The Trade-and-Sign Gambit: A Failing Strategy

What is these players have in common: Gary Sheffield, J.D. Drew, Tim Hudson, and Mark Teixeira?

They were all acquired by the Braves via trade, with two or less years remaining until they became agents. Also, in each case the Braves gave up prospects who were currently or would eventually play in the major leagues. For two years of Sheffield, the Braves traded Brian Jordan, Odalis Perez, and Andrew Brown. For Drew (and Eli Marrero) , the Braves traded Jason Marquis, Ray King, and Adam Wainwright. For one year of Hudson, the Braves traded Juan Cruz, Dan Meyer, and Charles Thomas. For Teixeira (and Ron Mahay) the Braves traded Jarrod Saltalamacchia, Beau Jones, Elvis Andrus, Matt Harrison, and Neftali Feliz.

That list includes many high-level prospects, but the acquired players are all quite good. But there is another angle on these deals that I think is interesting. In all cases, the Braves attempted to use their exclusive negotiation window to sign the acquired player to a long-term extension. In three cases, the Braves were rebuffed and the player left as a free agent. Here is a summary of what happened to each player.

Gary Sheffield

Although they are trimming their payroll, the Braves have stated a desire to re-sign Sheffield. But their bid of about $10 million per season is well below what the Yankees reportedly are offering. (AJC, 11/30/2003)

Sheffield would eventually sign a three-year, $39 million deal with the Yankees; thus, the Braves were offering nearly 25% less than his eventual market value.

J.D. Drew

The Los Angeles Dodgers have agreed to a $55 million, five-year deal with with Drew, who hit .305 with 31 homers and 93 RBIs for the Braves last season. …The Braves wanted to re-sign Drew, but Boras didn’t even respond to the team’s initial contract offer of what was believed to be about $25 million for three seasons. (AJC, 12/24/2004)

Drew reached a five-year, $55 million deal with the Dodgers, from which he would opt out after three seasons. For the three years that he was in Los Angeles, he received $31 million. The Braves offer for this same time period was about 20% less than what he got. After opting out of his deal with the Dodgers, Drew received a substantial raise by signing a five-year, $70 million contract with the Boston Red Sox.

Mark Teixeira

“Teixeira said he had been “open” to hearing offers from the Braves all season, but got none. Wren said the Braves didn’t believe they could re-sign him after making an “aggressive” offer during spring training and having it rejected.

The GM said the offer would have made Teixeira one of the game’s highest- paid players. (AJC, 7/30/2008)

Now, we don’t know exactly what the Braves offered Teixeira, but “one of the game’s highest-paid players” is an empty PR statement that we all should ignore. A deal that averages what he turned down from the Rangers—$144 million over eight years, which translates to $18 million per year—would have made him sixth-highest paid players in baseball. The Braves had to be aware that a similar offer wouldn’t get the job done. This is also significantly less than the $20+ million/year deal that he is currently seeking. I estimated that he would be worth $24 million per year in a six year deal.

If the Braves offered him $19 million per year, that would fit with the Braves’ deficits in offers to Sheffield and Drew. That’s a lot of money, and it’s hard for anyone to sympathize with a player who receives a salary of that magnitude. However, someone will be reaping the financial returns of his good play. Is it so wrong that a player wants the revenue he is generating, especially after he played baseball for six years for a salary that was far below what he was generating in income to club that owns his rights? If you favor limiting player salaries because they are too high, then you need to ask yourself why you favor making owners, who are far wealthier than players, even richer.

Tim Hudson

The only player in the group whom the Braves have held onto is Tim Hudson. One factor that may have swayed Hudson, was his connection to the area. He grew up in nearby Columbus, Georgia, where he followed the Braves. J.D. Drew grew up in Valdosta, Georgia, but Valdosta is a solid four hours from Atlanta, and could easily secede to Florida and no one would notice. Tex went to Georgia Tech; but so did my sister, and she lives in San Francisco. As far as I know, Gary Sheffield doesn’t much like anything, and I suspect he doesn’t care much about geography. It seems that the hometown discount was the deciding factor…or was it?

The Braves signed Hudson to a four-year $47 million extension, which averages out to $11.75 million per year. Since that time he has been worth about $10.5 million per year in revenue, according to my estimates that are based on his play on the field. The estimates take into account both the growth in league revenue and playing time.

