26 December 2012

Why Giving Up a Draft Pick for LaRoche Might Make Sense

How much is LaRoche worth?  Depends.
With Nick Swisher signing with the Cleveland Indians, my perspective has become that there are no longer any true difference makers on the free agent market and that the Orioles will need to seek out improvement in talent by engaging the trade market with all of their efforts.  Although that thought is excellent in terms of twitter sound bites, it does use a context that is assumed.  It is a statement that can be misunderstood and repeated in ways that are not intended.  In truth, there certainly are lines of argument to say that Adam LaRoche and Kyle Lohse are indeed difference makers.  However, my usage is a player that can improvement a team by 2 to 3 wins.  An amount that justifies the cost being outlaid to a player.  However, at times it does make complete monetary sense to pay 12 or 15 MM for a player who may only improve a team projection by half a win.

How can half a win be worth 15 MM?  Well, it is a matter of looking at worth of a single player versus the worth of an entire team.  If a payroll budget is 100 MM that will be spent or lost, then it may well make complete sense to full utilize that budget.  A team may be projected at 95 wins and sit at a 85 MM payroll.  At that point, adding a high profile reliever for a year at 15 MM does make the team better and improves the likelihood for a playoff run while staying under the team payroll budget.  To put it another way, no way is a reliever worth 15 MM to add a half win or a full win to a team, but it is important to maximize that win profile by fully utilizing that budget.  It may well be the most useful way to use up that payroll is to go big and deep on a reliever.

Recently, there has been talk that the Orioles have frittered away last season's good will and success that may have paid dividends on the free agent market.  There has been a tidal surge of interest suggesting a run at Adam LaRoche (which seems to be a common event every other year) and a smaller sportswriter push for Kyle Lohse.  Reactions to those pushes are that the players are mediocre commodities (likely true) and will not add much to the win total of the 2013 Orioles (probably true).  However, a use-or-lose payroll and cost outlay may have the addition of these players make sense, somewhat.

Added to the complexity of acquiring these players is that their former teams offered arbitration which was turned down.  Upon turning down the offer, the former team will receive the top draft selection remaining by the signing team that is not within the first ten selections in the draft.  In other ways, if the Orioles sign a player like LaRoche of Lohse who turned down arbitration, the Orioles will be required to forfeit their first round pick (24th overall).  If they sign both of them, they would lose their first round and second round selections (they cannot lose their compensatory pick between the first and second rounds).

For some, the loss of a draft pick is something that is unacceptable.  Amateur talent is essential to almost every team as it is the primary way to field a competitive team.  A cost controlled group of players under their first six years of MLB time helps reduce cost to enable teams to go out and find what is useful on the free agent market.  Additionally, teams are locking up their star players and preventing them from entering free agency.  This makes it even more important to be able to develop your own guys as available free agent star players simply are becoming a low probability event.  That said, nothing is infinite in value, so the idea of never losing a draft pick is likely an extreme point of view.

Challenging my original statement, is there an arguable position to say that the Orioles should go after a player like Adam LaRoche or Kyle Lohse?  Well, the following is an exercise to see if I can develop that argument and will be primarily focused on LaRoche.

The value of LaRoche

Last year, LaRoche entered the season coming off an injury plague 2011 where he was atrocious when he was able to get on the field.  Expectations were not incredibly high with PECOTA projecting him as having a slash line of 251/321/435 and worth 1.3 wins over replacement production.  An entire win of that total was based on his defense.  That projection was spot on...if you only consider defense.  Offensively, he slugged 271/343/510, hit his 90th percentile projection, and was worth 3.6 wins above replacement production.  Entering his age 33 season, it is difficult to think that this past season set a new level for expected production, but it certainly happened.  My expectation is that LaRoche is worth about 2.5 wins next year, 2.2 wins in 2014, and 1.8 wins in 2015.

The cost of LaRoche

At 6.5 wins, he is worth about 32.5 MM if the market value is 5 MM per win.  However, that alone is not his cost.  The Nationals placed a tender on him, which enables them to take the Orioles' pick (1:24; top 10 picks are protected).  The loss of a draft pick for signing LaRoche has caused great consternation among some Orioles fans.  It is a sentiment that many share when considering moves by other teams.  The problem by taking a hard line on losing prospects is that it is clear that draft picks have a limit to their value.  There certainly is a price point for which losing a prospect makes complete sense.

