MLB Prospect Surplus Values — 2018 Updated Edition

I realized last week that TPOP was coming up on its 1000th article published. For some sites, that’s a good couple of months, but we’re pretty much a one article per day kind of place for the most part. So it’s only fitting that for our 1000th article, we do an update on our 1st article that was on TPOP (and subsequently updated in 2016) and has been the article that put TPOP on the map both locally and nationally at multiple sites.

Unlike the 2016 surplus value update when we changed some key aspects of the methodology, Steve and I feel like the process is sound now and we just updated the actual data inputs, aside from the cost of 1 WAR on the free agent market.

If you’re an MLB team that hasn’t already pirated our research to develop your own in-house tools, here’s how we calculate prospect surplus value.

What Is Prospect Surplus Value?

More than ever, as we’ve seen this offseason with teams reticent to pay free agents for past performance, teams want young cost-controlled assets. Years of control and the ability to pay a player at depressed wages, both at minimum scale and arbitration rates, is the key for a team seeking to get high value from players. If you have some key players making little money, it can help you address other needs in free agency. It’s how bottom lines are balanced.

Teams control players for six full seasons, typically with three of them at minimum salary and three at arbitration rates, which are a fraction of a player’s worth on the open market. There are tricks that all teams employ to squeeze a little bit more than six seasons out of a player, like waiting until a few weeks pass at the start of the regular season to bring him up and thus not have the player get a full season or waiting until the Super 2 deadline passes in late June to avoid paying arbitration four times.

So if a team is assessing how much a prospect is worth when discussing him in a trade, they have to calculate what surplus value that player may contribute to the team for his six seasons of control in the future. Teams are employing some type of financial analysis to do this. At TPOP, we did ours on a present worth value model where future values over a period of time are shunted forward to present-day in one lump sum. The player’s potential earnings are then subtracted from the present worth number to obtain surplus value, or the amount of value that a team places on that asset when discussing him in potential trades.

What Is The Source Data?

Baseball America’s Top 100 is the touchstone of prospects for me. Other sites have been very ‘upside-based’, but I’ve found BA to blend upside and production together much better. Sure, like every site they’ve had their misses, but by and large they are my go to site for Top 100’s, especially since they’ve been doing it since 1990.

For this article, the players used were from the 1994 to 2008 lists. This presumes that the 2008 guys have progressed through the Majors and completed their 6+ years of service before reaching free agency as of the end of 2017. Players are put into tiers, both hitters and pitchers, based on their ordinal location on the Top 100 lists.

How Was Player Value Calculated?

We used Fangraphs for the Wins Above Replacement (WAR) generated by a player during their six seasons under team control. Allowances were made for the partial seasons that teams got by calling players up later in the season.

How Was Player Worth Calculated?

We have assumed through the analysis of free agent contracts that the cost to purchase 1 WAR on the free agent market is now around $8.5M. Some sites have it even higher than that, so maybe our number is conservative, but I can’t bring myself to the $9.5-$10M/WAR figures I’ve seen. So the player’s six (plus) years of team control WAR were added up, multiplied by $8.5M/WAR, then brought to present value with a discount value of 8%.

How Were Player Values and Costs Distributed Over 6 Years?

Steve and I have approximated that 3/5 of a player’s value was achieved in the arbitration years of team control after inputting all of this data in 2016 for that update. Our arbitration percentages article found that during arbitration a player gets 25%/40%/60% of their free market value, on average, so those inputs were used as well.

So Surplus Value Is…

The present worth value calculation minus the amount of potential salary that a team has to expend over the three minimum salary years ($1.6M) plus three arbitration years (3/5 of present value WAR x 42% x $8.5M per WAR). The results for the hitters and pitchers, broken down by the various tiers, are shown below:

Tier	Number of Players	Avg. WAR	Surplus Value	% Less than 3 WAR	% Zero WAR or less
Hitters #1-10	58	15.9	$81.4M	10.34%	5.17%
Hitters #11-25	51	12.9	$65.6M	23.53%	15.69%
Hitters #26-50	109	7.5	$37.6M	50.46%	32.11%
Hitters #51-75	112	4.9	$24.1M	58.93%	46.43%
Hitters #76-100	117	4.2	$20.2M	66.67%	38.46%
Pitchers #1-10	31	14.4	$73.4M	6.45%	0%
Pitchers #11-25	51	9.1	$45.9M	39.22%	23.53%
Pitchers #26-50	90	6.5	$32.2M	42.22%	23.33%
Pitchers #51-75	121	4.1	$19.7M	63.64%	42.98%
Pitchers #76-100	135	3.2	$15.1M	68.15%	44.44%