Why didn’t the Braves sign these players?

The reason that a team negotiates a contract before it is up is to take advantage of a player’s willingness to forgo risk. Most humans will sacrifice a higher probabilistic income for a guaranteed lower income. The Braves used this tendency to sign Brian McCann to a long-term contract that bought out years of potentially high-salary arbitration awards and free agency. Why didn’t this strategy work with three of the four players who turned the Braves down?

I believe the answer is because these players share two important characteristics: they were already quite wealthy, and they were close to becoming free agents. Gary Sheffield had accrued $93 million in salary from his baseball employers. J.D. Drew had received $17 million. Mark Teixeira will have banked $35 million before he hits the free agent market this offseason. By comparison, McCann’s $750,000 signing bonus and approximately $500,000 in major-league salary that McCann had received over the previous 1.5 seasons made him a pauper. What if he was seriously injured in a play at the plate in 2007? $1.25 million isn’t chump change, but it’s nothing compared to what he could expect to receive in the future and he’s not set for life.

The problem is that the Braves went after these players too late. These guys were already wealthy, and didn’t mind bearing a little risk in order to make a good bit more money during free agency, which was just around the corner. And for all three players it looks to have been the smart move—Teixeira’s fate is still uncertain, but he’s probably only improved his market value this season.

But what about Tim Hudson? Yes, he signed the contract; however, it seems that the Braves offered him his free-agent market value. No deal. If anything, the Braves overpaid Hudson despite the fact that Hudson has been a good pitcher (I like Hudson).

In conclusion, if the Braves have been actively trading for soon-to-be free agents in order to obtain an exclusive negotiating window, it hasn’t worked. The reasons why the strategy has failed are that players reached a point in their careers where they were willing to take on a little risk to shoot for a high return.

I grant that it is easy to criticize these deals in hindsight, and I admit that this problem wasn’t easy to spot at the time that these deals were being discussed. However, the experiences should serve as a lesson for all organizations why an exclusive negotiating window just before free agency isn’t all that valuable.

17 Responses “The Trade-and-Sign Gambit: A Failing Strategy”

  1. Mac says:

    Another thing…  They repeatedly say that they won’t negotiate during the season, so in the Teixeira situation they had only the 2007-08 offseason to negotiate, and for Drew just a couple of months.

  2. Zach says:

    I agree with your analysis.  It’s interesting that the differing preferences on risk vs. income among age groups are opposite in sports compared to those in other occupations. 

    You conclude that younger players will trade potential earnings for security while older players will chase the big money at the risk of being injured since they already have a lot.  It seems to me that conclusion is consistent with the concept of diminishing marginal utility of income.

    However, in most “regular” jobs, we often observe that young employees will sacrifice security for a larger paycheck while older workers prefer security.  This is also the case in the composition of one’s retirement portfolio over time – shifting from stocks to bonds over time. 

    So, there must be some threshold in either income or risk level (or combination of the two) that switches this preference.  What do you think JC?

  3. Victor says:

    I heard Wren had offered Teixeira 100M over 5 years during the offseason.

    “If you favor limiting player salaries because they are too high, then you need to ask yourself why you favor making owners, who are far wealthier than players, even richer.”

    I think the reason people want to limit player salaries is so they can pay someone like Tex $5M a year less than he’s worth and then spend that money on another player.  It’s about underpaying a guy so you have more to spend on improving the team, not more to line the owners’ pockets with.  Unfortunately, it usually ends up being the latter.

  4. Will says:

    Most of the times this happened, the Braves had to assume that they had a small chance on re-signing the player. The only difference was Hudson, who had such strong connections to the area. The Braves’ philosophy has long been to trade prospects for proven players because they could rebuild that farm system. So if the guys left during free agency, the Braves would get two high draft picks and move on. The Braves offered contracts as formalities but the fact that they didn’t end up signing the players isn’t a failure.

  5. JC says:

    I’ve not been able to verify that 5-year, $100 million figure. I believe it is just what some people have guessed was the offer.  I wouldn’t put much stock in this figure, even though it is not an unreasonable guess.

    The Braves have received exactly zero compensation draft picks for these players.

