Surplus Value and Mark Reynolds

I've been meaning to write an article about surplus value for a while now, and thought that with the Mark Reynolds trade, now was as good a time as any. I think the concept of surplus value is a really interesting one, and for me personally, it gave me a much more effective understanding and evaluation of trades and free agent signings. For those readers who have a better grasp of economics than I do, please feel free to expand upon what I have written.

What really sparked my desire to write this post was the discussion of our offseason moves. After Mark Reynolds was traded to the Orioles, one common line of thought I often read in the threads was "I will wait to evaluate this trade until I see what Kevin Towers does with the money we saved." I think this statement represents a misconception that a lot of baseball fans have towards trades and signings.

The first concept I want to put forth is that money intrinsically has no value. The "value" we place in money lies in its ability to obtain the commodities we want. When it comes to baseball, there really is only one commodity we care about: wins. Basically, at the end of the day, every baseball fan should hope for his or her team to have enough money to buy enough wins to make the playoffs. Unless you're a Yankees fan, at which point you substitute the phrase "win the World Series" for "make the playoffs."

Okay, that seems intuitive enough. We care about wins, and we know that we need money to buy wins. But what does this have to do with Mark Reynolds? The point is that once you draw this conclusion, the only reasonable extrapolation is that trading Reynolds doesn't save money, it costs money, or perhaps more relevantly, it costs wins that we will need to use money to replace. In other words, when we traded Mark Reynolds and knew we were going to replace him with free agents, we knew we had lost value (read: lost wins), value that we would need replaced. That's why we didn't just trade Reynolds for nothing. We traded him for relievers (insert joke here).

If money is only useful in the sense that it buys wins, that seems to presume that we can try to price the cost of wins. Otherwise, this concept is pretty much useless. And in actuality, this is what every fan does. Some do it consciously, others do it subconsciously. Some people take strikeouts, divide it by a hundred, and put a negative sign in front of it, and think that's how many wins a player cost his team. Other people at Fangraphs use esoteric terms such as wOBA and UZR to try to figure out what a player is worth in wins, and then calculate the market price of wins from there. Regardless of the method, each and every fan looks at a player, and assigns a market value to that player.

As I'm rather fond of esoteric things, I tend to use Fangraphs WAR when trying to figure out the value of a player. Reynolds costs $5 million this next year and $8 million in 2012, and a $0.5 million buyout in 2013. Let's assume we don't pick up his 2013 option (highly likely, since Borchering or Davidson will be ready by then). Conservatively, and I think there are some at the 'Pit that have much higher valuations of Reynolds (I'm looking at you IHSB and paqs), Reynolds should be good for 3 WAR next year and 2.5 WAR the year after (0.5 WAR deduction for aging). Going by a price of $5 million per WAR in 2011, and 7% baseball inflation, that would mean Reynolds would be worth, over the next two years, a total of around $28.5 million. That extra $15 million that we gave up, is what sabermetricians call surplus value.

That is the value we lost. So did we make it up in the relievers we got back? Well, our relievers basically have to combine for 3 WAR within the next two years (for david hernandez) or next three years (for kam mickolio) while they are still earning minimum wage. That's not taking into account their first arbitration year, though by the time relievers get to their second arbitration year, they are oftentimes already making their market value. However, 3 WAR between two relievers over the course of two or three years, while not easy, is definitely more than possible.

The problem is, the trade gets complicated by some factors. For one, my estimate of Reynolds value is definitely along the conservative side. Reynolds could conceivably hit 4 and 3.5 WAR respectively in the next two years, which would be another $10 million in surplus value. That would mean our relievers would need to get 5 WAR instead of 3 WAR. Moreover, there's added value to accumulating surplus value in one person and also in one year. Accumulating it in one position, means there are more positions with potential WAR to fill on the roster. And of course, accumulating it in one year means you have a better shot at reaching enough wins for a playoff spot. On the flip side, there is sort of a reverse discount factor at work, as surplus value in 2011 is worth less to the Diamondbacks as opposed to surplus value in 2012 and 2013, when the team has a better shot at competing.

All in all, after these various adjustments (which I have no objective method for calculating), I would say that the Reynolds trade should be considered decent. We didn't come out huge winners. We didn't come out huge losers. We basically broke even.