EDITOR’S NOTE — THERE IS A MORE RECENT VERSION OF THIS STUDY DONE IN FEBRUARY 2016 FOUND HERE
In June 2012, Steve and I wrote an article at another website that attempted to quantify the dollar amount that a prospect had in trade talks. We did this by combing through the Baseball America All-Time Top 100 lists and then figuring out how many wins each of those prospects provided their team during the team-controlled years, known as the “zero to six” years of service time prior to free agency.
In the two-and-a-half year interim, two things have occurred:
1. Fangraphs and Baseball Reference came to an agreement about the definition of “replacement level”. This affects how each player’s Wins Above Replacement were calculated on Fangraphs, which we used for our model. It lowered, albeit slightly, each player’s WAR. Dave Cameron explains it in this March 2013 piece.
2. The cost per WAR has continued to rise since June 2012. Our original piece used $5M/WAR as the basis of cost. For this past 2014 season, it was widely assumed that $6M to $7M was the cost per WAR. This means that teams are putting even more of a premium on young cost-controlled talent.
So Steve and I figured, what better way to kick off our new website than by re-visiting one of our favorite pieces and updating it for the upcoming 2015 season.
Why Would We Do It?
When trade talks surface, it inevitably turns to how much Player X is making. Frequently, people want to know if a player is worth his salary by assigning a cost per Wins Above Replacement (WAR) that the player produces. If you prescribe to the widely-held notion that the cost for 1 WAR is about $6.5M currently, then a player expected to produce 2 WAR would be “worth” $13M. If that player is making $5M in 2015, he has a surplus value (production level minus salary) of $8M.
If the same Player X is being traded, the receiving team should provide some form of assets to allow for that $8M. Many times, this is in the form of prospects. Not all prospects are created equal; there are definite tiers of prospects, both within a team’s internal prospect list and the conglomerate Top 100 list put together annually by Baseball America.
By going back through Baseball America’s Top 100 lists from 1994-2005, we can evaluate 12 years worth of players and see how their careers went during their team-controlled years of zero to 6 years of service time. This is when a team gets the most value out of a prospect, as they can pay them $500,000 for the first three years and then depressed salaries through the arbitration process for the next three years.
The next section will focus on the methodology used to calculate these new surplus values for the different tiers of prospects. It will be a little number-crunchy so if you don’t want to see how the sausage is made, feel free to skip down to the What Did We Learn section.
How Did We Do It?
We took our original data that spanned from 1994-2003, added two more years of lists on to it, and then re-calculated every player’s WAR accumulated during the “zero to six year” phase of their service time using Fangraphs. The 2005 Baseball America Top 100 list was determined to be the endpoint because it would have allowed prospects time to come up in 2008 (the “bonus” year when teams game service time) and then serve out their 6 years of team control through 2014.
We sifted the players from these 12 years of lists into the same tiers: Hitters #1-10, Hitters #11-25, Hitters #26-50, Hitters #51-75, Hitters #76-100, Pitchers #1-10, Pitchers #11-25, Pitchers #26-50, Pitchers #51-75, Pitchers #76-100.
For each year, each tier was filled appropriately. We then went through and found which tier the player was in during his last appearance on any list. We labored on whether to use the player’s peak value on a list or whether to use his last appearance, but ultimately went with the latter. The reasoning is that a player may have initially been over-hyped and then it was determined that he: a) couldn’t hit off-speed stuff, b) couldn’t develop a third pitch, c) had his ceiling reduced by injuries, or any number of other reasons. We felt his last appearance was more representative of how Baseball America felt about him after multiple viewings.
Once each player’s final tier was determined, each of the overall tier lists were filled for hitters and pitchers. Each player’s value during his 6 years of team control was determined using Fangraphs’ WAR. Best estimates were made for service time in cases where a player only had a partial season for a certain year; not every player was calculated using strictly the first 6 years of his career on Fangraphs.
When a team trades a major league player and receives a package of prospects back, they want to know the Present Worth Value of each player in 2015. If a player can project to give you 15 WAR over the next 6 years, that’s not the same as what the major league player could give you in 2015. That prospect’s value must be brought back to present day using a discount value. Think of it this way: If I offered you $100 right now or $150 spread over the next 6 years, you would most likely choose the $100 now. The same concept holds true with the prospects. Teams have a time-money component to worry about as well; if they don’t invest money in a salary in 2015, they can use that money in other areas to improve the team — hence the discount value. For the purposes of this study, we used an 8% discount value per year, which is considered a standard for this type of economic analysis.
Discount value works this way:
For year 1 — use full value
For year 2 — use 92%
For year 3 — use (92%)^2
For year 4 — use (92%)^3
For year 5 — use (92%)^4
For year 6 — use (92%)^5
For the purposes of this study, these 6 values were totalled and divided by 6 to get a Discount Value Factor of 0.82.
Each player’s total 6 Year WAR was multiplied by the 0.82 Discount Value Factor to get a Present Worth Estimate of their WAR. That Present Worth Estimate of WAR was then multiplied by $6.5M/WAR to get their Gross Value Amount.
