The Two Markets

At any given time during a baseball off-season, there are essentially two different ways to acquire talent – sign players via free agency or trade for another’s team’s player who is already under contract. We often refer to the combination of both as the market of total available players, but given the pricing differences we’ve seen in each, perhaps we should reexamine whether these are really just two very different markets altogether.

There’s no question there’s been significant inflation in the free-agent market this year. Teams have already guaranteed $1.08 billion in future contracts to free agents, up from $846 million a year ago. Players like Adrian Beltre and Carl Pavano remain unsigned as of yet, so the gap will only grow as the winter progresses. Nearly every contract signed to date has been for more years and often more dollars per season than was expected heading into the winter, and has impacted free agents at every level of play – inflation has been pervasive across the board, not just limited to a certain sector of player types.

The trade market, however, has not seen the same kind of corresponding rise in prices. Here are the significant trades that have occurred so far this winter:

David DeJesus for Vin Mazzaro

Dan Uggla for Omar Infante and Michael Dunn

Adrian Gonzalez for Casey Kelly, Anthony Rizzo, Reymond Fuentes, and Eric Patterson

Shaun Marcum for Brett Lawrie

Mark Reynolds for David Hernandez and Kam Mickolio

J.J. Hardy and Brendan Harris for Jim Hoey and Brett Jacobson

Josh Willingham for Henry Rodriguez and Corey Brown.

Zack Greinke and Yuniesky Betancourt for Alcides Escobar, Lorenzo Cain, Jake Odorizzi and Jeremy Jeffress

Of those moves, I’d estimate that the only one where the general reaction is that the seller made out better than the buyer was the Marcum trade, and even that was certainly not clear cut, as there is a lot of question about where Lawrie will end up on the field. The Greinke trade is also somewhat mixed, depending on how different people feel about Escobar’s future. It was almost universally agreed that the buyers did better on the rest of the deals, as established major league players have simply not been generating the types of returns in trade that we’ve seen in prior years.

In one market for players, we’re seeing runaway inflation. In the other, we’re either seeing stagnation or deflation. If the two markets were really treated by major league teams as one larger market, we’d expect them to move somewhat in tandem, as buyers would price shop between free agents and trades and then acquire players in the market that cost less. That’s just not really what’s happening, though – teams have mostly jumped head first into the free-agent market, paying the going rate for players as if that’s the only opportunity they have to improve their rosters.

There are several possible explanations for why these markets have gone different ways this winter; the one that holds the most water in my mind is that teams are reacting to the rise in prices in free agency by increasing their valuations of cost-controlled players. Teams are essentially seeing that the free-agent market has mostly recovered after a downturn in spending last year, and with prices for players with 6+ years of service time going up, the perceived value of players who are not yet subject to market pricing also has gone up. These are the players who are most often traded in these rent-a-player and old-for-young moves, and if teams are less willing to give them up, then the teams looking to deal players headed for free agency in a year or two will find themselves with a softened demand.

Whether this is a correct price adjustment or simply an overreaction to valuing young talent, I’m not sure. However, if I were a GM trying to improve my team right now, I’d probably be doing the exact same thing Doug Melvin has done this winter – abandon the free-agent market, keep my potential free agents, and trade prospects for guys headed towards free agency. Given how the two markets have acted this winter, it is certainly been the more cost effective way to build a team right now.



Print This Post



Dave is the Managing Editor of FanGraphs.


Sort by:   newest | oldest | most voted
cpebbles
Guest
cpebbles
5 years 5 months ago

I don’t think it’s a new phenomenon that teams are trading for the marginal value of players and not ignoring contracts to come up with a talent-for-talent swap. Run an analysis taking into accounted projected WAR vs. projected salaries for the cost-controlled seasons being traded, and I think you’ll see a handful of stupid trades by bad GMs and an otherwise rational marketplace stretching back at least five seasons.

BX
Guest
BX
5 years 5 months ago

You left out Justin Marks in the David DeJesus trade, FWIW.

Blue
Guest
Blue
5 years 5 months ago

I thought the general consensus on the DDJ for Mazarro/Marks trade was that it was fair value.

Daniel
Guest
Daniel
5 years 5 months ago

I was under the same impression myself. Mazarro is a ceiling #4 starter and Marks is the much younger but higher potential prospect.

chisox24
Guest
chisox24
5 years 5 months ago

http://www.fangraphs.com/blogs/index.php/oakland-acquires-oakland-y-player/

http://www.royalsreview.com/2010/12/12/1871693/dayton-moore-incompetence-tournament#storyjump

I think the consensus on this trade was that it was not a good trade. The argument from the blog is in the comments, while the description from fangraphs does not seem to like it either.

