Last week, we did a lot of discussion about trades and whether or not the moves the Marlins made came out to be fair for the Fish. Often times, people are quick to declare a "winner" or "loser" to a trade, but teams are often more than aware of the value of their players in the trade market, and last week we saw a number of deals that were mostly fair for both sides.
We discussed a lot about the term trade value, but we never actually clearly defined it last week. So with the trade deadline approaching and the Marlins considering a number of moves, including potentially moving ace starting pitcher Josh Johnson, this seems like a good a time as any to discuss just what trade value means when discussed here at Fish Stripes. Trade value ultimately comes down to two attributes of a player: how good is he and how much money is he being paid.
Trade Value Primer
The idea of "trade value" has been bandied about in a lot of places before, and not just with regards to baseball. Dave Cameron of FanGraphs has had an ongoing trade value series (check out the top five of this year and a familiar Marlins name will show up), and the idea for that series came from Grantland's Bill Simmons's annual trade value series in basketball (here's an example of that column from this past season). So the idea isn't foreign to anyone, but how exactly can you quantify a player's trade value? There is a numerical method, and of course there are a few qualifies to be made about it.
(Editor's note: This is fairly lengthy, but very informative. Not a lot of numbers though, and they are easy to understand -MJ)Remember that we said we need to know how good a player is and how much money (and for how long) he is being paid. How can we tell how good he is? The value of every player is measured in wins, and in this particular case we compare those wins to a baseline and call it Wins Above Replacement. If you are an avid reader of this site, you will have already heard of Wins Above Replacement, or WAR, but here is a quick explanation by FanGraphs's Steve Slowinski of FanGraphs's version of WAR, and here is Sean Forman explaining Baseball-Reference's version of the stat.
WAR is representative of a number of wins a player adds to the team. That can give you an idea of how valuable a player is to that team, but those wins can be acquired a number of ways. If you are a rich team like the New York Yankees (or the Marlins this past offseason, apparently), you can purchase a lot of win in the free agent market. Those wins are the most expensive, but they are available to all teams willing to fork up the price. If we predict the number of wins free agents will produce and divide that by how much money they will make in their new contracts, we can get an estimate of how much a win or WAR costs in free agency, where it is available to all teams. We can then apply that to how many wins we think a player will provide to see how much monetary value that player is providing the team in free agent dollars.
But not all players are acquired in free agency, and that is where the second part of this trade value equation comes. Teams get players in other ways. For example, Giancarlo Stanton was drafted by the Marlins. The team will be paying him the rookie minimum or around that much for three-plus seasons, including 2010, 2011, 2012 and likely 2013. Then, the club will have him for three more years in arbitration which will pay him a lot less than the free market. In total, Stanton may make $32 million in approximately six seasons of team control. But because we know Stanton is so good, he would produce a lot more value in terms of wins to the Marlins during that same time period.
The difference between the value of the wins a player produces and the value of his contract or how much he is paid is his trade value.
The idea makes sense. If you acquire an asset with some positive trade value, you can theoretically turn around and use that money saved on those wins to acquire more wins in the free agent market. Thus, you can turn $10 million into $15 million worth of wins if you have a player creating $10 million in wins being paid just $5 million.
There are some interesting implications of this idea of trade value. One thing you can clearly tell is that players who have "fair" contracts purchased in free agency would not have a lot of trade value under this method. If they are expected to produce a certain value in wins and they are being paid fairly for that value, then theoretically they would have no trade value. Tom Tango explains it best here:
In our reality, this would be like Oprah Winfrey owning her estate worth 120-200MM$ with a 160MM$ mortgage. And me owning a 0-40MM$ mansion, with no mortgage to speak of. According to the process laid out by Dave, Oprah should trade her mansion (and mortgage) to me for my mansion.
Oprah in his example has little or no trade value for her mansion. Tango, on the other hand, owns a mansion with no mortgage payments to be made but one that still holds value. Which one do you think is more valuable?