For the most part, the WARs held steady for each tier, which is to be expected once you start to accumulate the number of players that we are seeing at this point. The needle simply isn’t moving as much, even though as players move up and down the tiers their WARs go to different classifications. As a result, the surplus values really only increased due to changing the $/WAR from $8M to $8.5M.

What did increase a little bit were the bust rates for “0 or Less WAR” and “3 or Less WAR”. As a reminder, the first category is for prospects that either never made the Majors or did poorly once they got there. The second is for highly touted prospects that really only provided enough WAR to be considered a bench or bullpen guy during their tenure.

Pitchers ranked #1-10 still have yet to have an outright bust (Jesse Foppert tried, but eked out 0.1 WAR), which always amazes me considering their injury risk. Both hitters and pitchers #1-10 remain the most elite commodities in the game for both their surplus values and their relative lower risk to teams. Hitters #11-25 are good values, too, but you can see that the bust rates are starting to jump up.

You can also see that there’s little striation between the #51-75 and #76-100 tiers for both hitters and pitchers, so at TPOP we’ll continue to refer to them as #51-100. But take a gander at those bust rates for these combined tiers. Essentially there’s a 40-45 percent chance that #51-100 prospects never accrue 0 WAR and anywhere from roughly 60-70 percent never achieve the 3 WAR level over their 6 years to be considered a bench/bullpen guy.

This is the point of the article where Steve and I differ somewhat. I’m a big proponent of moving prospects, especially ones at the back half of the list that aren’t trending up, for Major League assets. Sometimes a prospect’s best value is his perceived value to another team. For me, this is what happened in the infamous Francisco Liriano “salary dump” to the Blue Jays in 2016 — the Pirates included two “falling stars” that once were on the back half of the top 100 in Reese McGuire and Harold Ramirez, in order to get the Blue Jays to pay virtually all of Liriano’s salary (minus Drew Hutchison’s arb salary). Ramirez (#95 in 2016) already looks like a bust as he’s unable to stay healthy and McGuire (#97 in 2015, fell off list since then) doesn’t appear to be able to hit enough to be a full-time starter.

Only two Pirates made Baseball America’s 2018 Top 100 prospects list (I think 2017 1st round pick Shane Baz should have been in the 75-100 range, personally), which is an indictment on the state of the Pirates’ farm system. Here’s the two players, their ranks, and their surplus values.

• Mitch Keller — #12 ($45.9M)
• Austin Meadows — #44 ($37.6M)

But now also consider their bust rates. Keller is in the same spot as Tyler Glasnow was in the 2016 update. Keller has a much cleaner delivery and better command/control, but he still has a 40% chance of not accruing 3 WAR and a 23% chance of being an outright bust. Meadows is his own tier has a 50% chance of not living up to 3 WAR expectations, which with his injury history seems like foreshadowing, and a 32% chance of being an outright bust. Additionally, Meadows is a declining quantity, as he was ranked #22 in 2016 and #6 in 2017. This makes the decision to not hold out for Kyle Tucker (#15 this year) in the deal with the Astros for Gerrit Cole even more disheartening.

For me, prospects are commodities. I try to not wishcast scenarios where every prospect reaches their breathless forecasted potentials, but rather view them as objects that can improve the Major League team. The Pirates GM, Neal Huntington, is a hoarder of prospects. He holds on to them with a death grip in the hopes that every one of them becomes a cost-controlled star, when in mathematical reality it just doesn’t happen. This would be a fine strategy for Huntington if his prospects were producing, but under his tenure only two prospects (as of the end of 2017) have produced even a single 3+ WAR season (Pedro Alvarez and Gerrit Cole).

Identify the high-end prospects, trade the rest to improve the Major League team, try to extract rising and under-the-radar prospects in trades. That’s what I would do in order to maximize prospect surplus value.

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