February 10, 2015

Tools of Ignorance

How the Padres Won the Offseason

by Jeff Quinton

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Not sure if you have heard or not, but the Padres have gone from being incredibly boring to intriguing and, more importantly, playoff contenders. How did they do it? They acquired better players. How did they acquire better players? Through trades (mostly) and free agent signings (less-ly). The exciting part is that San Diego was able to do so without completely wiping out their farm system (holding onto their three top prospects in Austin Hedges, Hunter Renfroe, and Matt Wisler as well as Rymer Liriano) and without spending a ton of cash. Put differently, the Padres paid a price to become relevant, but it was a price far less than anyone would have guessed given the pieces they acquired.

So how were the Padres—a team that was thought to be relatively void of playoff-level talent—able to position themselves as playoff contenders at such a seemingly low price? They did so by being opportunistic and leveraging depth, which they were able to do by finding motivated sellers and acquiring value instead of focusing on need.

Being there (for motivated sellers)
Age-old negotiation advice tells us to “never make the first offer.” While this is pretty terrible advice (making the first offer often allows us to anchor the negotiation as well as providing other benefits), the logic behind this advice is worth noting. The reason we want someone else to make the first offer is because we want to be negotiating with someone who wants something, who is potentially willing to get 90 cents back on the dollar (or even just fair value) in order to get what they want. Translating this to baseball, when a team is looking to cash in on a redundant asset such as Matt Kemp, Steven Souza (and consequently Wil Myers), Derek Norris, Will Middlebrooks, Shawn Kelley, or Brandon Maurer, or an expiring asset on a non-contender such as Justin Upton, the acquiring team can often get a more favorable deal. Why? Because in these situations, the acquiring team is less likely to pay as much of an “endowment effect premium” for the asset they are acquiring.

Richard Thaler, who coined the term, describes the endowment effect as “the fact that people often demand much more to give up an object than they would be willing to pay to acquire it.” This is most famously demonstrated in a study conducted by Daniel Kahneman, Jack Knetsch, and Thaler, which “found that randomly assigned owners of a mug required significantly more money to part with their possession (around $7) than randomly assigned buyers were willing to pay to acquire it (around $3).” While I am currently unaware of a follow up study, I am comfortable predicting that the “sellers” would lower their selling price if given a second mug they would not use (redundancy) or if they were told their mug would be taken away from them before they would be able to use it (Upton). By finding equivalent situations in the offseason trade market, it appears that the Padres have been able to somewhat avoid this premium by targeting players who are more valuable to them than they were to their current team.

If this is seemingly such a great tactic, then why are not more teams employing it or employing it as frequently as the Padres?

Acquiring value first, worrying about need later
Again, guessing here, but the Padres have been able to acquire all this talent at a seemingly cheap price by being indiscriminate about where value comes from and by not fixating on weaknesses. It could have been argued that the outfield was full after acquiring Matt Kemp. It could have been argued that the Padres were set at catcher, even after dealing Yasmani Grandal, with Rene Rivera breaking out in 2014 and Austin Hedges waiting in the wings. And it definitely could have been argued that first base, third base, and shortstop were bigger weaknesses than catcher, outfield, or starting pitcher.

The issue with framing our decision through weaknesses is that the market does not always give us a nice, neat solution to upgrading those weaknesses. Sometimes, given what is available in free agency or the trade market, the best way to upgrade is to go from good to great as opposed to bad to mediocre. Maybe for the Padres, the best or most affordable way of upgrading was to trade from their minor-league and major-league depth for redundant or expiring more-likely-to-be-impact players such as Wil Myers, Derek Norris, and Justin Upton. While an upgrade at shortstop seemed like the easiest way for the Padres to improve in 2015, maybe the best option out there was signing a seemingly undervalued James Shields. To borrow a golf term, “It ain’t how, it’s how many.” It does not matter how each team goes about creating or preventing runs, it only matters how many are created and prevented.

Lastly, but maybe most importantly, being opportunistic and relatively indiscriminate about finding value seems to have allowed for the Padres to find situations where the impact of winner’s curse is not as evident. Again, as you guessed it, this is speculative because we were not involved in the trade discussions, but given the rumors we heard, fierce bidding wars did not appear to have taken place. More importantly, given the prices paid, the bidding wars did not drive up prices enough to the point where we would have believed them to be fierce. By looking for value as opposed to focusing on a weakness, the Padres were able to find more buyer-friendly markets.

What is next?
Luckily, for the sake of intrigue, no one knows. What we do know is that the Padres now have better hitters, starting pitchers, and relief pitchers heading into 2015 than they did in 2014 when they went 77-85. They have most likely taken a step backward in outfield defense, but when combined with the previously mentioned improvements, the Padres still appear to have captured a significant net gain. Additionally, the Padres do not need to make the playoffs in 2015 for this to be a successful offseason. Of the additions, only Justin Upton is coming off the books before 2016 (Ian Kennedy is the only core incumbent whose contract expires next winter), and their outfield depth at the major-league and minor-league levels should allow them to continue to compete without him. Hopefully, the new regime will continue to be strategically opportunistic and agile (and therefore active), continuing to add values wherever they come, and continuing to add or prevent runs as each opportunity presents itself. Of course, this could all be coincidence (just an overzealous writer reading too far into a handful of transactions), but if it is not, the Padres will not only continue to be interesting to follow, they should also continue to be contenders.

Jeff Quinton is an author of Baseball Prospectus. Follow @jjq01
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