That means that guys like Prince Fielder (currently in the first season of a nine-year, $214 million deal) would have no trade value or even negative trade value despite being an excellent player. And to some degree, you can see that teams feel that way. We all discussed how "untradable" certain free agent contracts like Fielder's or Albert Pujols's were going to be, and the fact that they could not be traded is due to this principle; why would anyone give players or prospects of value to a team for the right to pay a Fielder or Pujols?
That also means the opposite for guys who are under team control for cheap prices and long periods of time. The reason why young, elite players like Stanton are so hard to acquire via trade is not because they are young or elite, but rather because they are elite and not earning any money relative to how good they are. Look at the top five players of the FanGraphs trade value series again. Two of them are elite players locked up in favorable extensions. Three others are equally elite but in pre-arbitration. None are making more than $10 million a season. While guys like Joey Votto and Miguel Cabrera do still hold value, their contracts make them worth less than the top five guys on that list.
There are some qualifiers to be made with regards to trade value. After all, if we all agreed on how to value player assets in trades, the trade deadline would be a lot easier to navigate. One wrench in the equation is that teams individually may value wins differently. A team like the Miami Marlins may not see the value of acquiring current wins and may thus drop the value of any wins in 2012 because of the relative unimportance. On the other hand, a team on the cusp of a playoff spot like the Pittsburgh Pirates might find a win much more valuable to acquire and may be willing to give up more to pick up that extra win. So depending on where you are on the win curve (how competitive your team is), you may be willing to pay more to acquire an extra win if it means an extra few percentage points in your chances for the playoffs.
On the other hand, there is an issue with positions and scarcity in available players. There were a number of rumors regarding the Philadelphia Phillies's Cliff Lee possibly being traded. Lee is in his second season of a five-year, $120 million contract. Let's assume the contract pays Lee fairly for his production (I for one believe it does). Theoretically, teams should not be willing to trade valuable assets for the right to pay Cliff Lee, no matter how good Cliff Lee really is. But the problem is that their alternative is not to go to the free agent market and purchase an equally good pitcher with the money they might have paid Lee, because no such pitcher is available. Because of the scarcity of five-win pitchers in baseball, teams in the market for that kind of player may be willing to pay a premium even for a guy in a fair contract because they cannot shift that money into an equal player at a position of need.
Josh Johnson's Value
What does this all have to do with Josh Johnson? We saw a Tweet from CBSSports's Danny Knobler earlier today.
Some saying that Marlins want more for Johnson than Brewers got for Greinke. One rival official: "I think Zack has a Cy Young at his house."— DKnobler (@DKnobler) July 28, 2012
The implication by this scout here is that Greinke is a better pitcher, so the Marlins would be crazy to ask for a better return for Johnson. This would be true if both players were being paid the same amount for the same amount of time, but while Greinke and Johnson do have similar contracts, Johnson's deal lasts through 2013. Therefore, he may hold more trade value even if Greinke is a better pitcher and produces more wins.
Let's estimate the difference between the two. Greinke is expected to produce a 2.92 ERA for the rest of the season, estimated at 77 innings. In this environment, that may be worth 2.2 wins the rest of the way. If you take the value of a win this year at $4.8 million, Greinke provides $10.6 million in value for his wins. But he is also being paid $5.1 million the rest of the way, yielding a trade value of $5.5 million.
What about Johnson? Johnson is actually projected to be better by ZiPS at a 2.79 ERA, but let us assume he is worse and make him a 3.00 ERA pitcher. If Johnson throws 53 innings for the rest of the year (accounting for injury risk), he would be worth 1.4 wins and $6.7 million while being paid $5.2 million, yielding a value of $1.5 million. But with his 2013 season, he provides even greater value. Assuming he is healthy enough to pitch 170 innings, he would produce 4.5 wins ($22.5 million in free agent value) and be worth an additional $8.8 million in trade value, thus giving him the overall edge over Greinke. In fact, to lose to Greinke, Johnson would have to pitch less than 130 innings next season.
That is how trade value can be derived. You can see that front offices already do this sort of thinking naturally when they consider contracts and player talent when evaluating trades. Just keep in mind the restrictions to this numerical analysis and you should have a firm grasp of any deadline deals that go through. If you think of trades this way, you will often find that many are more fair than they appear.