On the Magnitude of Transaction Mistakes

On Tuesday night, the Diamondbacks acquired Shelby Miller to upgrade their rotation. The cost of the acquisition, however, led most people — myself included — to conclude that not only did the team pay an exorbitant cost relative to pursuing other options on the market, but that it’s not even clear that the team improved on the field for 2016, given the loss of a quality Major League outfielder in the deal. As has been the case with several other recent moves Arizona has made of late, the reaction to the deal has been extremely negative. But has it been too one-sided and over the top?

Any time the public reaction is this slanted in one direction, it’s reasonable to ask what we we may be missing. We don’t have to ascribe to the idea of perfectly rational actors in every front office to accept the fact that teams have more and better information than we do, and when there’s a big disconnect between what we see and what they see, we should at least consider the possibility that they know more than we do. And when we look back at the recent history of unpopular transactions, there’s a decent amount of evidence that the magnitude of the criticism looks a bit silly in retrospect.

The most obvious comparison to this kind of prospect-for-pitcher trade backlash is the James Shields trade; in the aftermath of that deal, my post about the trade began “Royals Mortgage Future to Be Mediocre in 2013.” And while the Royals did indeed fail to reach the postseason in their first year with Shields, he helped them make a World Series run in 2014, and then they managed to win the whole thing this year, capping off a strong three year run that has revitalized baseball in Kansas City. With the benefit of hindsight, I certainly could have been a bit more nuanced with my opinion on that trade.

Of course, sometimes, teams really do make lousy moves, and the public reaction at the time is born out by the performances that follow. The Erik Bedard trade actually was a disaster for the Mariners. The Vernon Wells trade saddled the Angels with a bad player and a large salary, while Mike Napoli ended up starting for their division rival, propelling them to the World Series. The Mets came to quickly regret trading Scott Kazmir for Victor Zambrano. It isn’t that every time the public freaks out about a trade, the eventual results justify the team getting vilified.

But it is probably worth considering whether the responses to these lopsided deals is proportional to the impact they have on their respective franchises. To this point, the guys over at NEIFI.co posted some thoughts on the nature of big overpays in free agency.

Let’s take a look at an extreme example, the Detroit Tigers. The Tigers, with the bloated contracts of Miguel Cabrera, Justin Verlander, and Victor Martinez, currently have the largest long-term dead money problem of any team in the game: according to NEIFI, the surplus values of those three bad contracts total -$128 million. (The Angels and Yankees have negative obligations slightly greater than the Tigers’ $128 million, but they each have significant bad contracts coming off the books after 2016, so their long-term outlook is better than Detroit’s).

Now, $128 million in NPV is a lot of dead money, double the amount an average team is currently saddled with. But, first, it should be noted that that $128 million is distributed over eight years (the length of Cabrera’s contract). That’s $16 million per year, or roughly the equivalent of two wins per year in a world where the market rates per talent are $8m/win. Now remember, that’s two wins per year relative to the perfect scenario of having no dead money at all (currently, the only team in this category is the Marlins). So what we’re left with is the following:

Marlins (zero dead money): 1 win per year above average
Average team ($64m dead money): 0 wins per year above average (obviously)
Tigers ($128m dead money): 1 win per year below average

That is… pretty underwhelming, isn’t it? So the Tigers’ albatross contracts effectively cost them one win per year relative to their competition. That’s not good, obviously, but it’s also not particularly devastating.

Another angle to approach this from is that negative assets can be offset by the acquisition of positive assets. The Tigers’ entire dead money problem of $16m NPV per year, could be completely offset by the addition of one player guaranteed to produce +2 WAR while making the league minimum each year (again assuming the current market price of talent is roughly $8m per marginal win). Now, sure, acquiring such a player is easier said than done, and free league-average players are extremely valuable. They’re not, however, massive, franchise-altering assets. And if they’re not massive, franchise-altering assets, then Cabrera/Martinez/Verlander are not franchise-altering liabilities.