During the review of all the prospects’ WAR values, it was observed that the vast majority of them had a back-loaded shift to their WAR component — they were giving their team more value during their arbitration years — so we made an assumption to assign 2/3 of their Present Worth Estimate of WAR to the arb years.
The typical model for calculating arbitration values is 40% of a player’s presumed free agent worth in Year 1, 60% in Year 2, and 80% in Year 3. This averages out to a 60% arbitration value over the three arb years. The 2/3 Present Worth Estimate of WAR was multiplied by 60% and then multiplied by $6.5M/WAR. This gives an estimate of how much the team would estimate to pay for that prospect based on his production level during those arbitration years. Then an additional $1.5M was added on to that previously calculated arbitration years cost to account for 3 years of minimum salary paid to that player, using $500,000 as the minimum salary for model purposes.
Combining the arbitration value estimated cost with the minimum scale cost gives an estimate on Prospect Cost During Team Control. The Surplus Value of a prospect was finally determined to be Gross Value Amount minus Prospect Cost During Team Control.
Here’s an example using real-life Jimmy Rollins. In 2000, he got a look for a few games and put up -0.1 WAR. Then from 2001-2006, he was a mainstay in the lineup. These were his “zero to six” years of service time with the team and when he was, theoretically, not making much money.
- 2000 — (-)0.1 WAR
- 2001 — 2.1 WAR
- 2002 — 1.5 WAR
- 2003 — 2.3 WAR
- 2004 — 4.9 WAR
- 2005 — 4.0 WAR
- 2006 — 4.5 WAR
Total of 19.2 WAR during the zero-to-six service time. He accumulated 69.7% of his WAR during his arb-eligible years, which falls in line with our assumption that 2/3 of the player’s value is accrued during those arb-eligible years.
Rollins’ 19.2 WAR was discounted over six years with the 0.82 factor to be 15.7 WAR. This was multiplied by $6.5M to get a Gross Value amount of $102.3M. Taking 2/3 of his 19.2 WAR gives a total of 12.8 WAR — this is what he was assumed to accrue during his arbitration-eligible years. By multiplying 12.8 by 60% by $6.5M, then adding $1.5M on (the three minimum salary years), we get a total of $51.4M. This is the Prospect Cost During Team Control number.
$102.3M minus $51.4M gives a total of $50.9M of Surplus Value for the Phillies in 2014 numbers.
What Did We Learn?
Each player’s Surplus Value was calculated as shown above. If you assume that a typical bench/bullpen player supplies 0.5 WAR per year, we also wanted to know what percentage of each tier didn’t even meet that threshold. Additionally, we found what percentage of players provided 0 WAR or less, implying that their teams would have been better off never using that player. Both of these percentages are used to show bust rates among tiers of prospects.
|Tier||Number of Players||Avg. WAR||Surplus Value||% Less than 3 WAR||% Zero WAR or less|
There are a lot of conclusions to tease out from this table:
- The elite Top 10 hitters and pitchers are worth it. They supply a lot of Surplus Value to a team and their bust rates are low. Even though Pitchers #1-10 is the smallest sample, to not have a single pitcher give less than 0 WAR is impressive.
- There is very little difference, for both hitters and pitchers, between the #51-75 and #76-100 tiers. For future reference, they’ll be clumped together as just #51-100.
- Look at those percentages on who won’t even hit the 3 WAR level! Most tiers are between 40-70% that a team won’t even get a useful bench/bullpen guy. That doesn’t even account for the outright bust percentages of 25-50%.
- It’s not really worth it to hold on to Pitchers #51-100 and Hitters #51-100. If you can use them in a deal, go for it.
With regards to that last bullet point, keep in mind that the last year of the list is a snapshot of that prospect’s development. Maybe that player in 2005 was still ascending and he wound up in a higher, more valued tier. Of course there are players in the lower tiers that had very productive careers, too. Adrian Gonzalez (#51-75, 25.2 WAR) and Ubaldo Jiminez (#76-100, 23.9) are just two examples. The key for any organization in today’s 2014, soon-to-be 2015, is to identify which prospects project to be the truly elite and trade off the rest while they still have perceived value.
To put this in Pirate-centric context, here’s the Pirates from the 2014 Top 100 list:
- Gregory Polanco (#10) — $48.4M Surplus Value
- Jameson Taillon (#22) — $24.5M Surplus Value
- Tyler Glasnow (#46) — $18.7M Surplus Value
- Austin Meadows (#49) — $20.3M Surplus Value
- Nick Kingham (#64) — $9.4M Surplus Value
- Alen Hanson (#76) — $11.6M Surplus Value
- Reese McGuire (#81) — $11.6M Surplus Value
When the new list comes out in February 2015, Polanco will be off of it as he’s no longer a rookie. Taillon will hold steady in his tier, probably. Glasnow could move into the more valuable #11-25 tier. Meadows will hold steady probably. Kingham may sneak into the #26-50 tier. Hanson and McGuire may drop. The only other prospect that I foresee having a chance to make it is Josh Bell, maybe in the #51-75 range.
I would look to move Hanson and McGuire and, to be honest, personal favorite Nick Kingham, in the right deal. All of those players seem to either be descending or in tiers that make their ultimate production a real gamble, one in which I would rather have a defined asset producing in 2015.