Why the Oswalt Deal Worked

Yesterday, the Philadelphia Phillies acquired Roy Oswalt for J.A. Happ, Anthony Gose, and Jonathan Villar from the Houston Astros. The general reaction of to the deal has been quite negative toward the return to Houston. Oswalt is an ace starter. Gose (whom the team immediately sent to Toronto for Brett Wallace) and Villar are low-minors prospects. How could Astros GM Ed Wade get so little in return?

It’s interesting that several years ago Ed Wade was on the other side of one of these supposed heists for the Phillies, acquiring Kevin Millwood for Johnny Estrada. It just so happens that the opening chapter of my book on valuing players Hot Stove Economics (forthcoming in October) is titled: “Why Johnny Estrada Is Worth Kevin Millwood: Valuing Players as Assets.” In the chapter, I explain how players so different in ability were swapped for each other without bringing stupidity into the equation. The difference was their salary requirements. While I can’t go into the details here, Millwood would receive $11 million the following year (which was way more than his expected worth), while Estrada would get less than $1 for two years of service before being traded for two relievers.

Now we have Oswalt, who is owed just under $25 million for the remainder of his contract (the Phillies are kicking in and extra million for the buyout of his option). The Phillies are winning team and thus value his performance much more than the Astros, because there are increasing returns to winning. I estimate his expected performance through 2011 is worth about $28 million to the Phillies—a little over $3 million more than his salary obligations. The Astros are also sending along $11 million, which seems excessive until you remember the prospects. A year ago, Happ was pitching decently in the majors, and considered untouchable commodity. He’s been injured, but injuries heal. Let’s assume that Happ pitched at his true performance last year for the Phillies. Based on the value of his performance, and his expected salary obligations (one more purely-reserved year and three arbitration years), I estimate he’s worth about $12 million (discounted present value of performance for four years under team control). But, his injury risk lowers his expected return somewhat. Then the other prospect come into the deal. They are at such a low level that I won’t try and project them from minor league stats (stats below high-A are close to useless), but they certainly have value.

My point here isn’t to calculate the exact value to see whom got the better end of this deal. I want to understand why this trade was made. And while a lot of people aren’t high on Ed Wade, he and his baseball people have some sense of what players are worth. I think the deal is defensible from the Astros perspective, especially considering that Oswalt has some post-season value to the Phillies that the Astros can’t capture without trading him to where his services are more highly valued.

Addendum: Bottom line, Osawlt is the superior player, but expensive. Happ and the other prospects are inferior, but cheap.

2 Responses “Why the Oswalt Deal Worked”

  1. Jose Bonilla says:

    I am having a hard time with this, myself. Not on the aspect of the return, as the Astros did a great job of taking advantage of the Blue Jays’ over-pursuit of Gose. They got Wallace, which should end up becoming the replacement for Lance Berkman.

    My dilemma is with the $11M. Sending money across is natural, of course; the Astros would rather pay $11M now in order to save some money later. But the amount seems excessive. They send over around 50% of the money owed to Oswalt over the next two years (BTW they did sent about the same percentage in the Berkman deal). The only logic is that the market for Lance Berkman and Roy Oswalt were the Yankees and the Phillies, respectively. Otherwise, I would have expected the Rays or the Cards to have stepped up (seeing as the Cards drastically overpaid for Westbrook).

    But at the end of the day, at least the Astros got off better than the alternative had they not made the move: In the hole for an extra $10M this year and having to worry about Oswalt in the offseason when his trade value decreased. But it definitely takes the Blue Jays handing over Wallace to make this trade more acceptable, b/c a Happ & Wallace package for Oswalt is very nice.

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