Economics of trading: Keeper leagues

Before we start, I’d like to apologize for the lack of articles of late. We should be getting back to a more regular routine here. That being said, let’s get started!

Supply and demand in keeper leagues

Last month, I discussed the fantasy baseball trade market and the merits of buying early and selling late from an economic standpoint.

While I discussed why this is a good idea, I did warn that it isn’t always the correct course of action.

No league’s trading market is exactly the same, but I hope the concepts we discussed today can help you to evaluate your specific league’s trading market. Factor everything in, and if it seems like now is a more favorable time to buy than a few months from now will be, then do it!

One example of where this might not be the best idea is in keeper leagues, where the trade market can be much different than in redraft leagues.

In keeper leagues, by this time of year, teams are either playing to win this year or playing for next year. Those who are playing to win this year will be seeking players that can help them right now and should be willing to give up younger players who are keepable (depending on the league’s setup, of course). Conversely, those playing for next year will be looking to trade off their non-keepable players for younger, keepable ones.

While everyone in a keeper league is still active at this time, those who are out of contention in redraft leagues basically pack it in and stop paying attention. Even those who still are paying attention, though, probably aren’t seeking trades as actively as their keeper league counterparts. And those who are won’t be trading their Alex Rodriguez for Jay Bruce, a trade that would make a lot of sense in certain keeper leagues.

In redraft leagues, teams can’t usually be classified as “buyers” or “sellers.” In keeper leagues, however, we can do just this. Because we see these two very distinct classifications of teams, there are a number of ideal trade partners, changing the dynamic of the trade market drastically.

When the trade market really starts to get skewed is when there are more of one than the other. Usually there are more sellers (we’ll talk about sellers in terms of those selling elite players for the purpose of this article, though the logic works the other way around) than buyers. We rarely see more than half the league (sometimes less than a quarter) still in contention at this point.

See the problem yet? With so many sellers, there will be a ton of top talent available on the trade market. In economic terms, the supply of elite players increases. Here is our supply and demand model from last time altered to show you what happens to price when supply increases.

Remember to look at the point where supply and demand meet. Initially, the price is ‘5’ units. Once supply increases, though (yes, it might look as though the supply is decreasing, but this is how economists show increased supply in these models), we see that price drops (in this instance to ‘4’ units). How far it drops depends on by how much supply actually increases.

In the context of the fantasy baseball trade market, this means that you need to do your selling now and your buying later (the exact opposite of what I recommended in the average redraft leagues).

As teams start to fall out of contention, we’ve said that they go from “buyer mode” to “seller mode,” increasing the supply of elite players. We’ve overlooked something, though: Not only does supply increase when a team switches from “buyer mode” to “seller mode,” but demand decreases by an equal amount. Check out what happens to price.

In our first graph, price drops to ‘4’ units when only the supply changes. When we account for the change in demand, the price falls even further, to ‘3.’ That’s an effect you want to avoid as a seller.

Further pushing us to our decision is that the supply of young, keepable players likely decreases as we approach the trade deadline. Think about it. Early in the year, most teams think they can win and are willing to make trades to help them do so. Once only a few teams are in contention, though, only a few teams will be willing to give up their long-term pieces. The rest will all be holding them, looking to contend next year. The longer we wait, the more teams will pack it in and start preparing for next year, and the fewer players will be available to us in trades.

If you look at the first graph above and imagine what happens when the supply decreases (now we’re talking about supply of keepable players), you’ll see that price increases. So when more teams start packing it in and those keepable guys come off the market, not only will there be fewer to choose from, but the price for the remaining ones will rise. And that supply will only continue to decrease as your fellow sellers start to make trades for the limited number of keepable players who are still available.

Maybe right now you can get Conor Jackson for Manny Ramirez, but at the deadline it might cost you Manny and C.C. Sabathia.

Therefore, you need to make sure that you are the first to make your trades, even if you aren’t getting a deal that you absolutely love. If possible, you should also try to finalize all of your deals in one fell swoop. This is because as soon as you make your first deal, others will feel pressured to start making deals themselves. When they do, the supply of available, keepable players decreases.

If you wait too long, it becomes entirely possible you won’t even be able to sell Jose Reyes for much more than a Glen Perkins-type player, as ridiculous as that might sound. This is first because most of the top notch long-term guys will have already been traded, and second because once the teams in contention start acquiring players, there may come a point where they will no longer be willing to give up a top notch long-term piece no matter how good the short-term piece to be acquired is.

