The Risk/Reward of Trading for Prospects

The value of prospects is something that is very difficult to quantify, mainly because most prospect are unproven at the Big League level. While many top prospects enjoy success at various levels of the Minor Leagues, it is incredibly difficult to determine how they will transition to the Major Leagues. Most prospects, even the most heralded ones, take longer to develop than expected and they rarely fulfill the lofty expectations set upon them.

In 2011, Scott McKinney conducted a study for the Royals Review Blog, in which he analyzed the success and failure rates of prospects based on their ranking in Baseball America’s (BA) top 100 prospect lists from 1990-2003. McKinney declares a prospect a success if he averages above 1.5 fWAR per season during his cost controlled years, which are the player’s first 6 seasons in the Majors. He declares a prospect a bust if he averages below 1.5 fWAR per each cost controlled season. McKinney found that nearly 70% of BA’s Top 100 prospects fail. His study also shows that pitchers succeed just 22.6% of the time compared to the 37.1% success rate of position players. The large differential between pitchers and position players has a lot to do with the higher rate of injuries among pitchers. Many pitching prospects suffer arm injuries that can derail their career, unlike the injuries to position players that they are usually able to overcome. As you would expect, players rated higher in the rankings tend to have more success, as 55.1% of players ranked 1-10 have succeeded at the Big League level. However, having just over half the prospects ranked at or near the top of all prospects succeed shows how difficult it is to determine which Minor Leaguers will be successful in the Majors. Finally, McKinney’s study also shows that top prospects success rates have not increased much over time, which indicates that evaluating prospects has not become any more accurate than it used to be.
Even with the incredible amount of risk associated with prospects, many organizations trade established Major Leaguers for young Minor Leaguers. This may seem like an easy decision for rebuilding clubs, yet, just this past off-season, the Tampa Bay Rays traded their workhorse starter, James Shields, for the Royals’ top prospect, Wil Myers, and other prospects. The Rays are one of the few contending teams that would trade such a significant MLB player for a prospect. However, for a small market team like the Rays, young players can be more valuable than proven veterans.
So, why would a team coming off its 5th straight winning season trade a pitcher with 6 straight seasons of more than 200 IP for players with so much risk? The main reason is, despite the risk, prospects are usually relatively inexpensive and controllable. Once a player is first promoted, he must spend at least 6 seasons under club control. For the player’s first 3 seasons in the MLB, teams can pay players the MLB minimum salary of $480,000. For a small market team like the Rays, being able to pay a key player at or near the MLB minimum salary compared to the average MLB salary of $3.2 Million is a huge advantage. After 3 seasons, the player has the opportunity to go to arbitration for 3 seasons, which will almost always see the player’s salary rise from the previous season’s salary. Despite the rise in salary during arbitration, the player will still be paid less than he would if he hit the free agent market. Being able to retain players at or below market value for 6 seasons is what small-to-mid market clubs must do to remain competitive, especially when teams like the Yankees seem to have no payroll limitations.
The ability to control the player for his first 6 seasons in the Big Leagues is a large component to why rebuilding clubs target Minor Leaguers or young Major Leaguers. The rebuilding club will be able to give the young player the opportunity to develop, while the team is able to find other players that they can build around. A great example of this occurred in 2007, when the Texas Rangers traded Mark Teixeira to the Atlanta Braves for Jarrod Saltalamacchia, Elvis Andrus, Matt Harrison and Neftali Feliz. The Rangers dealt a great player, who was nearing Free Agency, in exchange for 4 controllable players, 3 of whom have made huge contributions to help the team become a perennial contender again.
The point of this article is not to suggest that trading for prospects is a bad idea. There are plenty of examples of teams acquiring top prospects and seeing them grow into stars at the MLB level. However, as the Trade Deadline approaches and rumors continue to swirl around top prospects, it is important to remember that even the most heralded prospects do not succeed in the Majors nearly 50% of the time. For those prospects that are successful, they can provide their team with incredible value, as well as the possibility to become a star. But even these prospects often take time to develop.

You can check out Scott McKinney’s study here: http://www.royalsreview.com/2011/2/14/1992424/success-and-failure-rates-of-top-mlb-prospects

Anthony Cacchione

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