Jake Peavy trade analysis

A few weeks ago, San Diego Union-Tribune writer Tim Sullivan sought my opinion on what Jake Peavy was worth in a trade. I thought readers here might be interested to see the information I gave him. By projecting Peavy’s trade value, I mean projecting how much value he gives compared to his actual contract.

Estimation of Peavy’s trade value

To estimate Peavy’s trade value, we first need to estimate how much Peavy is actually worth. To do this I used a weighted average of StatCorner’s regressed TRA (TRA*) for Peavy. TRA is very similar to FIP. However, TRA* is regressed, which makes it useful for predicting a player’s true talent.

Using TRA*, I estimated Peavy as being worth 3.6 Wins Above Replacement (WAR), which would be worth about $18 million in this year’s free agent market. With Peavy’s contract for next year, he would have about $10.5 million in trade value alone for 2009. However, we need to factor in the rest of Peavy’s contract. Pitchers Peavy’s age (27) are in general pretty risky and tend to lose 10 percent of their innings pitched and performance. When this is factored into Peavy’s projection, we see has a net present value of about $15 million:

image

In the chart above, the blue column is how much Peavy is actually being paid, the black column is how much his projected performance would be worth, while the green column is his net present value (performance worth minus contract) with all figures being displayed in millions of dollars.

While I said that pitchers like Peavy can expect to lose 10 percent of their playing time and performance, Peavy’s performance value is actually estimated to increase the first four years. This is because we need to include inflation (about 10 percent) with our projections. However, his net present value does decrease each year and is even projected to be negative in his last year.

Before we finalize Peavy’s actual trade value, we need to consider the other teams that will likely be involved. Since the Padres appear to be a long way from contending, trading Peavy will likely not hurt their playoff chances in the next few years. However, teams that are going to be trading for Peavy will likely view themselves as being on the brink of contention. Therefore, they will view Peavy as being worth a little extra.

Still, due to the uncertainty and error in predicting a team’s talent level in the preseason, we cannot give a team as big a boost in trade value when acquiring a player during the offseason as we would if it were acquiring a player at the trade deadline. In general, I think that it is reasonable to say Peavy would be worth an additional $5 million to a contending team. Combining that with his net present value, I have Peavy’s actual trade value as being worth about $20 million.

To some readers, this value may seem low given Peavy’s reputation. There are a few reasons for this:
PETCO Park—Peavy is pitching in the league’s best pitcher’s park and this makes him seem better than he is.
Peavy’s been a little lucky—Pitching is based on skill and luck; Peavy has had both.
People underestimate pitcher risk— pitchers are very risky, no matter how good they are.

However, there is one important clarification we need to make, and that is the difference between Peavy’s actual trade value and his perceived trade value. While I estimate Peavy’s actual trade value at around $20 million, his perceived trade value is almost certainly higher. This is because Peavy is considered a “staff ace,” which is the most sought-after commodity, and teams will likely overestimate their chances of making the playoffs, which is usually lower than a team thinks at the start of a season. Additionally, teams are more willing to deal prospects for a “proven commodity” like Peavy since prospects are generally riskier. This means that the Padres find themselves in an arbitrage situation, where they can make a profit by trading Peavy.

Conclusion

Jake Peavy will be the hottest target in this offseason’s trade market. However, while he does bring some good trade value, he will likely not be worth as much as a team would have to trade to get him. The Padres have a great opportunity to get their rebuilding off to a good start by trading Peavy.

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