Friday, August 1, 2014

A Brief Lesson In Opportunity Cost, Starring Drew Stubbs

At the end of this past school year, I spent a couple of days introducing my 6th grade Social Studies class to the economic concept of Opportunity Cost. While it's not really on the list of standards I'm required to teach, I feel that it's critical for even the most basic level of decision making.

"You can choose between this orange and this apple. The cost of choosing the orange is the apple."

"You have enough money to buy a movie ticket or eat at the food court. The cost of the movie ticket is the food you can't eat AND the time that you spend enjoying the movie."
Courtesy of the always brilliant XKCD

Really basic concepts, right? Most of us have probably explicitly learned this concept through ECON 101 or implicitly in everyday life because it is simply everywhere. We use it all the time, whether we are at the grocery store or deciding whether we have enough in the tank to delay filling up at the gas station until after work. This concept is exactly why one of my absolute favorite days on the sports calendar is July 31, the MLB Trade Deadline.

At the trade deadline, teams make borderline insane decisions to marginally increase their chances at the postseason. Some teams will trade six years of team control for two months of a player, and it can actually be justified based on how they view opportunity cost and their team's chances at the World Series that season. It's the best possible vehicle I know to quantify how a team internally views its future, both long and short-term.

At least 18 MLB teams made a significant transaction yesterday, whether as buyers or sellers. The Colorado Rockies, owner of the worst record in the National League, were not one of them. I'm not surprised. I wrote earlier this week that I don't expect them to trade anyone (and honestly, they have so many broken pieces that it's difficult to find quality pieces that other teams would covet at this time of year). There is one, however, that I truly believe they should have moved solely based on the opportunity costs surrounding the situation: outfielder Drew Stubbs.

Stubbs, 29, was acquired this offseason via trade from Cleveland for fringe reliever Josh Outman due mostly because his salary outweighed his production. He is a very good defender to all three fields, but an effective bat only against left-handed pitching and prone to strikeouts. I loved the trade (ignoring the salary) simply because Stubbs struggled against breaking balls and was moving to Coors Field - the Land Where Breaking Balls Go To Die. He was brought in to rake, it worked beautifully, and he's having a renaissance year.

This appears to be a success story for the Rockies' front office, targeting a player that fits well on the roster and the environment. So what's the problem? Well, last-place teams have no need for expensive fourth outfielders. Stubbs may be enjoying a great year, but that means his arbitration salary for next year will likely break $6mil - again, for a fourth outfielder who only starts against left-handed pitchers.

That's the absolute definition of a luxury good, and one that should have much higher value for a contending team. The closest comparable trade yesterday was Gerardo Parra from Arizona to Milwaukee for former first rounder Mitch Haniger and pitcher Anthony Banda. (Here's a great synopsis if you want to find out more about the trade.)

As a platoon bat, Drew Stubbs will likely receive approximately 300 PA in 2015, along with another 120 PA through the rest of 2014. If we look at opportunity cost (and using the Brewers trade as a template for the market rate), here is what the Rockies are willing to give up for around 420-450 PA of Drew Stubbs:

  • Approximately $7.4 million in salary (remainder of his 2014 contract + 2015 arb raise)
  • Former first round comp pick prospect, one that would likely slot in around 12-15 on their prospects lists
  • A-ball starting pitcher with strikeout stuff (possible future reliever) 
  • 100 PA from top prospect outfielder Kyle Parker in 2014 (trading Stubbs would have freed a roster spot)
  • 30-50 PA from Corey Dickerson against LHP, who has been platooned despite a solid line against lefties
  • Free agent signings worth up to $6mil this offseason, which could translate into 1-2 decent bullpen arms

That's an awfully high price to pay for doing nothing at the deadline. The opportunity cost of trading Stubbs far outweighs the potential production from 450 plate appearances during that time, and it's not even close. Contending teams can afford to spend serious cash on quality fourth outfielders, the last-place Colorado Rockies cannot -- especially since Charlie Blackmon is already on the roster and makes an exceptional fourth outfielder at a much lower price. It's bad economics, it's bad market valuation, and it's just bad roster management.

Maybe I need to bring some apples and oranges to 20th and Blake Street before next year's trade deadline.