Daniel
Guest
Daniel
5 years 5 months ago

Royals Review is not a bastion of objective analysis. I much prefer Royals Authority for discussion.

BX
Guest
BX
5 years 5 months ago

When Royals Review wants to be objective, it can be objective and do it well. When it doesn’t want to be, it won’t be.

And its got some of the most amazing writers ever (see: the Carl Crawford/bookstore fiasco—anybody who can fool national media with their satire is very, very good at writing)

chisox24
Guest
chisox24
5 years 5 months ago

http://www.royalsauthority.com/?p=3262

Doesn’t seem to think too highly of it either.

Blue
Guest
Blue
5 years 5 months ago

Oh, and here’s what I think is actually going on.

You have two money supplies: cash and prospects. You have an essentially fixed amoung of free agents Clubs are seeing an increase in cash due to any number of reasons and that pushes cash prices higher. Since cash cannot directly buy prospects, prospects are retaining their value and thus increasing in value relative to cash.

Greg
Guest
Greg
5 years 5 months ago

Yes. Or as Friedman and Schwartz put it, “Inflation is always and everywhere a monetary phenomenon.”

Sockmonkey
Guest
Sockmonkey
5 years 5 months ago

Yes – this, or something like this. If veterans are getting paid more via free agency, then acquiring them is worth less than it used to be. The pre-arb player is worth more than he used to be.

I wonder about the pervasiveness of the $ increases, too. Seems to me the journeyman did far better relative to the star player about 10 years ago than he does today. The concept of replacement value has taken hold there, IMO. Someday it may come to relief pitchers, too. :)

H Man
Guest
H Man
5 years 5 months ago

It seems as though teams are placing far higher value on their own prospects over the potential draft picks they lose out on by signing free agents. It stands to reason that perception is a key part here. There is more perceived value in keeping prospects than their is in trading for established players. As such, free agent prices go up, and trades are less likely to happen if the seller is demanding too much. But really, the team that’s signing the free agents is losing out on potential prospects by giving up their draft picks. What it comes down to in my opinion is that less and less teams are believing in their own scouting and drafting abilities.

Sockmonkey
Guest
Sockmonkey
5 years 5 months ago

It’s not clear that the FA compensation system will survive for long, so this hypothesis may soon get a test.

H Man
Guest
H Man
5 years 5 months ago

Any word on when that decision will be made? I can’t really think of an alternative that benefits the lower-market teams. Perhaps increasing the percentage teams have to contribute to revenue sharing…

H Man
Guest
H Man
5 years 5 months ago

Also, if they do scram the compensation system it’s likely that free agent prices will go up. More teams will be able to get involved without the fear of losing picks.

tyrone
Guest
tyrone
5 years 5 months ago

Agreed. I’d even go a bit further and say that teams are valuing other teams’ prospects over draft picks. Not only are teams are willing to give up picks by signing free agents, they’re also trading good players for prospects even though they can get prospects via draft pick compensation if they just let the elite player play out his contract. Teams are essentially behaving as if draft picks (even lower first round and sandwich picks) are a less certain way of getting talent than obtaining other teams’ extant prospects. It’d be interesting to see studies of whether that’s truly the case.

chris d
Guest
5 years 5 months ago

whatever the reason for the high prices, it is essential that GMs are wise and know how to assess talent and value. That is why I am glad the Mariners have Jack Z. He seems to be the master of doing all of this very efficiently and economically

John
Guest
5 years 5 months ago

Like trading Morrow for a middle reliever and trading for Milton Bradley?

NBarnes
Guest
NBarnes
5 years 5 months ago

And what did the Ms trade for Milton Bradley that was so valuable, again?

Dag Gummit
Guest
5 years 5 months ago

Check that – he traded Morrow for a middle reliever and a thus-far-looking-solid high-A COF prospect.

Yes, it could still come around and potentially bite him in the ass, but people refuse to realize that it wasn’t just straight-up Morrow-for-League.

JAH
Guest
JAH
5 years 5 months ago

Or like the Putz/Guitierrez deal, or the Washburn deal, or BOTH times Cliff Lee got dealth. Oh wait, nevermind. Those were good deals. Stop cherry picking.

Josh
Guest
Josh
5 years 5 months ago

Could agents be playing a part in this phenomenon? Certainly, no one would argue that Boras et al are the primary drivers of free agent market prices; however, it seems reasonable to assume they are (collectively, or individually) doing something to garner such big-money deals. Contrast this with the trade market, in which agents have no real incentive to secure the highest return. In fact, they may be better off driving trade value down, if anything, in order to facilitate trades that ostensibly place their clients in better situations. In other words, agents may be driving prices up in one market but not the other.

