Justin Upton’s Trade Value

Yesterday, the Arizona Diamondbacks got an offer for Justin Upton that they would say yes to, as the Seattle Mariners reportedly agreed to ship Taijuan Walker, Nick Franklin, Charlie Furbush, and Stephen Pryor to the D’Backs in exchange for their young right fielder. Today, Justin Upton is still a Diamondback, because he used his limited no-trade clause to block the deal, as Seattle is one of four teams he can’t be traded to without his consent.

In the aftermath of the news, sentiment seemed to coalesce around the idea that the Mariners were significantly overpaying for Upton. For instance:

Upton rejected deal, and by doing so, one source said, “saved Jack Z’s job.” Package from #Mariners to #DBacks first reported by @scottmcbs.

— Ken Rosenthal (@Ken_Rosenthal) January 11, 2013

One executive says #mariners were “clearly overpaying” for Upton and are “fortunate” trade with #dbacks fell through.

— Jerry Crasnick (@jcrasnick) January 11, 2013

A front office friend of mine shared a similar sentiment, suggesting that giving up Walker and Franklin was too much for Upton. Arizona clearly preferred this deal to the other offers that they have received, going forward with this negotiation even though they knew Upton had the right to veto the deal. If the offers were similar from other clubs, then logic suggests that they would have taken the path of least resistance, and simply picked a deal that Upton couldn’t have scuttled. So, were the Mariners overpaying for Upton, or is Arizona now likely to have to settle for a discounted deal from a team that isn’t on Upton’s no-trade list?

Clearly, there’s a line at which a prospect’s value surpasses that of a big league player, even if that prospect hasn’t yet achieved success in the big leagues. I was strongly against the Wil Myers trade for the Royals, for instance, even though acquiring James Shields makes them better in the short term. Prospects-for-veteran deals have to be a balance, weighing the long term value associated with the expected production of cost controlled players against the present value of a guy who is already producing at the big league level, but likely comes with fewer years of team control and a higher cost in terms of salary.

Generally, this analysis is done through the lens of surplus value – how much more will each player produce than what you would expect to be able to purchase with the cost he’s going to require? For a player like Upton, this isn’t super difficult, and we did just such a post on him a few years ago, when trade rumors around him started gaining traction. At that point, we estimated that Upton was worth something like $70 to $100 million in surplus value, but that was with five years remaining on his contract, including the two cheapest years. Clearly, Upton is less valuable now, though interestingly, his 2011-2012 total performance of +9 WAR is essentially right in line with what we projected two years ago, so I don’t know that his future on field expectations should be perceived much differently now.

But, because his most recent year is also his worst, let’s just downgrade his projection slightly, and treat him as a +4 win player in 2013, with small improvements going forward as he gets closer to his peak years. A +4.0/+4.5/+5.0 WAR estimate for the next three years would give us +13.5 WAR; if you think the price of a win is around $5 to $6 million now and increasing somewhat as new TV money flows into MLB, then that would put Upton’s total value at around $75 to $80 million over the next three seasons. Given what Josh Hamilton — a +4 win outfielder in his thirties, with more injury questions, and similar concerns about how much of his performance was due to his home park — got this winter, I think that might even be a little low, but since we’re just focusing on the next three years, let’s call it $75 million in value, giving Upton the same AAV as Hamilton.

Since he’s due $39 million in salary over the next three years, that puts his surplus value at around $36 million. You’d then want to adjust that up slightly to account for some chance of re-signing him to a contract extension or getting draft pick compensation if he left as a free agent, so let’s just round up to $40 million. None of these numbers are based on precise calculations, so just understand that we’re working in generalities. $40 million is a close enough figure, not an exact answer, and if you want to pick any number between $30 and $50 million, you could probably make a solid case for it. The point is, his value is somewhere that range.

So, what is ~$40 million worth in terms of prospects? That’s the trickier part.

Victor Wang has the most often cited work on prospect valuation, but his study came back in 2008, and the economics of the game have changed a bit since then. Last year, there were a few different efforts to update his methodology, using slightly different numbers and years to run the calculations, and they came to slightly different conclusions, though a lot of the same points held in both, including the definite need to understand that pitching prospects aren’t as valuable as hitting prospects, even if they’re rated similarly. Prospect evaluators haven’t properly accounted for the risks associated with pitching prospects, and so a top 10 hitting prospect is simply a more valuable asset than a top 10 pitching prospect, even if both are ranked in the same spot in the top 10.

