Comparing the Value of Dodger Trade Targets

As the Dodgers look to acquire some help for the stretch run, and possibly set up the team for the next few years as well, an obvious question is what each possible acquisition would cost in terms of talent and money going out. We can use a similar framework to the one we used to look into the trade value of our outfielders. There, the question was just how much money would need to be included per year to make them & their contracts have zero trade value (instead of the negative trade value they would otherwise have).  The basic idea was project their performance in hitting, fielding, and baserunning; convert that to Wins Above Replacement; convert that to dollars at the going market rate; evaluate the net value (from on-field player contributions) minus salary cost each year of the contract.

Now, to look at all the various offerings on equal footing, I'll bring each potential player & contract down to a single number, it's net present value (NPV).  To understand net present value, think about when you win the lottery and you get to choose between $10M per year for 30 years or a lump sum now. The lump sum you're offered is not $300M but something like $150M.  In this way, we can compare contracts of various lengths considering that we care less and less about each future year. Because humans are like that and also because the problems of tomorrow can be dealt with tomorrow, as long as you don't box yourself into a corner.  For purposes of this exercise, I'll imagine the Dodgers care about each succeeding year 10% less than the previous year.
So if we find a contract whose net value over the next 3 years is 4M, 1M, -3M, it's NPV is not just 0. It's (4M * 1)  + (1M * .9) + (-3M * .9^2) = 2.5

We'll ignore any impact of the qualifying offer process & draft pick issue, since it's going to more or less cancel out across these options and our purpose is to get a relative comparison of how much each would cost in trade.

Cliff Lee
Signed for next year, and a team option for 2016. (so a 1.4 year, $47.5M commitment with an option to convert to a 2.4 year, $62.5M commitment). He's coming back from an elbow strain, so it's not out of the realm of possibility that the elbow explodes, that keeps him out for all next year, you're afraid to exercise the option, and you get nothing for your $47.5M. We could hang his jersey next to Darren Dreifort's and Jason Schmidt's. But that probably won't happen. More likely, he continues along as one of the top pitchers in the game for a couple more years. He's 35 and he's thrown a lot of innings, but his control is so good he doesn't waste a lot of pitches, and he's so good and consistent, he doesn't get into many high-stress 30+ pitch innings. I'd bet on there being a lot of life left in the arm. If you believe that too, then we expect his contract to be more or less fair. He's worth that $25M / yr, best case. But there's not much upside there. He won't produce a lot more than $25M of value. So best case he's worth the money and a team with that kind of money to spend on a starting pitcher would be satisfied, but there is significant chance age & injury catch up with him and then you're really left holding the bag. He'd supposedly clear waivers, although I think there are some teams that would claim him. If a trade happens, it'll probably for close to no return or the Phillies eat some salary in return for prospects. They'd presumably be uninterested in taking one of our bad contracts in exchange, although maybe some kind of crazy three-way deal could be worked out.
Just to put a number on it, I'll model the uncertainty by projecting him with some reduction in Innings Pitched.  I still think his option would get exercised since it boils down to "do you want him to pitch for you in 2016 at the marginal cost of $15M?" and the answer will very likely be yes.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	80	3.3	1.6	$9	$10	-$1
2015	180	3.4	3.5	$20	$25	-$5
2016	180	3.5	3.2	$20	$28	-$8
Total			8.3	$49	$63	-$14
NPV						-$12

I'm using ERA projections here for a shorthand of not ERA exactly, but the ERA they'd have given neutral luck in the national league in an average park with average defense behind them - so an indicator directly of pitching quality.

David Price
It's not clear that David Price is on the market, but if he is the return will be pretty high. His salary is up for arbitration next year (or he could be signed to an extenstion).  I just guess here, in case of arbitration what the team might be on the hook for.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	80	3.1	1.8	$10	$6	$5
2015	210	3.2	4.5	$26	$18	$8
Total			6.3	$36	$24	$13
NPV						$12

Cole Hamels
He's also signed to a basically fair contract assuming he lives up to it. I dock him here and there for possible future injuries since it's unrealistic to imagine a starting pitcher with perfect health for 5 years.
His last year is an option but it's easy enough to vest / low enough cost that it'll probably get picked up unless he falls apart.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	75	3.3	1.6	$8	$9	-$1
2015	210	3.4	4.0	$23	$23	$1
2016	210	3.5	3.7	$23	$23	$0
2017	200	3.6	3.3	$21	$23	-$2
2018	180	3.7	2.7	$18	$23	-$4
2019	200	3.9	2.7	$19	$19	$0
Total			8.7	$58	$64	-$6
NPV						-$4

Jon Lester

He's a free agent at the end of the year, so a total rental unless you can get an extension done.  He is very underpaid though.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	75	3.3	1.6	$8	$5	$3

