Assessing Roster Moves I: To Protect and Tender

Marginal theory is central to economic valuation because it provides tools for analyzing the cost and benefit of one additional unit added (or subtracted) from a current situation. In one economic game, the competitive market, marginal theory can be used to help find an equilibrium between supply and demand; in another economic game, such as monopolistic competition, marginal theory can be used to help find the price and quantity levels at which a firm will operate. So on and so forth.

It is difficult to find the relevant points for constructing marginal analysis of baseball transactions because MLB teams are arguably not in economic competition for resources (they are more effectively viewed as colluding firms seeking to keep other operators — competing baseball leagues — from succeeding). Also, MLB-level talent is so incredibly scarce that it is difficult to say that there is a diminishing return from adding too much talent; this is not the same as hiring too much labor or investing too much into capital infrastructure in a competitive market. To demonstrate the latter point, consider the number of 3.0 WARP players in 2016 MLB (77) compared to 1348 batters; given that teams are willing to employ 148 more batters than the total number of 40-man roster spots (1200) in a season to squeeze out every win, at the very least one would argue that (1) there is no diminishing return on adding impact players, and (2) the best place to look at marginal value would be the cost and production of those additional 148 players cutting their teeth at the edges of the MLB roster. But no one would say that MLB teams should only acquire, say, two 3.0 WARP players, and with their third 3.0 WARP player they lose value.

What does this have to do with anything? The Brewers are doing practically nothing thus far in the 2016-2017 offseason, and some of the moves from GM David Stearns are downright perplexing. Others still are non-events, and some of those moves might still produce another surprise player (like Junior Guerra or Jacob Barnes or Keon Broxton or something). So, while I am not going to be able to offer you a full theory of marginal roster value here, consider that in these early season transactions, we are judging the cost of adding one additional player to the 40-man roster, either at the expense of additional future value to the organization, additional surplus value (in terms of production value, trade value, at a certain contract rate), or additional WARP right now. Since most people still assume the Brewers are rebuilding, let’s forget the third motive for rosterbuilding, and prioritize the first two (I’d even add an asterisk to the first goal, adding future value).

(1) Dreadful, dreadful, terrible move: Not Adding Miguel Diaz to 40-man roster.
Set aside the fact that one of these days, analytical front offices will eventually start plucking intriguing A-ball prospects in the Rule 5 draft with regularity. The Brewers made such an audacious (and brilliant) move when they nabbed LHP Wei-Chung Wang from the Pittsburgh Pirates for the 2014 season, effectively stashed him, and even effectively kept him within the organization after designation for assignment. That was a phenomenal future play for a low-cost asset that addressed a (then) organizational weakness (left-handed starting pitching). Of course, the Brewers neglected to protect Wang from the 2016 Rule 5 draft, which is rather problematic in itself. But Wang himself shows the potential value in toughing it out with an extremely inexperienced professional ballplayer as a Rule 5 pick: Wang improved the system’s starting pitching and replacement pitching depth at low cost. The Padres also demonstrated this strategy by selecting RHP Luis Perdomo in 2016, suggesting that perhaps this is finally the beginning of analytical front offices doing audacious things to find value.

Miguel Diaz is probably a Top Five pitching prospect in the Milwaukee farm system to most evaluators, and if you weigh fastball, secondary stuff, potential command and development, and even risk, the righty could probably also land a Top Three pitching prospect designation on the right day (I’d slot Diaz behind RHP Luis Ortiz and LHP Josh Hader; on my own Brewers list, I have Diaz (easily) ranked within the Top Five Percent of the entire Milwaukee organization (with Ortiz, CF Lewis Brinson, and IF Isan Diaz standing as the One Percenters). In a June 2016 eyewitness report, Diaz landed heady 70 fastball OFP, 60 slider OFP, 55 change OFP, and “ability to throw all three for strikes;” risk comes from level / distance from the MLB, full command development, and delivery repetition. All told, a 60 OFP on Diaz makes him easily one of the best prospects in Milwaukee’s system; one could probably rank him in the Top Five and not think twice.