  6. drizzle21 says:

    @ Zach:
    The deal with younger baseball players generally being more apt to take a guaranteed contract is based on job skills as well as income. Is Brian McCann going to be able to manage some company and make a good income if he gets hurt and doesn’t have a guaranteed contract? No. His baseball abilities are only good for one thing: playing baseball. If some ambitious guy right out of grad school takes a risk with a very competitive job with lots of turnover and he’s unable to meet demands and is fired, then he uses his schooling and resume to find another comparable job or one that he could reasonably be hired to do. A hurt catcher isn’t going to be able to play for more than peanuts if he’s going from year-to-year with contracts. If you’ve already been handsomely compensated for your talents in baseball, then you have that bargaining chip that says “I can live and support my family without this job or your money, so I’ll just get someone else to pay me more or I’ll figure something out.” Younger players don’t hold too many trump cards usually.

  7. Zach says:

    @ drizzle21:

    As far as my question was concerned, it sounds like you think the differences lie in the risk of the profession rather than the high levels of income, although I guess they’re impossible to separate.  Part of the risk entails exactly what you’re talking about – a narrow set of skills.  I guess my question still remains - on a graph of risk and reward, why do we observe young baseball players and old “regular” people closer to the origin and old baseball players and young “regular people” farther out? 

    @ Victor & JC (original post)

    I think you’re both right.  Capping individual player salaries would cause inflated salaries for those less-talented players but also increase owner profits.  Essentially, they would transfer of income from high-priced players to lower-priced players and owners. 

    Think about a simple economic model where the consumer (in this case the owner) chooses between 3 “goods” – great players, good players, and savings.  A salary limit that constrains the price of great players is essentially a price decrease, which increases the “real” wealth of the owner.  Assuming normal preferences, the owner will spend his “new wealth” on both good players and savings.  The increased demand for good players drives their price up.  The new savings are simply more profits. 

  8. Another Zach says:

    While true only one of these players signed long-term, they all not only met but easily exceeded their expectations while they were with the Braves and were vital in our run of postseason appearances.  Sheffield led one of the greatest offenses the Braves have ever had in 2003 and J.D. Drew had his best season as a professional in 2004 and even avoided the injury bug.  While Tex disappointed somewhat this year, he gave us everything we could have hoped for down the stretch last year.

    When the Braves make deals like this, I view it as a rental of the player for a year or two and a chance to sign them long-term.  I don’t think the success of the deal ever hinges on signing them long-term.   The Braves have one of the most productive farm systems in baseball and can take advantage of that in two ways by developing young stars as well as trading them for more experienced players.  Those players may not be around for more than a year or two but as long as they make a major impact while they are here, and all of these players did, I view the trade as an overall success in spite of our failure to sign the player received to a long-term deal.

  9. JJ says:

    A member of the Braves front office told me personally that the Braves offered Tex 5 years/$100 million.

  10. Jujube says:

    While the players in the Tex trade are too young to judge, for the most part the Braves didn’t give up a great deal of talent in the trades mentioned. 

    In the case of Sheffield, he needed to go after his contract was up. He flopped terribly in the post season, seemingly hitting with runners on base constantly and not getting them in.

    Drew had a good year, but is a smart southern boy who knows that baseball is about the $$, and has maximized his return.  Getting only a year of Drew for Wainwright can be seen as a loss in hindsight.

    The Texiera trade was a reach, and may turn out to be a bad one. He did perform well last year, and they are trying to win one more before Cox retires. It was a gamble, but it had two years to pay off, and didn’t.

    Cruz has been a solid reliever, and Meyer may be good, but the Braves didn’t give up a lot for Hudson. He has been solid in the rotation, until the recent injury.
    To this point, the Braves haven’t given up any Scott Kazmir types for absolute busts, so they can’t be faulted too much.

     

  11. jj3bagger says:

    JC, love your stuff as always, one important thing I think you failed to mention in the cases of not resigning Drew, Sheff, and Tex were all three were represented by Scott Boras.  I know for sure that Drew & Tex are still, I’m not sure if Sheff still is or not, but I’m pretty sure he was at the time.  Anyway, I would bet of any agent, Boras has more of his clients test free agency, and most of the time it works out better (in terms of dollars) for his clients than resigning early with their original teams.  I would think that most teams aren’t going to offer more money per se to their own players if they don’t have to yet, and that’s probably part of the reason why they didn’t resign those players, because Boras is good at getting top dollar for his clients.   I think the bottom line is that the Braves are willing to pay top dollar (or market value, as the case could be made) for anybody, regardless of whether they trade for them, or via free agency.

