The Beginner’s Guide to Understanding Trade Value by Neil Weinberg January 23, 2015 If you’re not someone who comes up with trade proposals, you’re someone who reacts to trade proposals. It’s one of the great baseball fan parlor games. They’re everywhere. They populate our chats, they dominate Twitter, and they even sneak into real live interpersonal communication. Would the Nationals trade Strasburg? What could they get? Who would they want? These are all very interesting questions, and while most trade ideas disappear into the ether, plenty do come to fruition. We talk a lot about trade value on FanGraphs because a lot of our writers care about the roster construction aspect of the game. Certainly we cover what happens between the lines, but there’s a lot of interest among our readers regarding how those players happened to wind up on the teams in question. Every summer, Dave Cameron runs a trade value series where he ranks players based on his reading of the baseball landscape. Jonah Keri has a similar series at Grantland every winter. This is a topic that generates lots of interest, so this post is going to lay out the variables you should consider when pondering what a player is worth to the rest of the league. Typically at FanGraphs, you’ll read a lot about something called surplus value. Think of this as an approach to understanding trades. You ask how many wins a player will add to your team and how much they will cost, and then you find trade partners who are willing to pay that price. But there are other ways to think about trade value aside from surplus value, even if surplus value does tend to dominate the conversation and we’ll see those pop up as we walk through some of these factors below. Current Talent Level This is the easiest part of the equation. How good is the player right now? If another team was going to acquire this player, what kind of performance could they expect in the coming year. Some people will use a projection system to answer this question, some will just look at their most recent couple of years, and some will use basic intuition. No matter the method, you need to have some estimate of the player’s current ability. Length of Contract/Team Control When you trade a player, you aren’t simply trading him for the next season, you’re trading him and everyone else involved for the entire duration of their contracts. This isn’t news to anyone, but it’s something you have to consider. Of course David Price is a better pitcher than Drew Smyly, but there’s some value in acquiring multiple years of Smyly, et al versus having one and a half years of David Price. Salary/Expected Salary Here’s where things start to get controversial with respect to surplus value. No one really argues about the first two variables. The quality of the players and how long you have them are universally accepted as relevant. But the cost of those players in terms of dollars is where things get interesting. From a surplus value perspective, we would care about how much production you’re getting for a certain price. You might trade a 3 WAR player making $15 million for a 2 WAR player making $3 million because you can easily go out and spend that $12 million on a player who provides at least 1 WAR. The reason salary matters with respect to trade value is because financial savings can be put toward the acquisition of other players. There’s no doubt that you’d rather have a 4 WAR player at $5 million a year than a 4 WAR player at $10 million a year, but would you rather have a 4 WAR player at $5 million a year or a 5 WAR player at $15 million a year? How much is that extra win worth to you? At the moment, you should be able to find at least 1 WAR for $10 million a year, but the second player is better and you may not value the dollars as much as you value the actual production, depending on many factors. This is essentially the argument against surplus value. Efficiency is nice but the goal is to accumulate wins, not to accumulate the cheapest wins. Defenders of surplus value will say that an efficient team can allocate their savings to buy additional wins. Age Age is very important because two players who are equally talented, cost the same, and have the same number of years of control left may be trending in opposite directions given their age. Age is more or less a catch-all for “long-term projection.” A 5 WAR player who is 24 years old is much less likely to decline in year two or year three than a 5 WAR player who is 29 or 30 years old. Even if they are equally valuable for the coming year, one of the players is going to get worse more quickly, making their trade value lower. There’s no perfect way to forecast aging and decline, but it is foolish to expect a player to remain at their current production level until their retire. This is likely why people overvalue aging players on the trade market. They have been very good in their careers, but by the time their team wants to trade them, they are shells of their former selves. Scarcity/Need Trade value isn’t just about the player in question, it’s about the other available players. This is why teams pay higher prices when they trade a player at the trade deadline. There are fewer good players available to acquire. If there are five or six really good pitchers on the market at one time, the trade value of those pitchers will go down individually. If, instead, there is only one great pitcher on the block, that player’s trade value will increase simply due to the market forces in play. Additionally, if a player can play multiple positions or has some skill that allows him to be a fit for more teams, their trade value is higher, even if it doesn’t mean they are worth additional wins in an absolute sense. There are just more teams who can find a way to insert them into their lineup. Marginal Upgrades In the same vein, teams who are close to the line between making the playoffs and missing out will pay more for upgrades than other teams due to the massive benefits of winning a few extra games. This essentially means that while a win has a certain price on the open market, the team that is likely to win the bidding is the team that has the most to gain from the acquisition. This is why good teams add players at the deadline and bad teams sell. The difference between 70 wins and 74 wins is minimal, but the difference between 85 wins and 89 wins has the potential to be enormous. Uncertainty and Risk To this point, the entire conversation has been about our expectations, or our average forecast. But two players who project for 3 WAR might have a very different range of possible outcomes. One player might be a mortal lock for 3 WAR unless they get seriously injured and one might have the talent for 5 WAR but the flaws to make 1 WAR much more realistic. They might be the same on average, but the volatility makes them more or less desirable to certain teams. Time Some teams are built to win today and some are trying to rebuild to win two years from now. A great player with an expiring contract is worthless to a team that has no shot at the postseason, but that same player is very valuable to a team trying to secure a division title. This is why we see teams trade veterans for prospects. The bad team has no use for the great player and the good team cares about winning this year and the prospects can’t help them with that. Conclusion None of these factors are surprising if you’re a student of the game, but it’s important to think through all of them whether you care about efficiency or raw win totals. You need to consider how good a player is, how you expect them to perform in the future, and how long they are under team control. Teams that intend to compete immediately care much more about adding wins in the short run and teams that are planning ahead care about adding players who will be good in the future. But the nature of the market also dictates a player’s actual trade value. When Dave ranks players, he’s basically looking talent, contract, and “age.” He’s assuming everyone is involved in the bidding because he’s really writing about the best contracts in baseball. Yet when it comes time to actually make trades, the circumstances will play a role as well. To receive maximum value for a player, you need to find a trade partner who needs your player and has the return you want. A player is valuable on the trade market if they are 1) good 2) cost effective or 3) useful to many teams. Would you rather have a 1 WAR player at $6 million a year or a 4 WAR player at $24 million a year? In terms of $/WAR, those are a wash. You can take your savings and spend it elsewhere if you need those 3 WAR, but in terms on field value, the second player is obviously better. Teams generally think in terms of surplus value, but it’s not a race to efficiency either. Some teams are more interested in using their financial resources and some are more interested in getting the most bang for their buck. But no matter the philosophy, trades are about talent, control, and cost for the player and then a set of market forces. This is important to remember when thinking about Cole Hamels or Stephen Strasburg on the trading block. Of course they are great pitchers, but their trade value is dictated by how much you have to pay them and how long you have them. A team isn’t going to trade elite prospects for Cole Hamels, for example, because they could have acquired a similar pitcher (Jon Lester) for $40 million more than Hamels’ salary. Miguel Cabrera is still one of the best players in baseball, but he’s owed more than $300 million. Bryce Harper isn’t as good, in all likelihood, but there’s no way the Nationals would trade Harper for Cabrera right now. The difference in talent simply does not make up for the difference in cost in many cases.