The Brewers neglected to protect Diaz from the Rule 5 draft. Consider this: if a 60 OFP player might be expected to produce at an above-average level at least once, and maybe produce at an average level at least once, it is quite easy to assign a 4.0 WARP / 2.0 WARP / 1.0 WARP three-year spread for a 60 OFP prospect. Yet, recognizing the risk of reaching that level, and the likelihood of depreciating performance, a harsh depreciation level of 70 percent still lands Diaz a three-year OFP grade of 4.9 WARP; an even harsher depreciation level of 40 percent (10 percent for each level away from the MLB, on top of 70 percent depreciation) still lands Diaz a three-year OFP grade of 2.8 WARP.

What I’m trying to say is this: at the basic cost of less than $0.6 million and maybe a burned option year, the Brewers neglected to find roster space for at least $19.6 million in OFP production value. What’s worse is that that future production does not account for the contract eating into that value (it costs nothing to release Diaz, meaning his $19.6 million minimum future value is completely untouched by his contract), nor does it account for the trade value inherent in (1) his strongest projections and (2) his potential production + potential contract. Miguel Diaz is worth at least $39.2 million to the Milwaukee Brewers in surplus value; but that’s an incomplete picture, as it does not include the full contractual reserve rights for the Brewers (but it’s also less effective to say that Diaz is worth $80 million in surplus value).

That the front office neglected to spend a 40-man roster spot on Diaz is an unforgivable offense. I know that’s harsh, but this is the first true mistake of GM David Stearns’s administration, and here’s why: the whole point of an analytical front office, if one views their aims as different than “winning ballgames,” is (a) to cut costs by steering revenue from players to ownership, (b) maximize WARP / $ ratios, and (c) value process over everything, or rather, create processes that consistently and effectively identify value.That the Brewers could not identify the clear value play in Miguel Diaz for an unforgivable risk in even 1-in-100 scenarios (that is, losing Diaz in the Rule 5 draft, for nothing), by spending nothing more than a 40-man roster spot on the righty, is plainly baffling. Moreover, if another MLB team does not select Diaz, they are also making a mistake and poorly evaluating the cost of stashing $39.2 million in surplus value on their roster.

2017 Opportunity Cost: 5.6 WARP ($39.2 million / $7 million per WARP). Ex., you could probably trade Diaz for a very good MLB player.

(2) Other Rule 5 Guys?
For fun, using slightly different calculations than the process I outlined above for Diaz, from my previous post on “Grading Trades“:

I think there are other claims to be made about protecting someone like Wei-Chung Wang, or even someone like Tyrone Taylor. But, since I just went off about Miguel Diaz for far too many words, let’s just say losing Taylor or Wang would be slightly more forgivable. Notably, Adam Walker has a similar prospect grade to both Taylor and Wang, meaning that the Brewers grabbing Walker at the expense of Wang and Taylor is probably close to a value non-event.

(3) The Waiver Shuffle

David Goforth has a career WARP of 0.3, driven by 24.7 innings worked in 2015 to the tune of 0.4 WARP, on the strength of a 3.44 DRA. On the 2016 Brewers, for context, that performance would have made him the fifth best reliever. Unfortunately, it’s a year removed for Goforth and memories are short and there are no second chances in baseball — scratch that, we’re rebuilding, there are plenty of opportunities for a pitcher such as David Goforth to get another chance in Milwaukee. Unfortunately, in the last 10 days, the Brewers have added Adam Walker, added Blake Parker, subtracted Walker, and now added Steven Geltz. The club designated Goforth for assignment to make room for Parker, which was a positive value play on the margins by approximately 0.3 WARP over six seasons (#ThisIsHowYouWinChampionships).