  12. Rick says:

    JuJube-You don’t judge a player’s worth/value by what they do during the post-season. The sample size is just too small and short series are always a crapshoot at best. You judge a players worth/value based on what he does during the regular season. Did he produce as he should have based on the dollars paid out etc.

  13. Jason S. says:

    Yes!  Great article JC.

    To quickly comment on one thing in it, one of the reasons fans sympathize with the owners, when if anything they should rationally sympathize with the players, is that the players have been such complete jerks about the whole negotiation process.  To have heard Tom Glavine speak some years ago, you’d have thought the players were risking death every day in coal mines. 

    My number one complaint about the Braves for years has been that they are just delusional about the state of the team.  When the team was good enough to make the playoffs but not to actually advance past the first round, they thought they had a potential World Series winner.  All of those teams were deeply flawed, some with pitching, some with hitting, but all failed to even get back to the World Series.  And the 1999 team that was the last to go was a far cry from those vastly superior teams that went 4 times earlier in the decade.

    Schuerholz is partly to blame for this “rent-a-player” trend.  I’ve heard it said that “Crazy is when you do the same thing over and over and expect a different result”.   Schuerholz even admitted his relationship with Boras was very bad.  I think things just went south with Boras after Schuerholz thought he had reached a deal to sign A Rod and A Rod delayed signing the contract and then got the much better offer from Texas.  I think Schuerholz felt like he’d been played and it was really just the end of any kind of normal business relationship between them.  I also think that getting Chipper and Andruw to sign and give hometown discounts to the Braves made Schuerholz believe that all players would feel that way.  I think JC is right that when guys are young and have less money, they are more willing to sign those kinds of deals and I am too lazy to check, but I suspect that this would apply to both Chipper and Andruw at the time of the signing.

  14. JM says:

    Not a bad article JC but, most of the rent players went on to get paid and do nothing for the teams that signed them.
    Gary Sheffield ended up getting hurt with the yankees and eventually traded to the tigers.
    J.D. Drew another one injured with the dodgers.
    As for Mark Teixeira I don’t see him get hurt but not play to the potential of money given.
    The only player signed to an extension Tim Hudson did an okay job, but not the potenial ace he could have been or as suggested the Braves thought he could be. Now he is out with Tommy John surgery and maybe out for the 2009 season.
    The Braves don’t sign their players because like all of them, most want money and the braves don’t have that kind of money as other teams do.  But in the end it was worth it such as for Andruw Jones, Russ Ortiz, Kyle Farnsworth, Javier Lopez and pleanty of more that became a free agent bust because of injury or no heart of playing anymore since they got there money already.

  15. Bilal says:

    Nice Article.. but you have to look at what we gave up…

    The only prospects we traded, who turned out to be stud is Adam Wainwright.  Other than that no one on that list has done any thing of importance for their respective teams.  Although people like Neftali has a ton of talent but how many time we have seen prospects with all the talent in the world fail.

    Your play and field estimates would work fine in the olden days when the starting pitchers pitched the whole game.  In Hudson’s case that might not work out so well.  The reason being, Hudson has been pitching like a cy-young winner for the past 3 years.  If it wasnt for Dan Kolb and other crappy closer/set-up guys he might have won 20 games the past 2 seasons. 

    JD and Sheffield had one good season and since then has seen a decline in their numbers (JD rebounded a little this season).  I believe that the Braves made the right moves in situations involving JD and Sheffield but not with Tex.  I believe they over-paid for him but that is because JS wanted to win the championship in his last season as the GM and sold the farm.

  16. Jim K says:

    Agree that these trades are generally a mistake. In a case like Teixeira, there’s also a high risk that one of the players traded will become an all-star, and we’ll miss his pre-arbitration years. That’s a huge opportunity deficit.

    On the point of owners being richer than players, consider the fans. The escalating salaries translate into the escalating ticket prices, especially in the larger markets. Look at what the NFL has achieved in terms of competitive balance with their salary cap.

  17. Jason says:

    The Braves refuse to give in to a market being driven by teams that are not concerned with budgets or profits.  I’ve read Schurholtz’s book and his economics make sense.  If not for organizations that refuse to give in as Atlanta does with its offers and no trade clauses then salaries would be more ridiculous than they already are.