Wednesday, August 13, 2014

The Albatross Calculator

This article was originally published at Batting Leadoff on August 13, 2014.

The MLB trade deadline is a natural time to assess the value of a player relative to his contract. Every July, FanGraphs’ Dave Cameron ranks the 50 most valuable players in baseball.  Unsurprisingly, stars like Mike Trout, whose WAR production is far more valuable than his salary, top the list.  Cameron’s rankings are somewhat subjective, but beautifully illustrate the concept of positive trade value.

This year, Cameron also wrote an article on negative trade value, where he estimates the amount of money a team would need to eat to move a large, unproductive contract.  He takes the difference between a guess of what the player would earn as a free agent this offseason and his current contract.  Again, it’s subjective but logical, and has all sorts of interesting applications (for example, could the Dodgers trade Matt Kemp plus valuable prospects for nothing in return, since they would offset each other?)

The cost of a win on the free agent market is the linchpin of trade value, whether positive or negative.  In the recent past, Cameron has estimated that teams pay $6 million per WAR in free agency.  So if Trout produces 8 WAR next season, when he’ll be paid $5.2 million, he’ll create over $43 million in surplus value for his team. However, each team values WAR differently based on its ability to spend (itself determined by market size and the owner’s wealth) and whether it’s trying to win now or later.  To make an extreme example, the Dodgers currently have a much higher valuation of WAR than the Astros, which is reflected in their payrolls.  Accounting for this factor is necessary to more accurately determine the cost of trading a player with negative value.

My model of negative trade value, or “Albatross Calculator,” incorporates an individual dollars-per-WAR estimate for each team, based on the ratio of the team’s opening day 2014 payroll to the median payroll.  It assumes that player salaries (and thus willingness to pay for wins) continue to increase by 3.5% per year, as they have over the past decade.



Then, it multiplies each team’s annual valuation of WAR, starting in 2015, by a player’s future anticipated WAR production (as estimated by Oliver).  Finally, it subtracts the cost of the remainder of the contract to determine the value of the player to his particular team. Let’s use B.J. Upton as an example.  He’s projected to produce 3.2 WAR over the remainder of his contract, and the Braves owe him $46.2 million.  They value 3.2 WAR at $21.5 million, giving Upton a value of negative $24.7 million in their eyes.


 

I used this methodology to evaluate the contracts of 40 players who are highly compensated relative to their level of production.  Before we jump in, a few caveats:
  • I built the list by eyeballing each team’s roster and salaries; don’t email me to complain that I left off your (least?) favorite albatross.
  • A team’s willingness to spend could change markedly in future seasons, which is very difficult to estimate.
  • Oliver estimates assume a full healthy season, and were created before the 2014 season.  When a player’s contract extends past 2018 (the last year of Oliver projections), I assume the player continues declining at a constant rate.  Also, I assume that a team will bench a player with negative WAR.
  • A discount rate on the value of future baseball contracts can’t be directly observed, so this factor is excluded.
Anyway, here’s the list:



The worst contracts shouldn’t surprise anyone: Albert Pujols, Prince Fielder, Josh Hamilton, Alex Rodriguez, and Ryan Howard are each worth less than negative $50 million to their team.  You might be surprised at just how bad the top two are, though: the Angels would pay up to $177 million to dump Pujols, while the Rangers would pay about $96 million to make Fielder someone else’s problem.  (This is after I factor in the $30 million of the Fresh Prince’s contract that Detroit is paying.)

The model perceives Justin Verlander, Brian McCann, and Elvis Andrus as having immense trade value, which in my opinion reflects on the shortcomings of Oliver projections.  They don’t bake in Verlander and McCann’s poor 2014 campaigns, and WAR tends to overvalue defense, where Andrus really shines.

Nevertheless, by estimating dollars-per-WAR at the individual team level, we observe that one’s man’s trash is another man’s treasure.  There are eleven players on the list, like Miguel Cabrera and Adrian Gonzalez, who have negative trade value when you value WAR at the market rate, but have positive value to their team.

This is why albatrosses tend to be traded to big-market teams: they can afford to take on a large contract, and also value WAR at a higher price than the team trading the player.  The Dodgers-Red Sox blockbuster deal in 2012, in which L.A. acquired Josh Beckett, Adrian Gonzalez, and Carl Crawford, is a great example.  The Dodgers were hungry to contend, and the Red Sox were looking to rebuild for future seasons.
We understand that you have to spend money to be good in this league. We understood that before we bought the team. So we're excited.


Magic Johnson, Dodgers co-owner
The Albatross Calculator uses this logic to predict whether a trade between two teams will happen, and how much money the team trading the albatross will have to eat.  For example, let’s say that the Mets want to trade Curtis Granderson to the Giants.  Since the Giants value Granderson’s future performance at negative $15 million, while the Mets value it at negative $29 million, the trade goes through with the Mets paying the Giants $15 million (or giving them players of similar value.)

But if the Mets want to trade Granderson to the Pirates, they would have to eat $31 million.  The Mets would prefer to keep Granderson in this situation, since he’s worth negative $29 million to them.  For the trade to happen under this model, the team acquiring the player has to have a higher valuation of WAR than the team trading the player (assuming that the teams have similar projections of the player’s future performance.)

Screen Shot 2014-08-12 at 2.42.16 PMScreen Shot 2014-08-12 at 2.42.25 PM             

If this model is correct, we arrive at a key conclusion: teams with a high dollars-per-WAR have limited ability to trade albatrosses.  For example, the Yankees value a win in 2014 at $12 million; only the Dodgers have a higher dollars-per-WAR, at nearly $14 million.  So unless the Dodgers have a screaming need for A-Rod or Mark Teixeira, or a smaller-market team has reason to believe that they will return to form, they will remain in pinstripes.

This makes the rebuilding process long and arduous for big-market teams, like the Phillies.  It helps explain why Ruben Amaro’s asking price for Cole Hamels was so high, and why they couldn’t dump any big contracts at the trade deadline.  The Phillies and Yankees will either have to adjust their value of a win downward (i.e. give up on this/next season and contend in later years) or wait for long contracts to expire.

Try out the Albatross Calculator for yourself below - just pick a player and new team!