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User:DNL/NewMoneyball In The New Economics of the MLB Trade Market, I focused a lot on the Washington Nationals' decision to acquire Alfonso Soriano. Specifically, I suggested that Jim Bowden could, theoretically, have adopted a previously unseen strategy (the "flip") to exploit market inefficiencies.

The question being raised by many -- see, for example, this blog post -- is not whether Bowden could have employed some high strategic thinking, but whether he actually did.

The answer is probably "No, he didn't." And the likely reason why provides another way for a savvy general manager to make gains.

The Problem of Unaligned Interests

In the book Freakonomics the authors address an interesting conflict: the one between a real estate agent and the home seller. To recap (and, likely, misconstrue) the analysis, take this example:

You own a home that you believe to be worth $240,000, and are willing to wait six months to get that price. That is, it is more important to you to sell for the full value than to sell quickly.

Real estate agents take, say, 5% of the sale price as a commission, regardless of how long the house takes to sell or how much it sells for. (I made that number up.) Assume further that the amount of time it takes for a house to sell correlates directly with the amount of work/time/effort that the agent needs to put into selling the house.

The agent agrees with you -- your house will fetch $240,000 if you wait six months, but you can sell it within two months if you cut the price to $180,000. (She doesn't tell you, but believes, that your home will sell within three months if you accept a bid at $210,000.) But again, you want to see for the max.

The agent, though? Take a quick look at the table, below:

Asking Price Months of Work Commission Earned Commission/Month
$240k 6 $12,000 $2,000
$210k 3 $10,500 $3,500
$180k 2 $9,000 $4,500

It should be pretty clear: she wants to sell the house as quickly as possible. Even if some of my assumptions aren't true, the difference is so stark that there is plenty of room for error.

The conflict is clear (and real): The agent prefers quantity to quality. The home owner, having a limited quantity (1), clearly prefers quality.

The agent's interests are not aligned with her client's.

And there is no reason to believe that this problem does not exist in the baseball world.

The Nationals Interests

In 2002 and 2003, the Nationals were still in Montreal (as the Expos), and drawing approximately 10,000 fans to their home games there. They were owned collectively by Major League Baseball and had an operating budget pegged at $35 million. In 2003, the Expos managed to clear the 1,000,000 paid ticket attendance barrier -- the first time they had done so since 1998. However, part of the increase was due to the fact that they played a number of games in San Juan. The franchise was ownerless, without a consistent fan base, and slated for a move.

While the team was pathetic when it came to building a fan base and revenue stream -- at one point, they had no English radio deal in place -- on-field, they were just starting to show promise. From 1998 through 2001, the Expos failed to win 70 games per season. But with Vladimir Guerrero leading the way, the Expos surprisingly finished the 2002 and 2003 seasons above .500, albeit well out of the wild card race in 2002. On August 28, 2003, the Expos were knotted with four other teams on the wild card standings grid, but collapsed down the stretch.

The Expos regressed greatly in 2004, as Guerrero left and the team found its future in flux. It looked like the team was ready to go into a Florida Marlins-type fire-sale mode, forsaking the present for the future. Certainly, Washington fans, who were about to inherit the team, had no rational reason to believe that their team would be good any time soon. Until the Expos/Nationals found an owner, the team would be in small-budget purgatory, without the requisite prospect base as a buttress.

Bowden joined the team in November of 2004, after the move to D.C. was set in stone. He wasted no time signing overpriced free agents, arguably as stop-gaps or backups. Indeed, a look at the Nationals 2004-2005 off-season is rather pathetic -- Vinny Castilla, Cristian Guzman, and Keith Osik.

In Bowden's defense, he was left with his hands full and pockets empty. He had to give a city reason to believe that their new team may actually be good, even though the previous six years gave little reason for faith. At the same time, he still was left without an owner and, therefore, without a budget. Two quotes from an article about the Guzman/Castilla signings are illustrative:


     
 

These two guys have been to the postseason and that's important, especially for this franchise that has a lot of players that haven't been to the postseason.

...

[Castilla] is a guy that has driven in runs. He helped Atlanta win. He has been on a winning team before. He is a good defensive player. You need veteran players that could lead other players. Vinny Castilla has done that before in his career. He will help us, which is a very important aspect of this signing. He can help develop young players.

 


The theme: mentoring. Even if the implication of post-season goodness presented in the first quote was more schlock than anything else, Bowden appeared to bring in Castilla and Guzman to provide a veteran presence. While this is a demonstratively silly idea, it is at least reconcilable with the posture of the team as it moved to D.C. -- Forget Today, Build for Tomorrow.

