Examining the Matt Holliday trade

Introduction

For a big trade like this, I usually examine the surplus values exchanged in the deal and see who came out on the top. The Matt Holliday trade is a bit more complicated than a typical trade, however, because the trade was made relatively early in the offseason. Due to this, both teams have the opportunity to do a lot more with the pieces they acquired.

The Rockies’ intent is pretty clear. They are in a rebuilding mode and trying to acquire as much young, cheap talent as possible. The A’s intent may not be as clear. Holliday is a player who clearly makes the A’s a better team for 2009. However, he’s going to be a free agent after the 2009 season, so it’s not as clear how he helps them in the long term. But Holliday does provide the A’s with plenty of options. I’m going to take a look at these, and how they likely influenced the A’s decision-making.

Decisions, Decisions

The A’s first decision was made when Billy Beane traded for Holliday. After that, two basic events can result: the A’s contend or they don’t. From there, they can either keep Holliday or let him go, as in this picture:

image

Let’s look at these possible situations:

A’s Contend

Let’s say the A’s are able to pick up Rafael Furcal and Jason Giambi from free agency and a couple of their young starters perform better than expectations. They start the season out well and are in the playoff race at the trade deadline. At this point, their most likely option is to keep Holliday and go for the playoffs.

Baseball Prospectus 2008 calculates the value of reaching the playoffs as $40 million, given the inflation that will have taken place by 2009. Let’s say they have a 50/50 chance of making the playoffs if they are in the race by the trade deadline. Then their net value would be $20 million plus the $10 million value of the draft picks they would get from Holliday leaving as a free agent when the year is over.

However, they also have the option of trading Holliday. For example, Billy Beane might see a desperate contender at the trade deadline and flip Holliday without hurting his team’s playoff chances. If he’s able to do this, then they would get value from making the playoffs along with the value of the prospects. To keep it simple, let’s say they’d get $20 million in surplus value, about what the Braves received in return for Mark Teixeira.

The latter scenario is clearly far less likely than the former. For now we’ll say that the chances of the first scenario is 90 percent and the chances of the second scenario is 10 percent.

A’s Don’t Contend

Now let’s say that the A’s young pitchers struggle in the big leagues, and they are outbid for their free agent targets. They struggle through the first half of the year and are clearly out of it at the trade deadline. In this case, the most likely event would be that they trade Holliday at the deadline. Let’s give them the same $20 million in surplus value as we did in the earlier scenario and give them an 80 percent chance of trading Holliday if they don’t contend. If no one is willing to trade for Holliday, the A’s would be forced to keep Holliday and get the $10 million value of draft picks. With an 80 percent chance of the first outcome, the second outcome would have a 20 percent chance.

Where We’re At

If we say the A’s have a 50/50 chance of contending and add in an approximation of Holliday’s surplus value, we can figure out the expected value of the Holliday trade. The figure above each decision is the probability of that outcome occurring and the number below each outcome is the value of that outcome:

image

Conclusion

Given the scenarios I laid out, the average value of acquiring Matt Holliday would be $30 million. Note that this is not what I think the actual value of the trade is, I simply inserted what I thought were reasonable values. Admittedly, I didn’t exactly use precise values here. This is just an example of the proper process to evaluate the value of the trade. If you believe you can estimate better values and probabilities, insert them into the decision tree and see what you come up with. For example, you could probably come up with more accurate playoff chances for the A’s by running a season simulation. You could also make different assumptions of the value of prospects the A’s would receive if they traded Holliday.

I doubt the A’s went through a process exactly like this, but they probably did similar calculations. The beauty of this trade for the A’s is that it leaves them with plenty of options.

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