn’t like other sports where you can get angry and just run somebody over,” said Johnson. “If you walk up to the plate angry, your at bat is already as good as over. You have to keep your aggression under control, and that’s actually been tough for me at times. I’m kind of a grinder who likes to get into the fight, so to speak. You have to learn how to control that. Sometimes when you’re struggling, you have to back off. Continuing to fight, continuing to press, will only make it worse.”

http://www.fangraphs.com/blogs/sunday-notes-orioles-analytics-freeland-expos-more/

 

“it’s really just a formalized passing out of lottery tickets”

 

 

Will the Ends Justify the Means?

by JEFF WISER on JANUARY 12, 2016 · 8 COMMENTS 

It’s expensive to own a major league baseball team. If I win Powerball, I’ll probably buy a team and move them to Portland, Oregon and call ‘em The Jeffs (but after taxes, shoot, I probably still can’t do it – I’ll start a GoFundMe page for the rest). To own a team, you really need to understand business because the whole thing is wildly complicated. Concessions, salaries, parking, merchandise, arbitration, trades, stadiums and then, oh yeah, the game on the field. If you want a good look at the broader picture, I can’t recommend Jonah Keri’s The Extra 2% enough. You can’t be too weak in any one area or you’ll be taken advantage of, whether it’s through poor signings, lost revenue or, worst of all, being stuck with a losing team. No owner can be expected to know every piece of the puzzle, though, and that’s why they routinely try to surround themselves with smart people they purportedly trust. These GM’s, Assistant GM’s, Chief Baseball Officers, Presidents of Baseball Operations, Scouting Directors and the like come to their positions with a wealth of knowledge. And it’s with the this cumulative brain power that a team is run. The direction in which it’s run, however, may not be such a large, inclusive conversation. The direction is deliberate and is likely dictated by the top few.

Those top few for the Arizona Diamondbacks have elected to try to win right now. Why not? Paul Goldschmidt is an MVP-type player who may end up in the Hall of Fame someday and happens to be in his prime. A.J. Pollock and Patrick Corbinare cost-controlled players that perform at All-Star levels and cost a fraction of the All-Star price. There are some young supports in Jake LambArchie BradleyDavid Peralta and others, while some veterans, like Brad Ziegler and Welington Castillo, add stability. The team was missing a few key pieces and they, by and large, have filled those needs with Zack Greinke and Shelby Miller. Signing Howie Kendrick for second base might be a good idea (emphasis on “might”). Adding another strong reliever or a good defensive backup catcher would make some sense. Every roster could use another piece or two, but as it stands right now, the Diamondbacks appear to be in the thick of it when it comes to contending for an NL Playoff spot, along with the Nationals, Mets, Cardinals, Pirates, Giants and Dodgers. The Cubs are way out front.

Arriving at this juncture has been the result of some parts luck and some parts wheeling-and-dealing. It’s that wheeling and dealing that we should really focus on. Even though I’ve thought about it in the past, it was the most recent episode of The Pool Shot that sort of jogged my memory. Since last April, the Diamondbacks have traded or forfeited the following draft picks:

  • ·        Touki Toussaint, their 2014 first-round pick (16th overall)
  • ·        2015 Competitive Balance B Round pick (75th overall pick)
  • ·        Dansby Swanson, their 2015 first-round pick (1st overall)
  • ·        Aaron Blair, their 2013 first competitive balance pick (36th overall)
  • ·        2016 first-round pick (presumably something like 22nd-26th overall)

Along the way, they also surrendered three cost-controlled years of Ender Inciarteand a year of Trevor Cahill. The latter isn’t a concern of ours going forward, but Inciarte will likely generate $8-12 million worth of surplus value through his arbitration years, assuming his defense holds up. The team did get Victor Reyes back in the Cahill deal but he finished just outside the Diamondbacks Top 30 Prospects and is likely an up-and-down guy and not a difference maker.

