More pricing talk

by BaseballHQ.com on March 18, 2010 @ 00:00:00 PDT

 


The Pricing rules of thumb essay resulted in quite a bit of discussion in the BaseballHQ.com Reader Forum, and so we're revisiting the topic to address some of the remaining concerns.

Some of the conversation has been extremely valuable. First, here are a few points that should have been stressed in the original essay.

The rules of thumb are calculated to work in leagues that restrict themselves to just one MLB league, maintain 23-man rosters and a $260 salary cap for each team, and use the entire population of the league rather than limiting themselves to a smaller number of MLB teams. Changing any of these factors will yield different results. If you're in a mixed league, have a 25-man roster or a $300 salary cap, you will likely get different results. You'll have to do the math for your own league context, but the principles should give you a good starting point.

In any event, though, be prepared to accept "close enough" as your mathematical standard. You never want to be inflexible with dollar values in any context. And the most important results in this adjusted pricing system arise from the major price differences. If you have Jason Giambi at $42 when everyone else has him at $34, that's a major difference that should affect the flow of the auction. If you have Jeremy Giambi at $17 when everyone else has him at $18, getting him turns mostly on timing and luck.

Are you really getting $10 players for $1 at the end? Aren't they worth only $1?

Not quite. They are still delivering $10 worth of statistics; it's just that you shouldn't pay more than $1 for them. Similarly, Vladimir Guerrero is still only giving your team $45 worth of help, even though you should pay $55 or more to get him.

Huh?

What we pay at the start of the year is not perfectly related to what players earn during the year. Auction prices are typically depressed because of the risk of not knowing what a player will do. Pedro Martinez could probably earn $65 this year in a standard league - but he could just as easily earn $35 if he gets hurt and misses a couple of months. Therefore, we reduce the amount we're willing to pay to get him, to compensate for the uncertainty.

As a group, the pitchers in the league have to earn half of the money, because they produce half of the points in the standings. But even though they earn half, we never pay them half, because of the uncertainty. (As Ed Spaulding once wrote, "There are two kinds of pitchers: ones that are injured, and the ones that aren't injured yet.")

We change the bid price because of the risk factor rather than the value of the statistics. Similarly, when you adjust bid prices in a small league you change the amount you pay, not the amount you're getting.

If that's still confusing, think of it this way. The top 184 players deliver $3055 of value. That's true whether you're in an 8-team league or a 14-team league. The difference is that each team in an 8-team league should accumulate around $380 of statistics, while each team in a 14-team league should average $260. The 8-team league is paying discounted prices, but the statistics are the same. The bid prices for the superstars are higher because the superstars concentrate the largest amount of statistics into the smallest number of roster spots.

Wouldn't it be better to shift excess dollars into players at positions where talent is scarce, rather than simply grabbing the best available players on the board? Wouldn't I be better off with Ivan Rodriguez at $40 and Ben Grieve at $10 than Manny Ramirez at $49 and Scott Hatteberg at $1?

That's true, and it could be a good idea to emphasize position scarcity in your draft plan. But the downside risk is significant, since it's easier to replace Ramirez than Rodriguez in the event of an injury. Try to get a mix of positions in your superstar core.

Don't the lower closer prices mean you have to punt saves? After all, everyone will be scooping up closers and you will be left with nothing but part-timers and setup men.

It's possible, but not likely. Remember that while everyone is paying $35 for a frontline closer, they're also expecting to end up with a $85 pitching staff. They cannot buy two closers at "regular" prices and still have enough money to buy the rest of their staff. You should be able to get a mid-line closer (e.g., Tom Gordon, Jose Jimenez, Mike Williams in the NL, Willis Roberts, Estaban Yan, Eddie Guardado in the AL) for a bargain price.

However, it's still possible that enough of your competitors will either catch on, break their budgets, or be blinded by the value of saves to outbid you for those mid-liners. In that case, shift dollars away from saves and into other areas. The pitching category which is easiest to acquire in trade is saves. Try to build a surplus in hitting or starting pitching so that you can trade for saves later.

Can you employ the LIMA Plan in a small league?

Well, yes, but you shouldn't have to. LIMA's value is predicated on two facts. First, you target the likeliest source of bargains; it is relatively easy to find bargains among pitchers because pitching skills are often obscured by the surface stats most players use to evaluate pitchers. Second, you follow a different budget plan; most teams in most leagues employ the typical spending ratio of 67% on hitting and 33% on pitching, and LIMA has you spending 70% on hitting and 30% on pitching.

In a small league, both of those factors still operate, but differently. First, the easiest place to find bargains in a small league is in the lower reaches of the price list. Your competitors are mistakenly paying $28 for a hitter when you know his real price should be $22. By the time they have bought all the $20-$30 hitters, you are in position to grab $15 hitters for $3 or less. You are concentrating your "low investment" dollars on these players. Second, adjusting your prices according to the rules of thumb automatically puts you in a different budget plan. You are preparing to spend $200 for five superstars when most competitors are hoping for five solid $25 contributors and balance throughout the roster.

But if you spend that much money for some superstars, aren't you concentrating all your risk in them? And isn't risk diversification the key to maximizing your returns?

In a small league, your risk is automatically diversified in two ways. First, the large number of quality players in the free agent pool protects you. If you own Jason Giambi in a 12-team AL league, and he goes down with an injury, you're likely to have to dredge Brian Daubach out of the free agent pool as the replacement. In an 8-team league, you'll get David Segui. That's still a significant decline, but it's not nearly as catastrophic. Second, the high quality of your non-superstars also limits your risk. Since you've gotten a $12 Craig Biggio for $2, you are still getting good hitting from the middle infield even if you lose a $38 Jeff Kent.

Moreover, if you take the small league concept to its logical conclusion and purchase five superstars, your risk is further spread. Even if you do lose one superstar, you've still got four producing at a high rate, which is probably twice as many as any of your competitors.

So if I'm in a small league and I can't use LIMA, what should I do?

Well, you can use LIMA. It's not a bad idea at all to target players with LIMA-type skill sets, since they are still the likeliest players to out-earn their predicted values. Keeping your IP to a minimum is also still a good idea. But you absolutely have to exceed the $30 maximum rule, and you have to be prepared to abandon saves if the closers all disappear.

Here's an idea for a budget that could work well in a small league:

$ Hitters
$ Pitchers
50
45
45
3
40
3
35
2
3
1
3
1
3
10
2
5
2
5
2
--
1
--
1
--
1
--
1
--
Total: $190
Total: $70

Try to purchase a catcher or a shortstop in your superstar category if you can. The last three pitching slots are targeted for save-bearing relievers. Any dollars that you don't use in a high slot can be used to help you pick off bargains later on.

Ideally, you could achieve maximum misdirection by buying the first three or four players out of the gate and trying to create a sense that inflation should be high. Then sit back and wait while your competitors overbid and take money off the table. Eventually you can wade back in and scoop up bargains as people realize that they have overcommitted their budgets.

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