Surplus: Scalp or Spread

The Brewers are currently lead by a group of surprisingly valuable players, which is undeniably one of the reasons that the club remains steadily better than average. Entering Sunday’s game against the Dodgers, the Brewers’ top WARP belonged to:

• Eric Thames, nearly a handful of years removed from the MLB, previously a Korean Baseball Organization superstar, translated his overseas success into strong MLB value for the club’s $16 million gamble (1.9 WARP).

• Travis Shaw, a sometimes-platooned third baseman caught in a packed Red Sox infield, flashing his potential as a full-time player (1.4 WARP).

• Jimmy Nelson, a previously middling innings eater in the rotation, now two new pitches and mechanical changes deep into his career, showcasing a solid new look on the mound (1.1 WARP).

• Orlando Arcia, the club’s former top prospect from the 2015 Biloxi breakout, now materializing that fantastic glove on the MLB diamond as the bat develops (1.1 WARP).

• Manny Pina, a former Player To Be Named Later, emerging at the catcher position due to the prolonged absence of Andrew Susac and a gamble on his late 2016 “breakout” (1.1 WARP).

• Corey Knebel, a formerly hyped “high leverage relief” prospect acquired way back in the Yovani Gallardo trade, now receiving a chance to showcase that electric stuff under the microscope of the closer’s role (1.0 WARP).

I do not have one doubt in my mind that if BPMilwaukee, or anyone, really, ran a series of preseason articles claiming that this six-pack of players would lead the Brewers to the top of the division into June, that would have been dismissed as much worse than wishful thinking. Yet, here we are, a gang of unsung players and a couple of hyped prospects are leading the Brewers and creating fantastic value. These six players comprise half the club’s wins above replacement value.

Related Reading:
Cashing Out OFP
Bandy-Maldonado
Aging Braun

Yet, if one compares the current production and contractual status of the Brewers’ major contributors to the preseason surplus expectations, one can find that the expected leaders heading into the season have also been quite strong for the Brewers. Essentially, the vast majority of the expected leaders entering the season have continued to provide value for the roster while another set of depth players are surpassing their expected surplus and that surprising set of leaders paces the WARP rankings.

The following table showcases the Brewers’ current production, compared to their preseason depreciated surplus value. Depreciated surplus value calculates a player’s three-year production basis at 70 percent value, and then prorates that depreciated figure according to the player’s contractual situation. The goal is to project a player’s future production on a declining scale, rather than an optimistic scale. In order to project current value, I also created an expanded depreciated surplus metric, which calculates a player’s 2014-2017 production, basically expanding the three-year model to a 3.33 model. To compare depreciated and bullish models, I also simply projected a player’s value if they maintained peak 2017 performance for the remainder of their contractual reserve. Money is not figured into arbitration or league minimum (reserve) contracts, since those players ostensibly cost the club nothing to release (ex., arbitration eligible players can be non-tendered between seasons at no cost, and the cost of releasing a league minimum player is negligible). For players age-26 or younger, I added an Overall Future Potential (OFP) valuation (Thames has a preseason OFP valuation to express the inability of assessing his expected talent level).

Compare that ranking with the 2017 surplus value leaders entering the season; this is probably the group of players that fans and analysts reasonably would have expected to lead the club. Veteran Ryan Braun and newcomer Junior Guerra have not been bad, but both missed time with injury (0.8 WARP); Jonathan Villar and Zach Davies have struggled to varying degrees (although Davies’s Sunday start against the Dodgers was an exclamation point on the idea that the righty was heading the proper direction) (-0.6 WARP); Travis Shaw is materializing his surplus value and serving as one of the production leaders (1.4 WARP); and Carlos Torres, Hernan Perez, and Keon Broxton are generally serving as valuable depth (1.7 WARP).

Entering the season, this group of players represented $235.8 million in surplus value, which vaguely cashes out into 33-to-34 MLB wins (those wins can be long-term or short-term, obviously depending on when GM David Stearns decides to cash them out); adding the updated “extended depreciated surplus” metric results in $253.2 million in surplus value, or 36-to-37 wins. What is thrilling about this development is that this group of players averages 3.7 years of contractual reserve, meaning that the club has another chance to return many of these players to try and advance this roster once in another year. The actual depreciation of these roster assets has suspended for a year, and the value of these players to the organization is higher because they have improved as a group.

Surplus value is obviously quite an abstract and contentious measurement. First, one can define both scarcity (of a skillset, or service time, etc.) and production in many different ways. Even if one were settled on the idea that “value = production + scarcity,” questions about whether to depreciate a player’s expected production going forward, or to use a player’s maximal outlook, and every question inbetween, would render that equation of suspect meaning.

Even with this caveat in mind, I want to suggest that one of the reason the Brewers are successful in 2017 is that Stearns has capitalized on players that maximized their surplus value in short order. Basically, this group of players have largely staved off any immediate delivery of depreciation, which is thrilling for the roster core and the trade deadline. It would have been ridiculous to suggest that perhaps Jett Bandy could produce enough value to be flipped for a 50 Overall Future Potential (OFP) prospect by the deadline, and perhaps even more bullish to suggest that he would materialize as a long-term quality depth catching option. The same might go for Jacob Barnes or Domingo Santana or even Eric Thames (who would probably be very difficult to trade, in terms of finding a prospect partner that matches his divisive historical profile and approach to the game). This is one way to cash out the improved surplus scenario for the Brewers; but one can also simply say that Stearns has successfully assembled a gang of players that produced three-to-four additional wins in organizational value thus far.