So, with all of that out of the way, I think it’s pertinent to try to assess, financially, just what the team has given up in an attempt to win right now. Luckily, there are some estimates that we can use for the value of draft picks, the most abstract item to price. Although Dave Stewart will tell you that a draft pick is only worth what you sign the drafted player for, that’s far, far from true. The draft and it’s slot limits/bonus pools are designed to artificially suppress the bonuses for amateur draftees. Without the draft, there would simply be open bidding for every eligible player. What do you think the result of that bidding would be? Would Kris Bryant have really signed for $6.7 million? I highly doubt it since it wasn’t unforeseen that he’d be producing like a $30 million player in short order. Even though the slots are in place and guys sign for comparatively small dollar figures, they are worth significantly more to an open market given the players’ eventual production versus their actual salaries (Kris Bryant played for the major league minimum last year and will do so again next year, for example).

The works of Ken Woolums at Beyond the Box Score and Matthew Murphy at The Hardball Times give us some important information. First, as the draft wears on, so do the expected outcomes of players picked. There are always a few misses, but for the most part, the best players go early. Check out the production curve from draft picks 1-500:

Expected production tapers off so sharply we can barely observe it. For every type of player (see legend), there’s a really, really steep decline after the top ten picks or so. By the end of the first round, we’re looking at far less-steady outcomes, and soon thereafter, it’s really just a formalized passing out of lottery tickets. The takeaway here is the massive disparity between early first-round picks, mid-first round picks and picks from about the third round on.

Through Murphy’s analysis, those picks have dollar values attached given the expected levels of production associated with each. The first overall pick is worth something in the neighborhood of $45-50 million. The 16th-overall choice is valued right around $12 million. A late first-rounder or Comp A pick is near $10 million in value while a Comp B choice should be close to $8 million. We’ve heard a lot of talk that these figures arelow, but we don’t know by how much, so let’s stick with them and make a mental note that the actual cost is probably something like 10-15% higher.

By my math, the following picks have the following estimated dollar values associated based on Murphy’s analysis:

  • ·        Touki Toussaint, their 2014 first-round pick (16th overall) – $12 million
  • ·        2015 Competitive Balance B Round pick (75th overall pick) – $8 million
  • ·        Dansby Swanson, their 2015 first-round pick (1st overall) – $50 million
  • ·        Aaron Blair, their 2013 first competitive balance pick (36th overall) – $10 million
  • ·        2016 first-round pick (presumably something like 22nd-26th overall) – $10 million
  • ·        Total value of traded picks: $90 million

Again, that figure is low. Also, we’ve seen who Toussaint, Swanson and Blair are as players. The values above only aim to value the pick itself (or the opportunity to make that pick), not each specific player chosen at that slot. We’re being theoretical here. If we weren’t we could argue Blair is probably worth more since he looks like a rotation fixture, Toussaint is a wild card (therefore the pick value applies pretty well) and Swanson is about what you’d expect at #1 overall as a safe bet to produce. These figures don’t appear to be off by much and are, again, probably low by 10-15% in reality.

Now, it’s not like these trades happened in a vacuum. The Diamondbacks saved $8 million of Bronson Arroyo by trading Toussaint and saved $12.3 million in flipping Cahill. Those numbers need to be subtracted from the $90 million above, and we’re left with a cost of, let’s say, a conservative $70 million. Then we figure that the team lost $10 million of value in Inciarte, which brings us back to $80 million in cost. There’s value in opening up Inciarte, Arroyo and Cahill’s roster spots, but let’s just try to keep this simple for now.

