Trade Values 101: How the Market Affects Price

I’ve done a lot of the trade values articles, not only looking at the value of guys the Pittsburgh Pirates have, but also looking at guys the Pirates could acquire.  There is one common question that gets asked in regards to the values that are presented: how does that change when other teams enter the mix?  Usually that’s people looking for a bigger return on the players on the Pirates’ roster.  The thought is that you might get a team to overpay out of desperation.  Sometimes that’s the idea that a player might cost the Pirates more if other teams are interested.

The values are always designed to reflect the standard market price.  As with any market, supply and demand can definitely play a role.  As an example, let’s take a look at a fictional market for first basemen, using Carlos Pena’s value.  Before we look at the teams, here is a refresher on Pena’s value, from the article a few weeks ago:

YEAR SALARY WAR VALUE
2011 $10.0 2.5 $0.9
TOTAL $10.0 2.5 $3.4

Pena is currently projected as a Type B free agent.  He’s not necessarily a guarantee to receive compensation picks, since he would be more likely to accept a raise on his $10 M salary, which he would be guaranteed through arbitration.  Thus, his value might not include the $2.5 M in value that a Type B player would normally get.  However, I included that value to be safe.  The overall value is pro-rated to assume that he gets dealt on July 31st, reflecting his value over the final two months of the season.  A big reason Pena’s value is so low is due to his big salary.  He’s putting up nice production, but his salary is near the maximum amount to get any value from his production.

Pena would likely cost a combination of Grade C hitters (worth $0.5-0.7 M each) and/or Grade C pitchers (worth $1.5-2.1 M each).  If you reflect his $2.5 M Type B value, the best price seems to be two Grade C pitchers.  For reference in the Pirates’ system, that would be a pair of guys like Nathan Baker, Tyler Waldron, Aaron Pribanic, or Brett Lorin.  Now for the four teams in this fictional market who are looking for first basemen:

Team A

Situation - This team can afford to take on Pena’s salary for the remainder of the year.  They also have prospects to spare, and can afford to give up two Grade C pitchers to meet Pena’s value.

What the Cubs Get - In total, the Cubs would get two Grade C pitchers, and wouldn’t have to pay any of Pena’s salary for the remainder of the year (which would be $3.3 M over the final two months).

Team B

Situation - This team can afford to take on Pena’s salary for the remainder of the year.  However, they are thin on prospects.  They can’t afford to spare two Grade C pitchers, so their package is made up of one Grade C pitcher, and two Grade C hitters.

What the Cubs Get - Rather than getting two Grade C pitchers from the first deal, the Cubs would get a Grade C pitcher and two Grade C hitters. They still wouldn’t have to pay any of Pena’s salary for the remainder of the year ($3.3 M over the final two months).

If the Cubs wanted the best possible prospect, their asking price could be a guy like Marte.

Team C

Situation - This team can’t afford to add much salary, which means they will need the Cubs to pick up salary.  In turn, that means they will need to add up to $3.3 M in value to compensate the Cubs for picking up salary.  They have a loaded farm system, so they could afford to give up a Grade B hitter ($5.5 M value) in exchange for Pena and $2 M in salary (putting his value at $5.4 M).

What the Cubs Get - In total, the Cubs would get a Grade B hitter, which is much more valuable than the Grade C hitters.  For reference, a Grade B hitter would be someone like Starling Marte.  The Cubs also would be paying $2 M of Pena’s remaining $3.3 M for this return.

Team D

Situation - This team can’t afford to take on much salary.  They also don’t have any Grade B hitters to trade like Team C.  In order to make up for the salary relief, this team will deal 1-2 extra Grade C pitchers, making the total package 3-4 Grade C pitchers for Pena.

What the Cubs Get - In total, the Cubs would get four Grade C pitchers, but would have to pay $2-3 M for the extra pitchers.