In Out of the Pits: Traders and Technology from Chicago to London (University of Chicago, 2006), Caitlin Zailoom presents an ethnography of commodity markets that demonstrates the embodiment of these markets, as well as the gendered, strategic, and technological standpoints that define commodity markets in space. While many understand the market truth of “buy low, sell high,” most do not dig any deeper than that truism into the strategic forms that materialize that mantra for shareholders. Zailoom demonstrates two specific strategies that allow commodity traders to maximize value: scalping and spreading. A “scalp” is a trade that seeks to immediately capitalize on an asset’s value, while a “spread” strategy focuses on taking offsetting short and long term positions to deliver profitable returns. Both of these strategies are applicable to Stearns and the Brewers front office for the trade season, which many fans are falsely equivocating into “win now” or “continue the rebuild” categories; rather, Stearns can move in several contrarian directions in order to maximize the Brewers’ current and future value.

Scalpers are a fascinating type. Zailoom writes, “local traders hope to profit from correctly predicting the movements of the market up or down and risk losing their own money in the process. They are speculators in the most pure sense — individuals making money purely on the changing prices of financial commodities. Although locals have a variety of trading strategies, most of them are known as ‘scalpers.’ Scalpers trade in and out of the market within seconds or minutes, profiting from small price fluctuations. Making hundreds of trades during the course of the day, the scalper never goes home owning contracts” (p. 62). Obviously, the metaphor of going home without owning contracts cannot apply to a baseball team, but the spirit of quickly capitalizing on moving prices might be applied to many of the players reserved on the Brewers roster. A “spread” strategy most certainly can be applied to baseball trading cycles: “A spreader takes opposing positions in each of two instruments, using the more stable contract to limit the loss potential of a position in the more volatile product” (Zailoom, p. 86). This type of strategy might be ascribed to the notion of “trading from depth,” which ostensibly means that the club is mitigating production volatility by “selling” a player from a position of strength (which therefore equals less organizational risk) in order to “buy” production for another area of the team (ostensibly shifting short-term risk to this acquisition).

A brief visualization, where ‘X’ are the Brewers, and the Brewers are trading with two partners in separate transactions (Team Y, Team Z) involving Overall Future Potential (prospects) and WARP (MLB players) that may be cashed out over an unknown period of time:

Stearns can essentially (1) hedge three-to-four surplus wins created with the MLB roster (basically keeping this as “cash in hand” or “organizational collateral”), (2) trade a “less valuable” MLB player while the iron is hot (a “scalp”), and (3) trade valuable prospects for a more valuable MLB player. This sequence might be the equivalent of flipping a player like Domingo Santana to an American League club (maximizing his offensive value and mitigating his defense), while also trading multiple prospects for a controllable starting pitcher. This is an extremely risky series of deals, but exogenous to the model are those three-to-four surplus wins that essentially mean Stearns really is playing with house money (a familiar theme here at BPMilwaukee).

Consider the Brewers’ current catching depth to demonstrate a scalp and spread. Given the injury status of Andrew Susac, and the relatively slow development of advanced prospect Jacob Nottingham, the position is not necessarily a true position of depth for the organization (especially given the physical toll of the position). Yet, there are other stateside prospect assets around the organization (from Dustin Houle to Mario Feliciano to Jose Sibrian) that could conceivably build a pool of prospects large enough to offset risk of short-term moves. Stearns could “scalp” the monstrous surplus gains of Jett Bandy, which would be about as short a turnaround as one could provide in baseball (ex., a trade in two consecutive “windows,” consecutive offseason to midseason windows). Pina, Susac, Nottingham, Houle, and waivers would provide the most immediate risk mitigation here, with low-ball prospects potentially providing the greatest long-term payout to this strategy for Milwaukee. A “spread” move could see the Brewers buy- and sell- in different directions, depending on available moves to maximize club surplus; it should not necessarily be surprising to see Stearns deal some prospects and also deal some MLB depth. Faced with a roster that has already added up to four wins in depreciated surplus value, and a farm system overflowing with prospects, Stearns can “cash” those four wins in a variety of ways.

Adding layers of deals, the Brewers can take “spread” positions across MLB and minor league levels. Perhaps this means using one deal to trade a flyball prospect (like Trey Supak)…

…and another deal to return a groundball prospect, while using additional deals to return MLB rotational and bullpen depth:

The point is not necessarily to dig into specific players here (really, nearly everyone except for a handful of players should have a transaction value for the organization). Rather, the point is to demonstrate that using embodied market strategies can help transcend the “win now” / “continue the rebuild” trade conundrum that is currently consuming Brewers fans and analysts. The Brewers need not do anything other than return maximal future surplus and present surplus with their MLB players and prospects. Thus may we enter “neverbuilding,” or “counterbuilding supreme”: with significant organizational collateral in hand (three-to-four additional surplus wins) Milwaukee has an opportunity to continue competing in 2017 while transcending the “win now” and “win never.”