The Orioles selection, the 24th pick, carries a certain probability of producing a useful player down the road.  If selection does become a league average player, he will save the Orioles quite a bit of money that could be spent elsewhere.  It will take several years for that value to come into being.  If it does, it will be worth about the following:


Value Cost Diff
2014 minors

2015 minors

2016 minors

2017 minors

2018 12.2 0.5 11.7
2019 12.7 0.5 12.2
2020 13.2 2.6 10.6
2021 13.7 5.5 8.2
2022 14.2 8.5 5.7
2023 14.8 11.8 3.0
Total

51.4
 This suggests the cost for signing LaRoche would be an additional 51.4 MM on top of his total salary.  However, it is unlikely that the draft pick becomes an average player.  From 1996 to 2005, picks 23 through 25 resulted in seven players you could argue were valuable as starters (this forces one to consider Phil Holmes and Jeff Franceour as suitable starters).  This is a rate of 23%, which drops that 51.4 MM value to 11.8 MM when you consider average value (or 0 MM if you wish to consider the mean as your outcome) or 9.0 MM in 2013 dollars.

I think it also helps to consider what it means when you consider the draft in general for a team.  As in, how many average starters does a team produce in a draft.  The following looks at how many starters were produced from each draft position for the Orioles 2013 draft.

1996-2005


Round n-1 n n+1
1 3 2 2 23%
c 0 2 0 7%
2 1 2 1 13%
3 1 1 0 7%
4 1 0 0 3%
5 0 0 0 0%
Players


0.53
You could expect an average of half a useful player coming out of the 2013 draft.  Another way of thinking is that the Orioles stand a 53% chance of getting a useful starter.  If you remove that first round pick, it becomes about a third of a player or a 30% chance.  The point here is that even though a team loses a first round pick, it does not mean the team has no chance to produce a starter.  It certainly decreases that chance.

The Talent on the Current Team

The decision on whether to acquire a free agent is greatly dependent on how good the team is with and without the player.  The concept was expressed well in an article on Baseball Prospectus from 2006.  Basically, not all wins are created equal.  A team moving the needle from 60 wins to 61 wins is not going to earn as much from that 61st win as a team will by pushing from 89 wins to 90 wins as the latter scenario results in a greater likelihood of a big pay day in the playoffs.

Below is an updated version of the graph from the previous article (only difference in market price is addressed, not the expanded playoff system):



Keep in mind, I am not certain those updated numbers above are accurate, but lets use them as a basis for discussion.

If you believe that the Orioles are an 83 win team (what an even one run record would have resulted in), then a 2.5 win player would be worth about 6.1 MM (if the graph above is accurate).  If the team is at 89 wins then the 2.5 wins would be worth 17.4 MM.  Assuming the latter is the real scenario, then a 3 year 36 MM deal is more like earning 2.4 MM (12 + 3 - 17.4) in 2013.  However, this assumes that the first base scenario is Adam LaRoche or replacement level.  The two scenarios to compare are Chris Davis (1B, 2.1 WAR), Wilson Betemit (LH DH, 1.2 WAR), and Danny Valencia (RH DH, 0.4 WAR) against Chris Davis (DH, 1.6 WAR) and Adam LaRoche (1B, 2.5 WAR).  The DH positions cancel out, so the projected difference is 0.4 WAR.  The increase from 89 to 89.4 wins, the difference is worth 2.5MM.  Instead of a windfall of 2.4 MM, it would be a cost of 12.5 MM.

However, the above situation views the move in a cost vacuum.  That is, does the cost paid out to an individual match the improvement in wins attributed to that single player.  The Orioles payroll stands roughly at 87 MM and there is some suggestion that the payroll limit is at 100 MM.  Although the free market rate for a win improvement is about 5 MM, would it make sense to spend 13 MM to get as half win and pay five times the going rate for that improvement in talent? 

Conclusion

The first segment simply noted that LaRoche has value.  The second segment noted that the cost of acquiring LaRoche is his salary and the value associated with the loss of a draft pick.  The third segment showed that cost can change depending on the talent level of a team and that a team can have surplus value to overpay a player.  In other words, draft picks are not commodities that must never be dealt away.  They have a certain value and sometimes it is quite beneficial to sacrifice them in exchange for signing a free agent.  Furthermore, the value and cost of a free agent are often subjective based on current talent level of a team and surplus money on a payroll.