John Danks
Danks is a not very good pitcher any more. He's not that expensive, but he's signed for 2 more years after this. I'm sure the White Sox would like to get out of the deal, but it's not clear he's better than the Dodgers other internal options and I'm sure they can scrounge up something more appealing for next year.  Even if the White Sox took one of our horrible outfield contracts back in trade or something, I'm not sure I see the point.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	60	3.3	1.6	$2	$6	-$4
2015	170	4.7	0.6	$4	$14	-$11
2016	180	4.8	0.3	$2	$14	-$12
Total			2.5	7.3	34.1	-26.7
NPV						-$23

Bartolo Colon

Colon is 41, but somehow signed for next year too.  He's on more or less a break-even contract if he keeps going.  The Mets are apparently willing to cover some of his salary to move him.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	65	3.9	0.8	$5	$4	$1
2015	170	4.1	1.8	$10	$11	-$1
Total			2.6	$15	$15	$0
NPV						$1

Jake Peavy

I wrote this before Peavy went to the Giants, but I'll keep him here for comparison's sake.  The Giants gave up one prospect with good numbers that looks ready to contribute and one prospect that's got good scouting reports and a top 100 ranking. That seems like a lot actually, but they were in kind of desperate straits.
His option won't trigger, so he's a rental too. He's also not clearly better than Dan Haren, but is getting paid a lot of money. He also has this weird deal where he gets another $1M / yr from 2016-2019. Possibly the White Sox would still be the ones to pay that in a trade, I don't know. Let's say so.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	60	4.4	0.4	$2	$6	-$4

Tommy Milone

There's no space for Milone in the A's rotation and he wants a trade. The A's sent him to AAA which has a real chance of delaying his free agency to after 2018. (which is why he wants a trade). Still, he's paid almost nothing (all the salaries below are guesses, for arbitration years) and is a decent pitcher. From a pure financial standpoint, he's more of a net asset than David Price.

Year	Innings	ERA	WAR	Value	Salary	Asset
(Rest of) 2014	60	3.8	0.9	$5	$0	$5
2015	180	3.9	2.3	$13	$3	$10
2016	190	4.1	2.1	$13	$8	$5
2017	180	4.2	1.7	$11	$14	-$3
Total			6.9	41.8	25.2	16.6
NPV						$15

There's a few other possibilities, but I'll stop there. In descending order, I'd expect the trade cost (if expected value & cost were the only concern) to be

1. Milone
2. Price
3. Lester
4. Colon
5. Hamels
6. Peavy
7. Lee
8. Danks

But there's a couple issues with that ordering.
You can only put 5 starters to work at a time. Opportunity cost is significant.  You can't just take on all the contracts and make all the money.  From a mathematical point of view, you have to also do a constrained optimization, where the constraint is playing time.

It's not just expected value but also the distribution of possible NPVs teams are considering.  For example, Peavy's deal is short and his performance pretty established. Let's call his NPV $-4M +/- $1M.
 Hamels contract is long, and you might get a lot more or less out of it.  You're really getting a distribution of outcomes where the CDF (cumulative distribution function) looks something like

Read this graph as the chance that the NPV to a team employing Cole Hamels under his contract will be $x million or more. That long negative tail is injury scenarios, and teams can buy insurance to hedge against them. The net distribution after paying the insurance company premium and getting back the settlement in case of any claims might look more like

That's safer, but you really only "win" financially if Cole Hamels pitches like a workhorse ace for the next 5+ years.  If yo uwant to understand why anyone would ever sign up for that deal, it gets back to the first point of there being only so many roster spots and playing time.  Plus there's a scarcity of Cole Hamels-like pitchers available. It wouldn't really cost more in prospects to get 2/5th of a season of Bartolo Colon than it would to get 5 2/5 seasons of Cole Hamels. There's a lot of risk in that Hamels deal, but almost every contending team would be happy to take it and have him be one of their 5 guys. The $5.5M / Win figure is for an average team. Teams that would get a significant increase in probability of making the playoffs or advancing through the playoffs via the acquisition would value those wins much more highly.

The Dodgers' championship holes would benefit greatly from having another great pitcher.  Lee & Hamels are the most affordable in terms of prospects going back because their contracts are the scariest. If you're going for it though, go for it.  The Phillies are apparently asking a lot for Hamels, and want to deal with Lee through waivers in August. They do have this other problem though - who can they get to pay even a small part of Ryan Howard 's salary?  If the Dodgers wanted to be a financial middleman in passing him along to a team that actually needs a bad first baseman, that might be the best hope.

Photo Credit: "Cole Hamels pitching 2010" by http://www.flickr.com/photos/mel_rowling/ - http://www.flickr.com/photos/mel_rowling/4687084820/. Licensed under CC BY 2.0 via Wikimedia Commons.