July 3, 2014

TTO Scoresheet Podcast

Maximizing Value in Midseason Trades

by Ian Lefkowitz, Ben Murphy and Jared Weiss

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Most continuing Scoresheet leagues allow owners to be engaged throughout the year, regardless of their place in the standings, as opposed to many roto leagues, which find rebuilding teams trading away their one or two unkeepable studs for draft picks and then counting down the days until next year. The key advantages Scoresheet has here over most other forms of fantasy are the lack of a maximum roster size and the constant struggle to avoid Triple-A Player. In Scoresheet, a contender can always scavenge some sort of useful piece from a rebuilding team, even if it is a backup-to-the-backup middle infielder or an 11th starting pitcher to be stashed on the taxi squad in case of emergency.

Which leads to this week’s subject: maximizing value in midseason trades between contending and rebuilding teams.

A happy quirk of these sorts of trades is that they almost always should result in both teams improving their situation and both owners feeling good about the trade. Rebuilding teams have absolutely no use for players they won’t be able to keep for next year. Relievers, for example, have zero value to a rebuilding team. So anything the rebuilder can get in trade for these players will be an improvement. Contenders, on the other hand, may greatly value an additional reliever, as the increased likelihood of winning a title is worth far more than, say, a mid-round pick downgrade next year.

The Coase theorem suggests that (especially given the relatively low transaction costs of email) the players mentioned above will find their way to the contending team and the ultimate price will largely depend on the negotiating abilities of the two owners. You can probably guess which one of us felt the need to drop a (maybe the) seminal economic theorem into an article about Scoresheet midseason trades, but the two important takeaways are that the players in question should end up on a contending team and that depending on the number and needs of buyers and sellers, “market value” may lose some meaning.

To give an example, assume there’s a league where there is a single rebuilding team offering a stud reliever and a single contending team looking for a stud reliever. The rebuilding owner values that reliever at zero wins, because he has no chance of winning this year and won’t keep the reliever. The contending owner values the reliever at, say, one win, because he has a terrible bullpen. Theoretically, any proposed trade where the contending team sends the rebuilding team more than 0 wins of value (e.g., in 2015 picks or pick upgrades) and less than one win of value would be accepted, since both teams would be better off. It is important to note the trade that’s actually completed won’t necessarily be the midpoint, sending 0.5 wins of value to rebuilder. If the contending team knows the rebuilder has mostly checked out on the season, maybe he proposes sending over 0.2 wins of value, figuring the rebuilder will accept anything. Or if the rebuilder knows the contender will do whatever it takes to win this year, maybe he holds firm at getting 0.9 wins of value in the trade. There’s no real formula to derive the ultimate price, it instead mostly depends on negotiating ability.

Avoiding this situation is a major reason why we advocate making the decision to rebuild as early as possible. Instead of needing to rely on your negotiating ability, being the first rebuilder in a league full of contenders means the market can do the hard work for you, and you are much more likely to get better value.

Rebuilders sometimes also benefit from acting first, if the rest of the league is still on the fence over whether they want to make a push for this year. But usually there are plenty of teams who still think they have a shot. So we have a few different recommendations for contenders. As always, it can pay to be proactive. Searching out rebuilding teams and offering trades before they start marketing their players to the league may save some value. When trading with rebuilders, it almost never hurts to ask for an additional player. For rebuilders, there is no difference between trading away four non-keepers and five, so you might as well make a play for that extra player, just on the off-chance having a seventh outfielder becomes relevant.

Finally, and above all, we believe that these sorts of trades between contenders and rebuilders should be positive experiences. We go into it more deeply in the podcast, but the goodwill gained from completing a trade where both sides are happy (or even where your trade partner thinks he got the better end of the deal) is usually far more valuable than squeezing out that extra tenth of a win in value, especially since both sides win these trades and usually without taking on any risk in the process. Game theory has a concept called a “repeated game” which more or less applies here. Basically, what might yield the best payoff in a one-off game, like a prisoner’s dilemma or a midseason trade, might not yield the best overall payoff in a repeated game, like the years you will be spending in a league with the other owner. Midseason trades can be a great way to build or improve a trading relationship which will likely be much more valuable than, say, being a pain and holding out for a 20th-round pick instead of a 21st-rounder.

In this week’s podcast: The Outcomes talk midseason trades, looking both at specific deals and general situations, and delving into strategies for both contending and rebuilding teams. Speaking of contending and rebuilding teams, they might slip in a little talk about U.S. soccer and the World Cup.

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