So, what’s the surplus value of the players the D’Backs were getting from the Mariners? Taijuan Walker is generally accepted as a top 15 prospect, and probably will end up towards the back end of the top 10 on some lists, as Mike Newman called him “the second best pitching prospect in baseball”. Franklin is more of a middle of the top 100 guy, and Newman notes that he is “not an impact talent”, though he has a pretty high floor as a middle infielder with some power. For ease of calculations, let’s treat Walker as the #10 prospect and Franklin as the #50 prospect in baseball.

Using Kevin Creagh’s methodology, that would put Walker in the top group of pitching prospects, and Franklin in the third group of hitting prospects, but both would take up the very last spot in their respective groups. Using the overall group averages ($27 million in surplus value for Walker, $18 million for Franklin) would overstate their own individual value a bit, since they are both straddling the line between tiers, so if we knock 10% off the values Creagh came up with, we’d up with… $41 million. Funny how that works out.

Michael Valencius’ method gives a bit more value to prospects since he doesn’t account for the time value aspect of prospect performance and uses lower arbitration salary figures, but it’s also worth looking at, since we don’t know exactly what the discount rate for future WAR is for each team, and you could argue that a likely non-contender like the Mariners shouldn’t be applying a big one right now. He’s got Walker worth $44 million by himself, and Franklin worth another $20 million, so his methodology would agree with the large overpay estimate, even before you calculate in the two relievers also going to Arizona in the deal.

I think you do need to apply a discount rate to future value, and I think Valencius’ system likely understates the future costs of a prospect who develops into a star, so I lean more towards Creagh’s numbers, but there’s no reason to pay attention to just one and not the other. That one system thinks the deal is fair (again, not considering the value of the two relievers, because, well, they’re relievers, so it’s not going to change the calculation too terribly much) and the other thinks its an overpay does suggest that, at the minimum, Arizona was doing well in this deal, and this is probably the best they were going to get for Upton. Other teams are less likely to put up a similar offer, especially if the most aggressive bidder is out of the running due to Upton’s no-trade list.

But, at the same time, I don’t think there’s a lot of evidence to support the notion that this offer was such a large overpay that Upton’s rejection will “save Zduriencik’s job”, as Rosenthal’s source claimed. The attrition rate of pitching prospects is absurdly high, and there’s still a lot of evidence pointing to the fact that pitching prospects, as a group, are overrated. Even the best pitching prospects flame out 60% of the time. Trading Taijuan Walker is not the same thing as trading Wil Myers, even if both are highly rated prospects.

And, the Mariners calculations also has to include the their own situation, as a team in a cool weather city on the west coast who plays in a park that has been one of the most pitcher friendly in baseball since it opened. Convincing free agent hitters to come play in Safeco is a more challenging sell than convincing pitchers to come to the northwest, so the Mariners strategy of overpaying for a hitter and offsetting that by finding value on the pitching side of things is likely a more efficient way to build a roster.

Surplus value calculations also have to be weighed against the actual opportunity cost, not just a hypothetical one. In January, with most of the impact free agents off the market, having $20 million in available spending money doesn’t do you as much good, since there aren’t as many ways to effectively spend that kind of money and get a good return. Teams shouldn’t just ignore efficient spending at the end of the winter, but if the choice is to slightly overpay or to simply not spend any money at all, the second option might lead to a more efficient payroll but fewer overall wins. And wins are the name of the game, not $/WAR maximization. Efficiency is a tool to be used to maximize the amount of wins you can buy, not an excuse to not buy wins in the first place.

Was Jack Zduriencik desperate for a hitter? Maybe, maybe not. Offering up a top ten pitching prospect, a top 50 hitting prospect, and a couple of relievers for a 25-year-old +4 win player who is making half of his market value for the next three years isn’t anywhere close to the same kind of overpay as other deals we’ve seen in the last few years. It was a good deal for Arizona, but Upton’s worth something close to that kind of package. Now, it may be up to Texas, Atlanta, or some other interested party to see if they can put together a similar offer.