The signing of Zack Greinke cost the team $206 million. Shelby Miller will cost about $5 million in 2016 and is under team control for 2017 and 2018 as well. He could make something like $18 million through his three arbitration years when it’s all said and done, and although there’s no guarantee it’ll be the Diamondbacks paying him for all three of those seasons, I think it’s safe to assume that’s at least the plan right now. So if all of this correct, the D-backs:

  • ·        Paid:$304 million between signing Greinke, paying Miller, losing Inciarte’s surplus value and tossing all of the picks above
  • ·        Received: six years of Greinke (age 32-37 seasons), received the rights to three years of Shelby Miller (age 25-27 seasons), got rid of Bronson Arroyo and Trevor Cahill a year early (a year in which the team wasn’t going to be competitive anyways), and received OF prospect Victor Reyes

Of course this leaves a few things out. Yasmany Tomas now gets a chance to play and, hopefully, grow. The bullpen will be less stressed, in theory, because starters can likely carry more innings. There is some star power at play here, and that does help revenues through ticket sales and merchandise sales. I’m certainly not pretending to cover every aspect of this conglomerate of moves, but I think we can put it all together and comfortably say this was a damn expensive way to get an additional five or six wins on the roster.

Maybe that seems unfair. Maybe you don’t think ditching Trevor Cahill had a lot to do with what’s happened this offseason. I can buy that to a degree, but it did allow them to experiment with some other pitchers that have put them in the position they are now. And what the hell? I still can’t, for the life of me, justify the Bronson Arroyo sale with Touki Toussaint unless it was about freeing up cash for this winter (which, in a way, might have been a big impetus for the Cahill move as well). I see this as all interconnected although, perhaps, the strength of connection may vary some. Still, these are awfully expensive puzzle pieces and an admittedly limited return.

If this all works, if the D-backd reach the NLCS at least once in the next two years, there won’t be much, if any, complaining. The fans will get what they want, the organization can say they took their shot, and Paul Goldschmidt gets to add some nice postseason play to his HOF resume in fifteen years. I really hope it does work because, as the Cardinals of the NFL have shown us, the Arizona fan base can be loud and proud. But if it doesn’t, well, you can see that a lot was spent on a little. And in a world where World Series teams can sometimes come out of the blue, betting on such a small window makes me nervous. We don’t know what the future holds, but we know what ithas to hold in order for the ends to justify the means.

http://insidethezona.com/2016/01/diamondbacks-ends-means-trades-signings-greinke-miller-inciarte-swanson-blair-toussaint-bronson-arroyo-sad-trombone/

 

“it’s really just a formalized passing out of lottery tickets”

 

 

Will the Ends Justify the Means?

by JEFF WISER on JANUARY 12, 2016 · 8 COMMENTS 

It’s expensive to own a major league baseball team. If I win Powerball, I’ll probably buy a team and move them to Portland, Oregon and call ‘em The Jeffs (but after taxes, shoot, I probably still can’t do it – I’ll start a GoFundMe page for the rest). To own a team, you really need to understand business because the whole thing is wildly complicated. Concessions, salaries, parking, merchandise, arbitration, trades, stadiums and then, oh yeah, the game on the field. If you want a good look at the broader picture, I can’t recommend Jonah Keri’s The Extra 2% enough. You can’t be too weak in any one area or you’ll be taken advantage of, whether it’s through poor signings, lost revenue or, worst of all, being stuck with a losing team. No owner can be expected to know every piece of the puzzle, though, and that’s why they routinely try to surround themselves with smart people they purportedly trust. These GM’s, Assistant GM’s, Chief Baseball Officers, Presidents of Baseball Operations, Scouting Directors and the like come to their positions with a wealth of knowledge. And it’s with the this cumulative brain power that a team is run. The direction in which it’s run, however, may not be such a large, inclusive conversation. The direction is deliberate and is likely dictated by the top few.