Mike
Guest
Mike
5 years 5 months ago

more teams are probably interested in free agents versus interest in trades. even ignoring the provisions within K that limit which teams a player can be traded to, when someone like greinke is available for trade there is basically no way in hell that the pirates are ever going to trade for him. however, the pirates could go out and sign a big name free agent and even if they don’t sign a premier name they’re likely going to sign some free agent and all the free agents (to a degree) see their value determined by those big names that get signed. (not that it’s per se slotting, but i’m sure there’s some of that happening)

as an alternative suggestion: teams with big time players to trade are worse teams. on a micro level, the royals. they suck. they suck big time. they’re the definition of suck in baseball, right now. now, while there are many reasons for a team sucking, one could be that they have dumbest people in the front office. not that moore is dumb by normal people standards, but compared to, say, friedman he appears dumbest. thus, he’s more likely to make a dumb move.

by comparison, teams that are trading FOR big time players typically tend to be teams that have a decent shot at winning now. (again, the pirates simply don’t need greinke) now, if sucky teams are run by dumb GMs (relatively dumb) then non-sucky teams may have front office staffs that are just a tiny bit smarter and thus they’re able to come out ahead on the deal.

joe
Guest
joe
5 years 5 months ago

Comparing total spending one year to the next…. equivalent years? equivalent # of players? equivalent quality/value?

Might as well use runs, RBI’s and total bases (and other counting stats) to evaluate players.

You could at last try to normalize it….even mere $ per player year (and forget quality) would be helpful

skipperxc
Member
skipperxc
5 years 5 months ago

Should I be worried that both trades that were not clear-cut for the buyers involved the Brewers?

Danmay
Guest
Danmay
5 years 5 months ago

That all depends on how excited you are for 2011

BX
Guest
BX
5 years 5 months ago

They also involved 2 of the 3 best established players traded though, with AGon being the 3rd.

High demand elite talent will always be in high demand.

CircleChange11
Guest
CircleChange11
5 years 5 months ago

It seems teams have figured out that money is easier to replenish than quality prospects.

Blue described it above.

IMO, it’s obvious. It’s the same reason why there’s an overpay for free agents. There is simply not that many great players in MLB, and getting 5 WAR out of one roster spot is damn valuable.

I reflect back to last year when DDJ was the solution for 5 different teams and their quest for the playoffs. (Turns out SFG didn;t have to have him).

We make it sound like mid market or small market teams can just add 2-3 WAR players all over the field for fair market price and drastically improve, but the players are not there, or exist all at the same time (free agents in the same off-season). Mon ey is there, and occassionally we’ll see teams sling it around as if it were a drunken monopoly game.

This may be one area (the value of prospects) where sabermetrics may have actually influenced the game quite a bit. Traditional thinking was that verterans were always better than young players. But once data showed that the young players can put up basically the same value, for less money, and under more years of team control … poof, the end of the “Derek Bell careers”, where someone was always willing to throw big money at a veteran just because he was a veteran.

CJ
Guest
CJ
5 years 5 months ago

I think the two markets are distinguished by the participants, too. Smaller market teams are driven to the trade market more because they can’t afford to shop in the free agent market. If you look at the list of trades, only one trade involved a big market team–the Gonzalez trade–and in that case a small market team traded with a big market team in order to reduce payroll.

Sure, the big market teams can participate in the trade market, but if they happen to have a strong preference for holding on to prospects, they see the free agent market as a way to have their cake and eat it too (sign a star player without giving up any prospects).

Some of the teams that trade star players have constraints which reduce their bargaining power. The most important is payroll limits (i.e., the team feels financial pressure to get rid of well paid star); but in some cases it may involve no trade clauses, which prevent the selling team from taking the best deal. . Therefore, they may be unable to get top value in prospects.

John
Guest
John
5 years 5 months ago

Maybe the two markets are a result of varying degrees of information. In a free agent signing, all teams have basically the same information. In a trade, the team buying has more direct experience with the prospects they are willing to trade.

Justin
Guest
Justin
5 years 5 months ago

I think it’s simple. When you trade for a player you pay twice, as in prospects and then salary. In FA you only pay for salary.

Dustin
Guest
Dustin
5 years 5 months ago

Free agent compensation?

Dustin
Guest
Dustin
5 years 5 months ago

draft pick compensation that is.

kycubsfan
Member
kycubsfan
5 years 5 months ago

I think the article is a great start and many of the comments are helping to elaborate on whats really happening.

