The Economics of Trading Teixeira

Frank Stephenson at Division of Labour explains to Peter Gammons the economics of trading Mark Teixeira.

The Braves choice is to compare the net gain from keeping Teixeira to the value of the talent they can acquire for him. If trade rumors are to be believed, there are no teams offering substantial talent for Teixeira (this can, of course, change between now and the July 31 trade deadline). There would be two advantages to trading him for prospects rather than waiting for draft choices. One, as noted above, is that draft choices require signing bonuses. The other is acquiring prospects who have already played, say, 2-3 seasons of minor league baseball gives (for both the Braves and the trading team) a better read on whether they will turn out to be bona fide major league talent. That is, prospects with minor league experience are less risky than newly drafted players who have not yet begun the transition from high school or college to pro baseball.

I would like to address another popular incorrect statement that I keep hearing about the acquisition of Teixeira: that the loss of prospects was a waste unless the team re-signs him. Signing Tex has very little to do with giving up prospects to get him. As a result of his service time, the Braves acquired the right to play Teixeira for 1.5 years. After his indenture expires, he is free to sign with another team. Let’s say the Braves signed him on the free agent market after playing for the Rangers, what would the Braves give up? His salary and the team would lose some compensatory draft picks that would have gone to Texas. What will the Braves give up if they sign him after this season? His salary, and possibly some additional compensatory draft picks for signing with anther team. In both cases, the forgone prospects are irrelevant. The prospects the Braves lost were given up for the time he played with the Braves. Re-signing him has very little to do with them. The only small gain is that he might have been willing to sign for a little less than the free market premium to insure against risk of injury; but considering the fact that his agent is Scott Boras, there was little chance of that happening.

I’ve often heard the Tim Hudson deal discussed in these same terms. The Braves got Hudson for several years for only a few prospects. In fact, the Braves got Hudson for one-year for a few prospects. The Braves signing of Hudson to a long-term deal is a separate issue.

9 Responses “The Economics of Trading Teixeira”

  1. Paul Cohen says:

    JC, you’re technically correct that the Braves only traded for one year — not five years — of Tim Hudson back in the December 2004 deal with Oakland. But they also got something else in the deal: They received the right to start negotiating with Hudson as early as December 2004, rather than having to wait until November 2005 (when Huddy would have filed for FA) like every other team in baseball. And in the case of Hudson, Schuerholz was able to exercise this right and negotiate a below-market contract one year in advance (since players are more risk-averse than teams, etc., etc.) So that was probably worth a couple more million in savings for Schueholz.

    Now obviously Schuerholz received the same right when he traded for Teixeira. But arguably, the right to negotiate early with a future FA isn’t worth very much when that player is represented by Scott Boras. But it is worthy something.

    So the point is that the value of the Teixeira and Hudson (and JD Drew, Sheffield, etc) trades goes beyond the 1 year (or 1.5 years) remaining on the player’s contract. The Braves also receive the exclusive right to negotiate with a FA, which can potentially be worth a couple million. And when you don’t successfully exercise that right (as the Braves obviously won’t with Tex), then you are squandering the window of opportunity that you traded for.

  2. JC says:

    Paul, I mentioned that added benefit in the discussion of Tex. I don’t feel these rewards are especially large, especially when the player is so close to free agency.

  3. Mac says:

    I don’t know about Boras, but the right certainly isn’t worth much when the team has a stated policy of not negotiating during the season. It’s absurd, but they keep saying that they won’t discuss deals during the season because it’s “a distraction”, as if wondering about the future of your first baseman is not.

  4. Kyle S says:

    I clicked through to the post to make the same point Paul makes. JC, I respectfully believe you are undervaluing the option value of holding a player’s rights. Look at the paucity of actual star free agents who have hit the market in the last few years – ALL of the best players have been kept off the market by the team who controlled their rights. Peavy, Halladay, Pujols, etc. The big deal pitching free agent of the past 5 years is Barry Freaking Zito, for chrissakes! This year, with Sabathia and Sheets hitting the market, will be somewhat different. But just because it didn’t work out for the Braves with Tex or Drew doesn’t mean that the option isn’t worth something (IMHO).

  5. Frank Stephenson at Division of Labour explains the economics of trading Mark Teixeira to Peter Gammons.

    I dunno, does Gammons have the prospects to be able to acquire Teixeira?

  6. Greyson says:

    We got Tim Hudson for two flashes in the pan and a dud of a prospect, so I can’t imagine ever calling that one a bad deal.

    I think what I mean when I express a similar appraisal of the Tex deal is that the deal was only worth it if he lifts the team into the playoffs in either of the years we knew he’d play. Now, unless he’s able to lift us up to the playoffs in the second half, which if he equals what he did last year he easily could, I’d say the deal could be called a bust.

    Unless, of course, the relationships that were built give us the opportunity to sign him, perhaps even at a discount, then I would say it was well worth it. Especially with Boras involved, I tend to agree with you on how little the relationships mean, but the Braves might just need that little bit if they are really going to make a run at him.

  7. kirknga says:

    If we keep working through the logic of Stephenson, if minor league players are better quantities than prospects who haven’t played, then wouldn’t the best possibility be trading for major league talent?

    Also, in regards to draft picks, I would like think that the organization would have faith in their ability to scout and develop a players.

  8. Marc Schneider says:

    JC,

    I may be incorrect, but it seems to me that you are talking about the concept of sunk costs. Those prospects the Braves gave up are gone whether or not the Braves resign Teixera and should not influence what the Braves do about Teixera. Whether or not the deal made sense at the time, those prospects have nothing to do now with whether it makes sense to pay what would be necessary to sign Teixera.