Weighing future value against current value

by BaseballHQ.com on May 10, 2009 @ 12:30:00 PDT

 


Note: This article, published by Art McGee, values Tom Glavine (Atlanta Braves) as a pitcher in his prime earlier in his career. The basic principle of weighing current versus future value applies.

As the season marches on, Rotisserie owners considering trades are more likely to think about how any deal will affect their roster for next year (assuming their league allows them to carry over players from year to year).

Of course, different owners will have different objectives in evaluating trades. Some Roto owners, with teams in tight pennant races, will care almost exclusively about improving their chance to win this year. Others, with teams hopelessly out of contention, will be concerned almost solely with strengthening their rosters for the following season. Still other owners will try to strike some sort of balance between the current and future impact of a deal.

In this column, I will describe a method that allows you to quantify the tradeoffs involved in a deal that has implications beyond the current season. Regardless of your situation, you can use this method to determine the best way to achieve your objectives.

The method boils down to three steps...

  1. Calculate the value you will gain or lose this season as a result of the trade.
  2. Calculate the value you will gain or lose next season.
  3. Combine those two values appropriately to calculate a total value for the trade.

This process is not quite as straightforward as it may appear because the calculation used to evaluate the current-season effect of a trade is rather different from the calculation used for a future season.

To calculate the current-season impact of a trade, the basic idea is to estimate how many points you will gain or lose in your league's standings as a result of adding and removing players from your team. Once you complete this part of the analysis, you may conclude, for example, that a certain trade possibility will be likely to cost your team one point in the standings.

In analyzing the current-season value of a trade, the salaries of the players involved are irrelevant. But in evaluating the future-season value, the player salaries become critical.

The option to keep a player on your roster at the start of next season only has value if the player is likely to cost more in next year's draft than his current salary. If the player is likely to cost less than his current salary, there's no reason to freeze him on your roster next spring. Instead, you should release him and purchase him for a lower price in the draft.

To simplify what is otherwise a more complicated analysis, I like to use this formula to estimate a current value for the option to keep a player for next season

player's value for next year = upside draft price - current salary

The player's "upside draft price" is an optimistic but reasonable assessment of what the player might go for in next year's draft.

Let's consider a specific example. Suppose another owner, who wants to add pitching, offers you Lance Berkman for Tom Glavine. You look at the expected performance of each player for the remainder of the season and consider how gaining Berkman and losing Glavine will likely affect your team. You estimate that you'll lose about one point more by dealing Glavine than you'll gain from picking up Berkman.

But Berkman, as a promising but not fully proven player, went for only $10 in your league's draft, while Glavine, an established starter, cost $22. You estimate that both players have an upside draft price of about $24 for next year. That means that Berkman's value for next year is $14 (24 -10 = 14), and Glavine's is only $2 (24 -22 = 2).

How, then, do you balance the results that this trade would likely cost you one point in the standings this year, but add $12 to the value of your roster for next year?

First, we have to deal with the inconvenient fact that the units we have used to measure the current and future values are different. In the current season, we looked at standings points to gauge the trade, but for the future season, we considered salary dollars.

To equate these two measures, you can use a rule of thumb that one standings point is typically worth about $4 in the draft of a standard Roto league. In other words, the 12 extra dollars of value that you are likely to add to your roster next year if you freeze Berkman at $10 instead of Glavine at $22 should be worth about three standings points for your team next year.

That brings you to the crucial step of your analysis... Would you rather lose one point this year to gain three next year -- or not? To answer that question, you must return to your objectives.

If you have already decided either to go all out for this year or to throw in the towel completely, then the answer should be clear. If you would like to try to balance the two, I recommend putting a discount factor on the future value of the trade.

The discount factor reduces the future value for three reasons (1) there's always a chance that your league won't continue next year, (2) there's always a chance that you won't continue in your league next year, and (3) a dollar today is always worth more than a dollar tomorrow.

If your league is established and stable, I suggest using a discount factor of 80%. In other words, count only 80% of the future-season value of the trade. If your league is relatively new or you think its future is in doubt, you may want to use a lower discount factor.

In the Glavine-for-Berkman example, applying an 80% discount factor to the three standings points you expect to gain next year still yields 2.4 standings points, more than the one point you would be giving up this season. Of course, any owner worth his salt will try to negotiate a better deal, but, if this is the best you can get, it still looks like a trade worth doing.

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