I think the key-points are management less willing to pay older players for “known” quantities. Smaller market teams have seen the success of Rays, Rangers, Red Sox (to an extent), and Brewers making it to playoffs with considerable homegrown talent and embracing this concept vs. trying to sign FA… Fans have also bought into this viewpoint making it easier for bad teams to not sign a older FA just to satisfy a need.
Teams are certainly valuing the control years more and more and more and more… Even controlled players with years bought out are at much less than the market value. I would expect players to be trying to change this ASAP, with less opportunity from 34-40 they need to make more money from 26-32.

Bob B.
Guest
Bob B.
5 years 5 months ago

While I agree, it’s going to tough to make that argument given the prices paid to some 30-something FAs this off-season.

baycommuter
Guest
baycommuter
5 years 5 months ago

That will have some effect, but cost-controlled players fearing injury will always settle for less than expected value, and should, because of the diminishing marginal value of money. Ten million dollars is a lot closer in terms of what it will do for your lifetime standard of living to $50 million than it is to $1 million.
We’re seeing increased recognition of that in other settings as well, such as the Cliff Lee signing.

Sandy Kazmir
Member
Sandy Kazmir
5 years 5 months ago

I’d see them as competing instruments like the bond market vs. the stock market. It’s possible that they could be tracking together, but I think it’s a lot more likely that teams are going to think that one market has an advantage over another, for whatever reason.

Oscar
Guest
Oscar
5 years 5 months ago

It’s not complicated. As free agent prices rise, the value of cost-controlled players does as well, for obvious reasons. The end.

Scout Finch
Guest
Scout Finch
5 years 5 months ago

In a self-perpetuating feedback loop sort of way ?

Jolly Roger
Guest
Jolly Roger
5 years 5 months ago

I agree buyers did better overall esp. the Orioles.

They managed to parlay 4 relievers into a starting left side of the infield..

Slugger27
Guest
Slugger27
5 years 5 months ago

seems harsh

Everett
Guest
Everett
5 years 5 months ago

Deleterious is apparently a 13 year old who still thinks this is an appropriate manner in which to insult someone.

JoeyPajamas
Guest
JoeyPajamas
5 years 5 months ago

So if the new CBA scraps the current system of draft pick compensation, what will be the effect on the free agent market? Will more teams go crazy and be more willing to spend? Or will this really mostly just affect players such as marginal relievers and position players that have somehow wiggled their way into Type A status?

Socrates
Guest
Socrates
5 years 5 months ago

I disagree with the final analysis. While I think that the Brewers have done a good job improving their team for 2011 (and probably 2012), there are definately consequences that they are paying down the road.

The premiss is not an either/or (trade upgrades or free agent upgrades). They are both immensely costly. The cost of the Brewers trade for Greinke will not be know for years, while the cost of Philly aquiring Lee is pretty clear cut.

Clearly there is one market for valuing players. What is flutcuating is teams valuations of players at different stages of development. To win a championship you have to have a good balance of cost controled players and free agency aquisitions. Even the Yankees, Phillies, and Red Sox (who currently have the highest payroll for 2011) need cost controled players like Pedrioa, Hughes, Utley, etc.

I think that the free agent market and the trade market are really just one market: the player valuation market.

I am not sure that I have explained it well, but maybe this analogy will help. It is like the housing market has two sectors (buying and renting). Sometimes they move in the same direction (prices for both go up) and sometimes there is a divergence in the direction that the values are taking (one goes up and one goes down). Right now I would say values for free agents and cost controled players are both moving in the same direction… UP.

Ratwar
Member
Ratwar
5 years 5 months ago

I think we’re seeing the results of the press always praising teams that build from within like the Twins. It makes teams less likely to trade their prospects and it makes them value scouting more. For example, KC’s hired Moore because of his reputation from the Braves farm system, and he’s built a great farm system, but his MLB team is made up of cast offs from the Braves (Jesse Chavez, Kyle Davies(F), Brayan Pena(F), Wilson Betemit(F), Gregor Blanco(F), Melky Cabrera, Jeff Francoeur(F), Bruce Chen(F) (‘F’ indicates a player who came up in the Braves farm system).

GMs don’t want to be the one that gets taken to the cleans on a trade involving prospects.

CircleChange11
Guest
CircleChange11
5 years 5 months ago

I know I am not supposed to respond to this, for the same reason you don’t go to the zoo and throw poop at the monkeys.

But, this is embarrassing. Not embarrassing for me (I’ve been called worse names by a better class of bench jockey), but for manhood and creativity.

Seriously, anonymous name calling, while treating a private site/forum as it were your own facrebook or twitter complain account? I guess I just don’t get it. I don’t see how it’s funny. I don’t see how it’s insulting. I don’t see the point. It’s an embarrassing act.

The Barking Dog* actions are never desirable. Barking Dog = lots of noise from a safe distance or behind a fence.

CircleChange11@gmail.com

Use this instead

wpDiscuz