So, yes, you could argue that LaRoche is a needed addition on this team.  Actually, a much better argument would be for Kyle Lohse who probably stands as being a 1.5 win improvement over whatever becomes the filler for the Orioles' fifth rotation slot.  However, I still wouldn't pay out as I believe this team is the fourth or fifth best team in the AL East and a good bit behind the two teams I think are the best in the division (Tampa and Toronto).  The Orioles need to improve by about 5 games worth of talent (two excellent players in areas that are holes).  I think that would have best been addressed by filling LF with more dependable talent and acquiring another SP.  However, Melky Cabrera and Nick Swisher are gone.  R.A. Dickey is gone as well as the secondary market with guys like Edwin Jackson.  As it is, it probably is best for the team to seek fringe talent and hope to catch lightning in a bottle.

If I was under a use or lose scenario with money, my efforts at this point would be to try to offer a signing bonus to Matt Wieters or Manny Machado to lock them up long term at a low base salary.  Of course, maybe that is a topic to more fully engage at a later date.

7 comments:

Joe Reisel said...

Another consideration -- almost all of the Orioles' draft successes in recent years have come from very early selections -- Wieters, Machado, Bundy, Gausman, Matusz. That makes it less likely that the Orioles' #24 draft pick will produce a valuable player.

Jon Shepherd said...

In general, the Orioles have been selecting within the top ten (where there is a great amount of agreement on who is likely to be a very good prospect) and then in the 60-80 selection range where there is much more noise to the process. Based on the team's performance, I do not know whether I can say with any assurance that they are better or worse than the average team with respect to amateur scouting. My assessment in this article assumes they will perform in line with an average scouting program. That said, there are some rumblings that the current group does consider amateur performance a bit higher than the previous group which had a lean toward physical ability (as well as makeup). Will be interesting to see the new body of work.

W. Blake Gray said...

Jon: I'm sorry, but you didn't do a great job of assessing what LaRoche's value would be in 2013 and 2014. He was very valuable in 2012, granted. But he had a career year at age 32, and would seem unlikely to repeat it.

By baseball-reference's WAR, LaRoche was a 4.0 win player in 2012. His second-best season, 2009, he had 2.0 WAR. (I'm not a WAR fanatic, but it's a nice shortcut.) LaRoche was mediocre in 2010 and bad in 2011.

I don't think a #24 draft pick has as much value as people think; go back and look at the success rate for teams picking #20-#25 and you'll find it's not very high.

But I just don't want LaRoche. He'll be 33, he's had one very good year in the last 3 and only one other season that rose above mediocre.

Might I add that the Orioles tried to sign him 2 years ago and he spurned them? Let somebody else overpay him. They'll regret it.

Jon Shepherd said...

Assessing LaRoche's success? 6.5 wins over three years is rather fair. It acknowledges his 2012 season as well as his previous seasons. So, I am unsure why you think I should think that he will repeat his 2012 production when I did not suggest such a thing. His value could very well drop below a 2 WAR average for those three years. However, I would not think a 2.1 average is worth much contention.

Regarding the #24 pick...I did exactly that and reported those numbers in the article. So...I think we found it was not very high at 9MM. Are you trying to saying something else. I might have misunderstood what you mean here about the draft pick.

Re: LaRoche. As I mentioned in the article, I do not think he would be a good signing. However, there certainly are circumstances where he could be.

Anonymous said...

I don't understand how this is an ESPN affiliated blog.. this is garbage

Jeremy Strain said...

What I think Jon was getting at is that there are both pros and cons to signing guys like LaRoche and giving up draft picks. In a year where our pick we give up is towards the lower part of the first round and we have another high compensation pick to lessen the blow it makes more sense than others.

For me it comes down to how much confidence you have in the O's scouting department, which is hard to judge since it's a newer regime. There are greatly talented guys drafted in the #20-#50 range every year (I'm trying to get a post together looking at that) so if you are confident they can hit, maybe for the long play you want to hold on to that, such as BOS is doing. If you aren't as confident it shouldn't be a huge stumbling block to signing a player you feel like the team needs to compete.

I don't think that he's saying signing LaRoche is the way to go, or that it isn't, just that there are positives on both sides of the move, and you can make an argument either way. If you don't think the O's will compete this coming year without making a series of moves, it doesn't make as much sense. If you think they are one player away from being right in that hunt, then maybe you make it and see where you are in June/July for trades.

Liam said...

The point you made about the value of a marginal win for different teams is a really good one, and often gets overlooked. Its really the only argument for signing a big name on the FA market. In Laroche's case I don't think the marginal wins are valuable enough, but I do agree that the draft pick is not as valuable as some suggest.

If we were talking about signing a LF or 2B, the marginal wins would be far easier to come by and thus worth paying more for. But with the big name outfielders off the market and no real 2Bs on the market, that ship has sailed. Depending how you view the pitching depth, though, Lohse could still make sense.