Those top few for the Arizona Diamondbacks have elected to try to win right now. Why not? Paul Goldschmidt is an MVP-type player who may end up in the Hall of Fame someday and happens to be in his prime. A.J. Pollock and Patrick Corbinare cost-controlled players that perform at All-Star levels and cost a fraction of the All-Star price. There are some young supports in Jake LambArchie BradleyDavid Peralta and others, while some veterans, like Brad Ziegler and Welington Castillo, add stability. The team was missing a few key pieces and they, by and large, have filled those needs with Zack Greinke and Shelby Miller. Signing Howie Kendrick for second base might be a good idea (emphasis on “might”). Adding another strong reliever or a good defensive backup catcher would make some sense. Every roster could use another piece or two, but as it stands right now, the Diamondbacks appear to be in the thick of it when it comes to contending for an NL Playoff spot, along with the Nationals, Mets, Cardinals, Pirates, Giants and Dodgers. The Cubs are way out front.

Arriving at this juncture has been the result of some parts luck and some parts wheeling-and-dealing. It’s that wheeling and dealing that we should really focus on. Even though I’ve thought about it in the past, it was the most recent episode of The Pool Shot that sort of jogged my memory. Since last April, the Diamondbacks have traded or forfeited the following draft picks:

  • ·        Touki Toussaint, their 2014 first-round pick (16th overall)
  • ·        2015 Competitive Balance B Round pick (75th overall pick)
  • ·        Dansby Swanson, their 2015 first-round pick (1st overall)
  • ·        Aaron Blair, their 2013 first competitive balance pick (36th overall)
  • ·        2016 first-round pick (presumably something like 22nd-26th overall)

Along the way, they also surrendered three cost-controlled years of Ender Inciarteand a year of Trevor Cahill. The latter isn’t a concern of ours going forward, but Inciarte will likely generate $8-12 million worth of surplus value through his arbitration years, assuming his defense holds up. The team did get Victor Reyes back in the Cahill deal but he finished just outside the Diamondbacks Top 30 Prospects and is likely an up-and-down guy and not a difference maker.

So, with all of that out of the way, I think it’s pertinent to try to assess, financially, just what the team has given up in an attempt to win right now. Luckily, there are some estimates that we can use for the value of draft picks, the most abstract item to price. Although Dave Stewart will tell you that a draft pick is only worth what you sign the drafted player for, that’s far, far from true. The draft and it’s slot limits/bonus pools are designed to artificially suppress the bonuses for amateur draftees. Without the draft, there would simply be open bidding for every eligible player. What do you think the result of that bidding would be? Would Kris Bryant have really signed for $6.7 million? I highly doubt it since it wasn’t unforeseen that he’d be producing like a $30 million player in short order. Even though the slots are in place and guys sign for comparatively small dollar figures, they are worth significantly more to an open market given the players’ eventual production versus their actual salaries (Kris Bryant played for the major league minimum last year and will do so again next year, for example).

The works of Ken Woolums at Beyond the Box Score and Matthew Murphy at The Hardball Times give us some important information. First, as the draft wears on, so do the expected outcomes of players picked. There are always a few misses, but for the most part, the best players go early. Check out the production curve from draft picks 1-500:

Expected production tapers off so sharply we can barely observe it. For every type of player (see legend), there’s a really, really steep decline after the top ten picks or so. By the end of the first round, we’re looking at far less-steady outcomes, and soon thereafter, it’s really just a formalized passing out of lottery tickets. The takeaway here is the massive disparity between early first-round picks, mid-first round picks and picks from about the third round on.

Through Murphy’s analysis, those picks have dollar values attached given the expected levels of production associated with each. The first overall pick is worth something in the neighborhood of $45-50 million. The 16th-overall choice is valued right around $12 million. A late first-rounder or Comp A pick is near $10 million in value while a Comp B choice should be close to $8 million. We’ve heard a lot of talk that these figures arelow, but we don’t know by how much, so let’s stick with them and make a mental note that the actual cost is probably something like 10-15% higher.