The Cubs Priority

The market has four teams looking for a first baseman.  Two teams can pick up salary.  Both teams are offering value, although one team is offering two higher value prospects, compared to the alternative of one higher value prospect and two lower value prospects.  Two teams can’t pick up salary.  One of those teams can offer a top prospect.  The other team is going with more of the “quantity” approach, although the value is the same.

It really comes down to what the Cubs want to do in this situation.  Can they afford to pick up some of Pena’s salary?  Are they looking for the best possible prospect?  If they’re looking for the best prospect, and don’t care about picking up salary, then Team C is their best bet.  They can get a Grade B hitter, while paying $2 M.

If they’re looking to boost their farm system with a lot of prospects, and don’t mind giving up money, then Team D is their best bet.  They could get 3-4 pitching prospects.  None of those prospects grade as high as the hitter that Team C is offering, although if the Cubs priority was adding pitching, or adding multiple prospects, this would fit their need.

If the Cubs just want to get rid of Pena’s salary, and don’t care about getting the best possible return, then Team A or Team B would be the options.  Team A would be the best bet in getting the best possible prospects.  Team B would be more of an option if the Cubs were looking for more prospects, or wanted some hitting prospects.  Either way, the Cubs shed the $3.3 M in salary.

Again, it all depends on the priority of the Cubs.  All four of the above teams meet the value for Pena, although all four teams have different end results.  Two teams are giving the best prospects, with one picking up the entire salary.  Two teams are giving more of a “quanitity” return, with one picking up the entire salary.

I mentioned how the Pirates could give up two Grade C pitchers, like a Tyler Waldron and a Nathan Baker, while picking up the entire $3.3 M owed to Pena.  That would make them Team A in the above scenario.  However, that might not do it.  If the Cubs don’t care about salary relief, and want the best prospect, they might go with Team C, offering a Grade B hitter in exchange for $2 M.  In that case, the only way the Pirates could beat the offer is to accept salary relief (even if they can afford the $3.3 M) and up their offer from a Waldron/Baker package, to a Starling Marte type hitter.  That certainly changes the scenario of adding Pena as a two month rental.

There could also be a scenario where two teams end up with “Team A” offers, picking up the entire $3.3 M, with both offering two Grade C pitchers.  In that case, it would come down to which pair of pitchers the Cubs liked better.  The Pirates might be meeting the value with Waldron and Baker, but if the Cubs like another team’s pitchers better, the Pirates would have to find a way to up their offer.

In all cases above, the value never really changes, although the possible return can change, based on the priority of the Cubs.  The only way the value can change is if the Cubs pick up salary, and the value would only change to repay the Cubs for that salary relief.  The only other way the value could change is if multiple teams had the same offer.  In that case, the team with the least attractive offer would have to up their offer, and provide added value, in order to beat out the offer that the Cubs prefer.

So when we talk about values, it’s really a baseline.  In the end, it all depends on the trading team’s needs.  The above was all a fictional example for Pena.  I don’t know what the Cubs priority is.  I do know that it only makes sense to add Pena for two months if the Pirates can get him without sacrificing a key piece in the farm system.  If the Cubs are looking for the best possible prospect, and there’s a team out there willing to pay that in exchange for salary relief, then it won’t matter at all if the Pirates can afford the rest of Pena’s 2011 salary.  In that event, their offer wouldn’t meet the needs and priorities of the Cubs.

Tim Williams

Author: Tim Williams

Tim is the owner and editor in chief of Pirates Prospects. He started the site in January 2009, and turned it into his full time job during the 2011 season. Prior to starting Pirates Prospects, Tim worked with AccuScore.com, providing MLB, NHL, and NFL coverage to various national media outlets, including ESPN Insider, USA Today, Yahoo Sports, and the Wall Street Journal. He also writes the annual Prospect Guide, which is sold through the site. Tim lives in Bradenton, where he provides live coverage all year of Spring Training, mini camp, instructs, the Bradenton Marauders, and the GCL Pirates.

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