Who wins the Prince Fielder for Ian Kinsler trade?

I’ve been thinking about how to evaluate trades lately.  You have to evaluate them with the information known at the time, if you want to consider the quality of the decision.  If you evaluate them in hindsight, then you are evaluating not only the initial decision but also a lot of luck in terms of did somebody get injured, or vary their performance widely from what might have been expected.  So we can try to evaluate today’s blockbuster deal between the Tigers and the Rangers.  The Tigers trade age 30-36 of Prince Fielder @ $168M to the Rangers for age 32-36 of Ian Kinsler @ $67M (or if they prefer, age 32-35 @ $62M).  Also, the Tigers send the Rangers $30M.

In terms of roster construction, making use of available resources, etc… this works out well for both teams.  The Rangers make room for Profar, and add the power they were looking for.  The Tigers clear some salary to sign Scherzer and maybe another OF and a closer, plus admirably fill their second base vacancy.   They can move Cabrera or Martinez to first, let Nick Castellanos come up at 3B.  For both sides, it pays great dividends to how they can put a team together. 

Baseball analytics have advanced in the last few years to the point where they can reasonably say a player’s total performance on the field (Wins Above Replacement) is worth $x to the team (WAR * $/WAR).  So all we need to do is project out each player’s WAR, and assume some rate of inflation for $/WAR (5% seems about right).  Then, we have a series of future cashflows (positive to the team in terms of value the player creates, and negative to the team in terms of salary they pay).  The positive cashflows are risky ones, and ideally we’d like a framework that takes that into account and considers the range of possible outcomes of a player’s future performance.   Then, we’ll be in the same position basically as a bank evaluating a swap of fixed for floating interest payments or any of myriad swaps of future cashflows that form the basis of modern finance.  As an initial take though, I’ll just use each player’s expected performance and best case worst case scenarios.

Fielder has played almost every single day for 8 years, so despite his “bad body” his track record of staying on the field is outstanding.  He had a down year last year, but we can expect he bounces back somewhat.  His defense is not great, and his baserunning is terrible.   So projecting runs above replacement for each phase of his game, we can expect something like

Year	Hitting	Defense	Running	RAR	WAR	Value	Salary	Net
2014	31	-5	-6	30	3.1	17.4	24.0	-6.6
2015	31	-5	-6	30	3.1	18.3	24.0	-5.7
2016	28	-5	-6	26	2.7	16.8	24.0	-7.2
2017	26	-5	-6	24	2.6	16.4	24.0	-7.6
2018	24	-5	-6	23	2.4	15.9	24.0	-8.1
2019	20	-5	-6	19	2.0	13.9	24.0	-10.1
2020	16	-5	-6	15	1.6	11.6	24.0	-12.4

The key to all these horrifying long-term deals is the expectation that baseball inflation will be pretty steep.  5 years from now, Fielder might not be that great of a hitter any more, but then again the $20M net salary may not be that out of line for OK hitters by then.

I didn’t include positional adjustment in defense, just in the total RAR (runs above replacement) but 1B gets about -12 runs / yr.  Fielder is such a bad first baseman, his value does not change if he becomes a DH!  (-5 runs below replacement first baseman on defense – 12 runs positional adjustment = 0 runs above replacement on defense -17 runs positional adjustment for DH).  Not a pretty picture.  He’s not a $24M player now, and it’s just going to get worse as he gets older.  Best case, he bounces back even 10 runs more than that at the plate.   That adds about a win and $6 or $7M more of value, but still not a $24M player in those last couple years.  Since owners value current cashflows (and current wins) much more than future ones, let’s discount each succeeding year at 10%, and bring this series of cashflows back to today and say Fielder’s contract has a net present value of about negative $40M.  Or looking to the best case, negative $10M.  There’s not that much downside for Fielder in the field or on the bases, because he is already pretty much the worst conceivable major league player in those areas!  If the bat declines faster than expected, and injuries start to hit, the contract could be worth -$60M.

Let’s do the same for Kinsler.  Kinsler got old FAST the last two years.  He plays a lot harder than Fielder, and while that let him produce a lot of value with athleticism in the past, it has taken its toll on his body.  While he had been an outstanding defender and baserunner previously, he was just mediocre suddenly.  His bat slowed down too, and he doesn’t look like a good bet to get back to 30HR.  Plus he’s started to miss time on the DL more.  Still, he’s one of the better second basemen out there (assuming he stays at 2B, the positional adjustment is about +2 runs/yr).  Doing a similar exercise as we did for Fielder, we see

Year	Hitting	Defense	Running	RAR	WAR	Value	Salary	Net
2014	5	0	3	29	3.1	17.1	16.0	1.1
2015	3	0	3	28	2.9	17.0	16.0	1.0
2016	2	-5	3	22	2.3	13.9	14.0	-0.1
2017	-1	-5	0	16	1.7	10.8	11.0	-0.2
2018	-4	-5	0	13	1.4	9.2	10.0	-0.8

The NPV there is about 0 – a very fair contract that pays Ian anticipating a decline.  If you want to model the Tigers not exercising the 2018 option, turn the 2018 WAR to 0, the 2018 salary to $5.  That may not make financial sense in isolation as it turns his net cashflow in 2018 from -$0.8 to -$5.   Which would you rather buy, $8M of stuff for $10M or $0 of stuff for $5M?  Different people could have different answers to that question, depending on their budget and the alternatives available at the time.  From a pure financial point of view, and not thinking about possible replacements, declining the option only drops the NPV another $2M or so.

Now, to be fair, we ought to do a best case recovery here as well.  Let’s say he finds the right physical therapist / workout routine / nutritionist and rejuvenates and performs somewhat more inline with his younger self.  It’s not hard to see him producing an extra 3/4 win each year and maybe making this contract a $15M net asset to the Tigers.  Kinsler’s worst case is more injuries, skills continue to erode, and the contract is worth about -$15M

Remembering the $30M, which I think is paid in 7 equal installments, and counting it as an extra cost the Tigers pay and a subtraction against salary the Rangers do not pay:

	Tigers get	Tigers Pay	Tigers Net	Rangers get	Rangers Pay	Rangers Net
2014	17.1	20.3	-$3.2	17.4	19.7	-$2.3
2015	17.0	20.3	-$3.3	18.3	19.7	-$1.4
2016	13.9	18.3	-$4.4	16.8	19.7	-$2.9
2017	10.8	15.3	-$4.5	16.4	19.7	-$3.3
2018	9.2	14.3	-$5.0	15.9	19.7	-$3.9
2019		4.3	-$4.3	13.9	19.7	-$5.9
2020		4.3	-$4.3	11.6	19.7	-$8.1
NPV			-$21.2			-$18.6

It’s a pretty fair trade on an expected basis.  The Rangers come out a little ahead at first and then probably take a big hit in the last 2 years.

Based on the sensitivity testing for best/worst case above, I’ll say the range of outcomes around the Tigers outcome is +/- $15M, whereas the range for the Rangers is +/-25M.  We can visualize that in terms of two distributions.

The Rangers are likely the financial winner of the trade (in fact I’m 70% sure of it, for whatever that’s worth).  The Rangers are taking on more risk, and depending how both players age, could end up the loser in terms of actual outcomes.  How the two teams play their newfound flexibility into 2014 rosters will have a lot to do with who is perceived to win the trade.  But as a pure swap of contracts, the Rangers got the better deal.  (If you owned the Blue curve and could trade it for the Red curve, wouldn’t you?)