By my math, the following picks have the following estimated dollar values associated based on Murphy’s analysis:

  • ·        Touki Toussaint, their 2014 first-round pick (16th overall) – $12 million
  • ·        2015 Competitive Balance B Round pick (75th overall pick) – $8 million
  • ·        Dansby Swanson, their 2015 first-round pick (1st overall) – $50 million
  • ·        Aaron Blair, their 2013 first competitive balance pick (36th overall) – $10 million
  • ·        2016 first-round pick (presumably something like 22nd-26th overall) – $10 million
  • ·        Total value of traded picks: $90 million

Again, that figure is low. Also, we’ve seen who Toussaint, Swanson and Blair are as players. The values above only aim to value the pick itself (or the opportunity to make that pick), not each specific player chosen at that slot. We’re being theoretical here. If we weren’t we could argue Blair is probably worth more since he looks like a rotation fixture, Toussaint is a wild card (therefore the pick value applies pretty well) and Swanson is about what you’d expect at #1 overall as a safe bet to produce. These figures don’t appear to be off by much and are, again, probably low by 10-15% in reality.

Now, it’s not like these trades happened in a vacuum. The Diamondbacks saved $8 million of Bronson Arroyo by trading Toussaint and saved $12.3 million in flipping Cahill. Those numbers need to be subtracted from the $90 million above, and we’re left with a cost of, let’s say, a conservative $70 million. Then we figure that the team lost $10 million of value in Inciarte, which brings us back to $80 million in cost. There’s value in opening up Inciarte, Arroyo and Cahill’s roster spots, but let’s just try to keep this simple for now.

The signing of Zack Greinke cost the team $206 million. Shelby Miller will cost about $5 million in 2016 and is under team control for 2017 and 2018 as well. He could make something like $18 million through his three arbitration years when it’s all said and done, and although there’s no guarantee it’ll be the Diamondbacks paying him for all three of those seasons, I think it’s safe to assume that’s at least the plan right now. So if all of this correct, the D-backs:

  • ·        Paid:$304 million between signing Greinke, paying Miller, losing Inciarte’s surplus value and tossing all of the picks above
  • ·        Received: six years of Greinke (age 32-37 seasons), received the rights to three years of Shelby Miller (age 25-27 seasons), got rid of Bronson Arroyo and Trevor Cahill a year early (a year in which the team wasn’t going to be competitive anyways), and received OF prospect Victor Reyes

Of course this leaves a few things out. Yasmany Tomas now gets a chance to play and, hopefully, grow. The bullpen will be less stressed, in theory, because starters can likely carry more innings. There is some star power at play here, and that does help revenues through ticket sales and merchandise sales. I’m certainly not pretending to cover every aspect of this conglomerate of moves, but I think we can put it all together and comfortably say this was a damn expensive way to get an additional five or six wins on the roster.

Maybe that seems unfair. Maybe you don’t think ditching Trevor Cahill had a lot to do with what’s happened this offseason. I can buy that to a degree, but it did allow them to experiment with some other pitchers that have put them in the position they are now. And what the hell? I still can’t, for the life of me, justify the Bronson Arroyo sale with Touki Toussaint unless it was about freeing up cash for this winter (which, in a way, might have been a big impetus for the Cahill move as well). I see this as all interconnected although, perhaps, the strength of connection may vary some. Still, these are awfully expensive puzzle pieces and an admittedly limited return.

If this all works, if the D-backd reach the NLCS at least once in the next two years, there won’t be much, if any, complaining. The fans will get what they want, the organization can say they took their shot, and Paul Goldschmidt gets to add some nice postseason play to his HOF resume in fifteen years. I really hope it does work because, as the Cardinals of the NFL have shown us, the Arizona fan base can be loud and proud. But if it doesn’t, well, you can see that a lot was spent on a little. And in a world where World Series teams can sometimes come out of the blue, betting on such a small window makes me nervous. We don’t know what the future holds, but we know what ithas to hold in order for the ends to justify the means.

http://insidethezona.com/2016/01/diamondbacks-ends-means-trades-signings-greinke-miller-inciarte-swanson-blair-toussaint-bronson-arroyo-sad-trombone/

 

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