Of course, "tomorrow" almost came early. On June 6, 2005, the Nationals found themselves in first place in the NL East, a half-game above the Atlanta Braves (and 1.5 above the last-place Florida Marlins), with a record of 31-26. The Nationals finished the 2005 season at 81-81, a stellar performance for a team otherwise left for dead.

And, still, without an owner.

But still, many commentators and critics saw this finish as abberational. Per the Pythagorean Formula, the Nationals' expected record for 2005 was 77-85. And certainly, the motley crew that managed to eke out a .500 record was playing over its head. The prudent move: sell. Build around a young-ish core of Chad Cordero, Nick Johnson, Jose Guillen, and new draftee Ryan Zimmerman. Allow prospect pitchers like Zach Day the opportunity to develop. But whatever you do, don't be fooled into thinking that the Nationals are contenders.

The best bet for the Nationals: build for tomorrow, forsaking today.

Bowden's Benefit

Not having an owner in place required Bowden to have the word "interim" appended to his title. While the interim tag had little practical effect, it demonstrated that once a new owner came into power, Bowden was anything but a shoo-in to remain in the GM's office.

And let's face it, no one wants to be the GM who orders a fire sale -- it's simply bad for business. Maybe not for the team's future, but certainly for the "interim" general manager. No one wants to be the guy who says, "Gee, boss, I know everything looks terrible, and yes, I've been working on it for the last 18 months, but if you give me three more years, I'll make it work!" That's a good way to get the new owner to fire you.

Take, for example, former New York Mets GM Steve Phillips. By definition, builiding for the future means forgoing an immediate payout. While no one would suggest that former Phillips was, indeed, trying to build a contender in 2006 back in 2003, he should get some credit for his efforts.

I took a look at the "win probability added" (or WPA) by each Met player through August 3, 2006. (For an explanation of WPA, click here, and assigned the WPA value to the GM which acquired the player. (I ignored pitchers' WPA as batters.) That is, Pedro Martinez's 183.0 WPA was assigned to Omar Minaya, while Tom Glavine's 85.6 was given to Phillips. Ignoring the two players Jim Duquette acquired in the trade which shan't be made, here's how it broke down:

  • Minaya: 1042.7 WPA from 25 players, or 25 WPA/player.
  • Phillips: 336 WPA from 12 players, or 12 WPA/player.

(The Mets' WPA to date can be found at FanGraphs.com.)

Due primarily to the development of David Wright (267 WPA) and Jose Reyes (115.8), Phillips' acquisitions have been a significant part of the success known as the 2006 Mets. While Duquette and Minaya are due some credit for retaining them, it appears that Phillips should get some credit as well.

But if anything, he gets the opposite. When the overpaid 2002 and 2003 Mets failed to perform, Phillips was canned. Everyone knew it was coming.

So, put yourself in Steve Phillips' shoes. It's the summer of 2002. Your team -- featuring Mike Piazza, Mo Vaughn, Roberto Alomar, and Edgardo Alfonzo, is barely treading water. The Braves are running away with the division but you think you have a shot at the Wild Card. After all, it's only June.

You drafted a kid out of high school with a supplemental draft pick in 2001. He's in his first year of pro ball. The Toronto Blue Jays call up and ask about him; you'll trade him, but want Jose Cruz Jr. Cruz was made redundant by Vernon Wells, is 28, coming off a 30/30 season, and is an improvement over either Roger Cedeno or Timo Perez, both of whom are starting with regularity.

It's a trade you make every day. If it works, the Mets make a playoff run, and it saves your job. If not? You're getting fired anyway. And, rumor has it that this is exactly what happened -- until Toronto balked.

Hindsight being 20/20, it's clear that the Mets lucked out.

But Steve Phillips didn't.

The 2005-2006 Off-Season: Welcome, Soriano

So, no, Jim Bowden almost certainly was not trying to take advantage of a market inefficiency when he traded for Alfonso Soriano. He was trying to save his job by winning today, forsaking tomorrow. This much was and has been proven by the fact that Soriano and Livan Hernandez are still Washington Nationals, their respective trade values slowly trickling away.

In the first part of this series of articles, I argued that Soriano's value in December 2005 was much less than in July 2006, and that Bowden should have cashed in on this change. That analysis, unfortunately, is incomplete. It only considers what Bowden can get for Soriano and ignores what he wants from Soriano. Perhaps the reason the rumored deal for Brandon McCarthy fell through not because the White Sox felt they were overpaying, but because ___________________.

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