Kobayashi Maru is a term that is gradually entering into common parlance. Very gradually. It is a term I have largely ignored, but it kept coming up and I consulted Wikipedia. The term comes from a simulation test that cadets go through in the Star Trek series. The scenario is one where a starship has a choice to response to a distress beacon of a civilian ship in a highly contested demilitarized zone. If the captain chooses to go in, the enemy appears in an unwinnable battle. If the captain chooses to ignore the beacon, the crew is demoralized and loses faith in the captain moving forward. The test is not to see if the captain can make the right decision; there is no winnable solution. The test is how does the captain handle a situation in which winning is not possible. Manny Machado is Dan Duquette's Kobayashi Maru.
The Orioles currently hold onto the rights of Manny Machado for two more seasons, 2017 and 2018. In 2017, his arbitration is assumed to be around 11 MM. It will likely increase to about 15 MM in 2018. These numbers sound like a great deal, but Machado's true value is like somewhere in the 120 MM range (roughly 60 MM per season) in excess of his cost. He is worth that if you assume his level of play rises to an average of 8 wins each season.
For a club like the Orioles, dealing an 8 win player who makes 11 MM a year effectively means that you are trading yourself out of playoff contention. As is, the club is a fringe high 80s win club. With Machado elsewhere and nothing but high minors prospects coming back, you have a team that hopes to break even. It is a losing scenario as that 11 MM saved might bring back a second division starter in the remains of free agency. It is a losing scenario for 2017 and likely 2018.
However, the issue at play might well be 2019. Do the Orioles really have a plan? The minors is bereft of talent, arguably. The jewel of the farm is Chance Sisco, a young high minors catcher whose does not possess MLB ready catching skills and whose offensive profile entails high contact and plate discipline. While some like Keith Law choose to indulge themselves in hyperbole and call him "at worst...an average catcher", the industry is more varied in their response. A sizable portion (though still a minority) has difficulty imagining Sisco with his poor footwork, slow pop times, and weak framing skills to be able to improve to a competent level behind the plate. Previous work I have presented here shows that it is quite rare for a poor defensive catcher to ever make the Majors as a catcher.
Going beyond Sisco, you have your Sedlock, Akin, and Harveys. These are low minors pitchers who would typically find themselves in the 6-15 range in more flourishing systems. Or a Ryan Mountcastle who has an interesting bat, but no real position. What this amounts to is that the club has difficulty finding the needed, cheap internal options required to field a contender on a mid-league payroll. If you scoff at the notion that the Orioles are stretching things at a mid-league payroll, then please remember that MLB itself with all of its jockeying to keep and get money considers the Orioles as roughly the 20th monied team in baseball. This is an argument I put forward almost ten years ago. It makes sense and MLB goes along with it even though the Orioles anger a lot of people who calculate these things. Anyway, the way the roster is constructed the team basically runs out of the needed horses to compete just as the moment Buck Showalter and Dan Duquette have their contracts terminate after the 2018 season.
2017 and 2018 are it and Machado is rather essential for this club to be a playoff contender, but it looks dire after that. With a payroll in the 160 MM range, Machado at 30-40 MM is a difficult fit in there. Added to that, why would Machado choose to take a contract that he could sign anywhere and sign with a team who lacks the young, quality players needed to make the club competitive. Does Machado care more about Baltimore than about winning? That would seem to remarkable to me for a player who shut his season down in 2014 in the midst of a playoff run. He can walk and he likely will walk and the best the Orioles will see from him in that scenario is a complementary pick after the first round for one of the top five players in baseball.
If the Orioles deal Machado, they lose. They simply cannot replace what is heading out with the money they have if it was even possible to replace that value. Likewise, if they hold onto Machado for two years to see him walk, then they have left a crater of a franchise for whoever takes over. It will be a near complete loss except for the fun memories of an aging Chris Davis around the clubhouse. So, let's explore what a deal might look like.
One place to look is at the Adam Eaton deal between the Nationals and White Sox. Eaton is owed 5/37.4 on his contract. If you assume he maintains a 4 WAR pace with a post 30 0.5 WAR decline and cost is 8 MM/win, then he is a 148 MM player. Surplus value on his would be 110.6 MM. Using recent comps for prospect value, the White Sox received Lucas Giolito (69.9 MM), Reynaldo Lopez (29.8 MM), and Dave Dunning (10.3 MM, adjusted from Victor Wang's original research for a B level pitcher). That total value come to 109 MM, which is 1.6 MM short of what Eaton's value is. That is a close hit.
Oh, I see your face just went pale. Yes, Eaton has a surplus value of 110.6 MM and Machado's is ~120 MM. They are very roughly equivalent in surplus value. Sure, what you are feeling is sadness. Five years locked into a small contract is helpful to develop surplus value. Machado with two years are arbitration, less so. While exclusive negotiations has some merit, it means simply you are able to pay market value up front without any true competition for a player like Machado.
Again, though, think about it. Why would Machado want to sign long term with the Orioles? The club has almost no cost controlled talent in the minors ready to bubble up and provide complementary performance to Machado. That is necessary for a team who has apparently maxed out their payroll and are unable or unwilling to spend 4-6 MM on outfielders (e.g., Peter Bourjos, Rajai Davis). If you know you are going to pull in a 30+ MM per year deal, do you take it and hamstring the Orioles payroll or do you go for a much larger payroll that has the flexibility to support you with other talent? In other words, maybe the best way to keep Machado is to trade him for the talent needed to be appealing.
Dealing him this year has grown difficult as the third base market has progressively shrunk. Dealing Machado and signing Justin Turner would have been ideal. Dealing Machado would mean replacing him with Trevor Plouffe or Luis Valbuena, players who look fitting for a fringe backend divisional club and not for a contender. Regardless, dealing Machado and seeing a full return of 120 MM in value would be ideal for the Orioles future, but would also suggest that the rest of the club needs to be sold. That is hard to do right after a playoff season.
Anyway, let's see what 120 MM gets you and why not go for the heart. The Yankees are a pretty obvious fit. They have the money to sign Machado in the now as well as long term. They also have a rich minor league system after a long decade of neglect by the previous regime. Depending on what you want, you could acquire a soon to be MLB quality SS in Gleyber Torres (62 MM), a near ready athletic and strong right fielders in Aaron Judge (38.2 MM), a promising left handed starting pitcher in Justus Sheffield (15.6 MM), and a fringe starter/relief arm in Dillon Tate (5 MM). Torres is in a Machado defensive mold with average range, but great reflexes and arm. If Machado really wants to play shortstop in two years, Torres could slide to the hot corner. Otherwise, you could exchange his name for Clint Frazier and have a pretty solid outfield inked out.
Once a year passes, the value takes a large hit. You could go big and grab a Torres or you can diversify your portfolio a bit and take a boat of prospects back given the dearth of the current farm. I will take the latter approach using current names as types of players who could be looked at next year. For this exercise, the Astros line up nicely. For 60 MM, you can include a very young but well accomplished bat in Kyle Tucker (22.4 MM), a young hard throwing righty in Forrest Whitley (16.5 MM), another right handed horse in David Paulino (15.6 MM), and a once shiny centerfield prospect in Daz Cameron (7.1 MM).
Basically, you go from two starting position players and two good arms to a starting position player several years away, a fringey position player and two good arms. Prospects with positional starting capacity are worth a ton. In the end, the most likely trade scenario is one to consider next year. This year seems done and never appeared much to be a likelihood. This GM would need to have full permission of ownership and some major bravado to deal Machado after a playoff season. Instead, we have an abyss lying in front of the club for 2019. I am unsure how they get out of it. Every possible direction for action seems like a major loss at this point.