A team may trade for Brandon Phillips, Matt Holliday and Jake Peavy and say, “That’s enough for me to win. I don’t have to give away my entire future.” Then, even if you come along offering Reyes, if they’re content with their team to the point that they don’t want to trade you Evan Longoria and instead will only offer Perkins, you’re screwed.

Of course, this is less likely to happen when dealing with an intelligent owner in a competitive league. An intelligent owner will see his opponents acquiring top notch players as well and realize that, even if he has just gotten Phillips, Holliday and Peavy, he really hasn’t gained much of an advantage over the guy who got Carlos Lee, Carl Crawford and Josh Beckett. The problem will still remain, however, that he might not be able to offer the type of player you’re looking for simply because he doesn’t have any left.

My recent situation

In my favorite keeper league, I decided this past week that I likely couldn’t win the league. I had a number of high-priced veterans I knew I wouldn’t be able to keep next year, so I made some quick moves to trade a few of them. My first of these moves was trading Mark Teixeira, James Shields and Joakim Soria for Joey Votto, Mat Gamel and a minor league draft pick.

There were some owners who really gave me a hard time about this trade. Some thought I gave up way too much, while others thought I threw in the towel too early. The thing is, though, I had already traded for big name guys like Jose Reyes, Carl Crawford, Matt Holliday, Edinson Volquez and Soria over the past six weeks. My team had been hit hard with injuries this year, and I was still only in fifth place, 20 points out of first. I managed to get those players by giving away only one long-term piece, but to acquire any more I knew I would have to give up something significant.

I saw that owners who were definitely out of it were beginning to shop their players around. I knew that even if I were to trade for another two or three top-notch guys, it might amount to nothing since my opponents (who were all already ahead of me) would likely be acquiring these types of guys as well. The only way I could have had a shot at winning was by trading away basically my entire future for several more high quality guys, and even then, I was nowhere near assured of a championship.

I noted that I already had several excellent long-term pieces and adding a few more would give me a huge advantage going into 2009. The combination of all of these things amounted to me deciding that it was best to pack it in this year and stack my team for next year. I could have waited longer to make the decision, as one owner said I should have done, but my options were limited, and waiting likely would have cost me greatly.

Of the five other owners in contention, one seemed close to throwing in the towel (creating a new seller) and didn’t want to trade his most valuable long-term pieces. Another never seems open to trading, and another was the one I acquired Votto and Gamel from (the best deal I could work out of him). Also, I knew that this owner was in talks to acquire Alex Rodriguez and that Votto could be included. This left just two other potential trading partners, neither of whom had a major league player the caliber of Votto or a prospect the caliber of Gamel (or many long-term players I liked at all, for that matter).

This made my decision to make the trade easy, even if it looked shaky on the surface, especially since I still had Reyes, Crawford, Holliday, Brian McCann, Carlos Lee, Carlos Guillen and Albert Pujols with whom to try to make additional trades. (I will likely end up keeping at least two or three of them).

I relayed this example to you to show you that you need to put away your preconceptions about value. Value is a relative term, and if this type of deal is the best you can get, and you know that by waiting the quality of the deal will only worsen, you have to do it.

Don’t sell yourself too short

While seemingly overpaying a little can be the right move, make sure not to sell yourself too short. Going back to our hypothetical situation where the best we could get for Jose Reyes is Glen Perkins, depending on the exact conditions, I probably would not make this trade, even if that meant getting nothing for Reyes.

If other owners see that you are willing to sell a top-notch player very, very short and don’t realize that these kinds of concepts drove you to the decision, in the future they will be much less likely to offer you a real deal, thinking (knowing?) that they can get away with it. Seeing you get nothing for Reyes rather than trade him for scratch will show them that you can’t be pushed around.

Tailor these concepts to your league

Now, of course, there are all kinds of keeper leagues with an infinite number of unique setups. This article was tailored more toward leagues where each team is able to keep only a very select number of players or where keepers are determined in some way by their previous season’s auction value.

As I’ve said before, make sure you examine your specific league’s trading market and decide from there whether you should make your trades now or wait until closer to the trade deadline. Examine all aspects of your league and make sure to account for supply and demand and for elasticity and you should be fine.