While the point is about the limited damage an overpay on a free agent contract can do, the point can also be made — though to a lesser extent — about the damage any single transaction, even a disastrous trade, can have on a franchise. In the aftermath of the Zambrano/Kazmir debacle, the Mets won 83, 97, 88, and 89 games in the next four seasons; they likely could have won more had they not given away a good young pitcher for very little in return, but it didn’t stop them from putting winning teams on the field. Same deal with the Angels and Vernon Wells; in the four years they ended up paying him to play terribly for them (or play for the Yankees, and then not play at all), they won 86, 89, 78, and 98 games. Again, they would have done better had they not wasted $70 million of their payroll on the ill-advised acquisition, but even a deal I called “The Most Inexplicable Trade Ever” didn’t stop the Angels from contending.

Jonah Keri’s book about the Tampa Bay Rays, “The Extra 2%“, spends considerable time discussing the various ways the team’s front office tried to squeeze out every last edge and advantage they could find, but as the title implies, even trying to be as efficient as possible only moved the needle a couple of percentage points compared to doing things the way they’ve always been done. In reality, while we spend a lot of time analyzing transactions and decisions, the change in expected outcomes for a team based on a single move is still somewhat minimal, and in almost every single transaction, there is a significant likelihood that the move could work out in favor of the team making a sub-optimal decision.

Even when the best team in baseball plays the worst team in baseball, the favorite is only expected to win about 70% of the time. And in transactions, it isn’t much different; good trades don’t turn out well 100% of the time, and bad trades don’t turn out poorly 0% of the time. Teams work very hard to move their chances of success on transactions north of a 50/50 coin flip, but even using the best processes based on the best information is still going to result in failed results more often than anyone would like. We don’t know exactly what the expected success or failure rate is for different decision making processes, but the reality is that predicting the future remains incredibly difficult, and no one is close to having the puzzle figured out.

That doesn’t mean that we should let teams off the hook and just pretend that all transactions have an equal chance of success. They don’t, and even good team results in the aftermath of questionable trades don’t justify those moves. The Diamondbacks valuation of the relative merits of the Shelby Miller trade, contrasted with pursuing alternative paths to upgrading the roster, seems like one of the most obvious examples of poor process and decision making we’ve seen in baseball in years. And yet, like with the Tigers big overpays for aging players, the magnitude of the mistake is probably something like a win or two per season. If the team had traded this same package for Matt Harvey or Sonny Gray, the reaction would be wildly different, but the marginal value of those types of pitchers is only incrementally higher than what the team can expect from Miller.

Wins are, of course, highly valuable assets, and so “only a win or two” could also be stated as “only $8 to $16 million per year”, which is a ton of money. The point of this post isn’t to say that it’s not worth doing the analysis and trying to make as many effective moves as possible; that’s literally the job of a large number of very intelligent individuals, people who have dedicated their lives to make as many good baseball decisions as possible. And when a team makes a trade like the one the Diamondbacks made on Tuesday, it’s worth pointing out that the move is more likely to hurt the organization than help it, especially when you consider the alternative options they could have pursued if they were set on trading Ender Inciarte, Dansby Swanson, and Aaron Blair to upgrade their roster in the short-term.

But if we think a reasonable return for that package of talent might have pushed the Diamondbacks to something like an 85 win team, trading for Shelby Miller pushed them to something like an 83 or 84 win team. In practice, the expected results of those two rosters aren’t so different as to say things like this trade will destroy the franchise, or to make it sound like the sky is falling in Phoenix. Dave Stewart screwed up, and made a bad trade, but the magnitude of any single bad trade just isn’t that large.

It’s the compounding of a lot of bad transactions that really can destroy a franchise’s chances of winning. And it’s certainly possible to extrapolate that a team that would make this kind of trade is likely to make more bad transactions in the future, and this deal is not a great sign for the organization’s future decision making process. But they still have some really great players on the roster, and baseball remains difficult to predict, so while I’ll absolutely stand by the belief that the Diamondbacks gave up their two best prospects in a move that didn’t clearly improve their team’s chances of winning in 2016, I think we should also keep in mind that the team still has a pretty decent shot at being a contender next year.

This move also opens the door wider to the path traveled by the 2015 Padres and White Sox, regretting their big splashes not too long after making them, but that’s not fated simply because the team misevaluated their assets. Baseball just isn’t predictable enough for us to say that this trade spells certain doom for the Diamondbacks. One move just can’t do that much harm, even ones that look as silly as this trade does.