JABO: Everyone is a Prospect
It’s prospect season. Over at FanGraphs, we released our Top 200 Prospects list yesterday; last week, Rob wrote about flipping through the recently released Prospect Handbook from Baseball America. It seems like everyone is currently in the process of ranking and grading minor leaguers, speculating about which ones are going to become the stars of tomorrow.
But as Rob pointed out last week, most of the guys we’re so excited about now are never going to pan out. Quoting his piece, which in turn quotes BA’s Handbook.
“In the 2011 Prospect Handbook, we detailed the depth of the Royals’ top-ranked farm system, which we also featured on the cover of the March 2011 issue of Baseball America magazine. No team had ever placed nine players in Baseball America’s Top 100 prospects before, and group – both as big leaguers and through trades – helped form the core of the Royals’ 2014 American League pennant winners.
Turning a losing franchise into a winner – that’s why prospects matter.”
Here are those nine guys who made the Top 100 list: Eric Hosmer, Wil Myers, Mike Moustakas, John Lamb, Mike Montgomery, Christian Colon, Danny Duffy, Chris Dwyer, Aaron Crow.
I will pardon you for being underwhelmed.
Rob is right; the Royals had one of the most celebrated farm systems of all time, and a majority of their prospects haven’t done jack squat in the big leagues. Some of the guys who weren’t as highly heralded have become stars, and the Royals are absolutely an example of why prospect development can help turn a franchise around, but even in boasting of a clear success story, there are examples of failure everywhere.
In fact, according to most of the research done on prospect rankings, the failure rate for players ranked within Baseball America’s Top 100 approaches 70%. Even selecting the cream of the crop, theoretically the guys we should have the best information on, seven in ten fail to become significant big league contributors.
This seems like a lousy success rate, and it’s one of the reasons why there is significant pushback against the rising valuations teams are putting on minor league players with no big league track record. For example, the Phillies have been frustrated by the market’s unwillingness to surrender the kinds of talent they believe Cole Hamels is worth, and likely the kind of return he would have brought even a few years ago. The relative values teams are placing on on big league stars and minor league prospects has shifted towards the young kids, even as most of them continue to fail.
Even JABO’s own Ken Rosenthal has argued strongly that prospects are currently being overvalued in trade negotiations, and that teams should not be so afraid to part with their best young talents. That 70% failure rate supports these suggestions; why be so attached to an asset that is more likely than not going to lose all of its value?
Read the rest on Just a Bit Outside.
Dave is the Managing Editor of FanGraphs.
I think this is a pretty weak argument.
Dave, it feels like you did the research, it didn’t actually pan out to show what you wanted it to show, and yet you published the piece anyways because you had done the work. Do you really believe 25% is isn’t all that different from 70%?
Of course the “bust” rate of MLB veterans is higher than 0%, I don’t think anyone would have claimed otherwise. But it does seem like a 75% chance of getting league-average performance or better from Cole Hamels is worth a couple of prospects who are 70% likely to flame out, so I see where the Phillies are coming from on this one.
So the other GMs are being unreasonable for not giving Ruben what he wants?
I think an unstated premise is that veterans are often being paid as such. In managing risk/reward, a 25% bust rate of a huge contract can easily hurt a club more than a 70% bust rate of a much smaller contract. So, essentially, clubs would be giving up their 30% chance at a great value for a 41% chance at an above average league performer (for 3 seasons) who likely is being paid like a top 100 player.
Exactly. If Amaro were offering Hamels and enough money to cover the vast majority of his contract, obviously any team would be willing to give up two top prospects for him. But instead, Amaro is offering clubs the chance to pay Hamels like the star he is. Even if strict surplus value calculations can’t account for the rarity of true ace pitchers, they are surely heading in the right direction by showing that Hamels plus contract is not a Top 50 value in baseball.
Clearly the contract of a veteran like Hamels is one factor — but how much are top-spending teams really concerned with $/WAR? Typically, if they have an opportunity to spend money to improve the product on the field, they do so.
Instead, it seems to me that teams like the Red Sox are actually counting on prospects to contribute significant on-field value (as opposed to just surplus value) — and the data indicates that’s probably not the right approach.
Every team is concerned with $/WAR. Every one. And many GMs have talked openly about it.
That doesn’t make it the *only* priority! which is where you’ve confused yourself. But it’s a significant one.