Much more interesting is the fact that both Geltz and Parker throw splitters according to BrooksBaseball, and even more interesting are both righties potential ties to current Brewers pitching coach Derek Johnson (Parker, potentially in the Cubs system) and Vice President and Assistant General Manager Matt Arnold (Geltz, potentially in the Rays system). It’s hard to dislike the mental picture of Stearns and Arnold emerging from the tank in Miller Park with two hard fought waiver claims based on the organization’s splitter-algorithm that caught Junior Guerra; or I don’t know, maybe like Guerra these signings are scouting-gut “I like this guy getting another chance” deals.

If you’re inclined to wonder why the Brewers are designating Walker for assignment, and inclined to be upset about it, consider the chance that he clears waivers and remains in Milwaukee, accepting a minor league assignment: the club just added a potential play worth $11.6 million in surplus value, to stash away for a rainy day (or by mid-June, we’ll see). Liken this move to the Garin Cecchini move, which was great even though it didn’t work out (or, more properly, has yet to work out). It’s tough to judge Walker’s value against Geltz’s rough WARP performance, but somewhere there’s a spin in that splitter that made someone’s afternoon in the plush offices of Miller Park.

2017 Opportunity Cost: Probably no more than 0.25 WARP assuming Walker clears waivers and accepts assignment ($1.8 million maximum roster space / $7 million per WARP). 1.71 WARP maximum cost ($12 million / $7 million per WARP).

(4)The Carter Misstep?
One of the biggest mistakes baseball fans make is viewing value as “production,” rather than “production + scarcity.” Production may be what it may be, but depending on other teams’ needs or wants, a player’s service time, and a player’s contract (among other factors), “scarcity” can be traded. This is what cannot be missed in the case of Chris Carter, after anyone smugly multiplies 0.8 WARP * $7 million, writes “Chris Carter is not worth salary arbitration,” and wrings their hands. So, while rumors suggest that the Brewers may non-tender Carter should they fail to receive a trade offer for the first baseman, a non-tender option should not necessarily be viewed as a positive event for the 40-man roster. For even at $10 million, Carter has value to the Brewers: he has three-year depreciation value at 2.66 WARP ($18.6 million), and two years of arbitration control (at zero cost to non-tender, worth approximately $12.4 million). Carter, at the very least, is worth $18.6 million to the Brewers, and even with harsh depreciation he could be worth as much as $24.8 million to Milwaukee. If you’re unimpressed by this, Carter’s contract surplus and production for one season is worth approximately $11.2 million.

Perhaps this rumor by the Brewers is a public relations plot, or perhaps it is an effort to negotiate a different contract with Carter (imagine a two year, $18 million contract, for example, which would pay Carter 100% of his production value, and 50% of his surplus value). This scenario would be valuable to the Brewers for several reasons: (1) No one better is available at 1B within the system; (2) Carter is relatively dependable; (3) the club still maintains trade value with that contract; and (4) Who cares, the team is sitting on $60 million already and there’s another $60 million due in 2017, and Carter can hit home runs like this:

Do you think Carter was aiming for his picture on the scoreboard? Anyway, the point is, it’s not enough to look at Carter’s production alone and judge a potential non-tender. In the context of the Brewers organization, and even the 2016-2017 first base free agency market, there is little opportunity cost in keeping Carter and paying him grand slam bucks. One of the few MLB free agents that would improve on Carter’s value is Steve Pearce, whose 5.39 WARP three-year depreciation score doubles Carter’s.

2017 Opportunity Cost: 3.5 WARP ($24.8 million / $7 million per WARP). Just pay the slugger!

(5) Total 2017 Opportunity Cost: 9.35 WARP ($65.5M). What this means is that Stearns is willing to pay $65.5M for these roster moves, or rather, that these roster moves have given him the space to find 9.35 WARP. In more straightforward language, the forthcoming roster moves will need to generate 9.35 WARP to balance the roster from these moves.