The other side of the argument is that there is a 30% chance for hamel busting the next 3 years or being an average major league player (40%) all the while being paid 20 mil a year
Exactly what Unagi says. If a prospect busts, you dont really lose anything (considering they were likely to bust anyway). However, if they succeed you have one of the most valuable commodities in baseball: cheap talent.
If a veteran busts you are replacing him with AAAA talent and losing the contract you signed him for (which isnt significant).
You lose the veteran you traded plus the extra money you kicked in … Is what has been proposed for Cole Hamels.
Yes, but the calculus is different for a losing team. You gain virtually nothing by keeping Hamels. To the extent he performs well, he takes away from your turnaround. .500 is worse than .400.
Other important things:
~We can often identify which veterans are going to bust purely through age.
~The ‘Top 100’ rankings obscure that the bust rate is sharply lower for the true ‘top’ prospects–the guys in the top ten.
~The payoff is larger for prospects due to excess value on minimum contracts.
~We shouldn’t even be looking at bust rate–we should be looking at expected value.
~Every team is going to believe it more accurately assesses its own players than the rest of the market. Given that the information asymmetry is at its most acute for minor league players, many teams probably end up valuing their own prospects more than anyone else.
The list of bust MLB veterans isn’t exactly a list of old guys. Yes, older players in general are more likely to decline than to improve, but young players fall off a cliff all the time as well.
Agree. 25% is really low considering he’s just using a top 100 performers list and not even considering injury history, scouting, or age. This actually makes me value prospects a bit less.
Paying the FA salaries of top 100 players and getting average or worse performance would be disappointing…doing that while also giving up cheap, young talent makes it worse.
If only 41% of the top 100 players maintain above average performance, and remember, by definition 50% of players are above average, and those players come with much higher salaries (as they are the best players in baseball)…that makes me value “proven vetarans” less than I would have.
This is gonna get hate for the last sentence, but otherwise this is a solid comment.
It’s solid in that it is not an obviously silly comment. But, I still think it is wrong. As pointed out a couple of times above, veterans get paid significantly more than prospects expect to make while under team control. Because of this, the bust rate of 25% for veterans might actually be more problematic for teams than the bust rate of 75% for prospects.
No one thinks that free agents are without risk; the article either demolishes that strawman or reaffirms what we already knew with what little spin the data lets it muster.
The 25% bust rate for veterans probably isn’t the only number you should be considering. You should also consider the 34% of top 100 players that become league average. You would be paying for a top 100 player who is merely league average. For Cole Hamels, there is, theoretically, a 25% chance he busts, and a 34% chance he regresses to average. Keep in mind paying Cole Hamels’s salary for an average player is a bad contract and paying a prospect’s salary for an average player is usually a good contract.
If Hamels regressed to league-average (2 WAR), he’d be worth $14M at $7M/WAR. Assume the value of a win, after accounting for inflation in $/WAR and discounting, stays the same over the length of the contract. That makes him worth $56M in the next four years.
He’s being paid $23.5M in each of those seasons. With a 5% discount rate on future cash flows, that makes him cost $87.5M in today’s dollars
Even if he becomes average (and again, taking things entirely in a vacuum, there’s a 40+% chance he’s better than average), that annual ~$7.5M of negative value isn’t really a huge deal for a team like the Red Sox that could use a significant upgrade at SP.
One more point for Unagi on the chance of a top 100 player becoming being average: While you’re technically right there’s a 34% of it happening, that’s not exactly earth shattering.
I didn’t do the weighting Dave did, but I looked at the top 100 players by WAR over the past 3 years. 33 were worth less than 10 WAR (the floor was 8.5 WAR).
So for those guys to become average (~2 WAR per year), it means they lost ~1 WAR per season. That’s not exactly a huge drop, especially when we account for aging.
The point is, a decent number of guys in Dave’s list of the top 100 were not that far above average anyways. If you looked at only the top 50 (with a floor of 11.3 WAR), it might tell a different story. Hamels, incidentally, is 36th.
And for the record: Not a Phillies fan, just a guy who thinks prospects have become a bit overrated.
AJS, that might be a tolerable waste of dollars if he were a free agent signing, but now you’re talking about wasted dollars for non-elite performance *plus* multiple blue chip prospects. It’s a ridiculous losing proposition – which is why, again, Hamels just isn’t worth that much.