Marginal Gain

by jjray on Dec 12, 2008 7:18 PM EST Comment 8 comments

I have not read this term used in discussion often on this board although opportunity cost has become trendy. I think the concepts work together as an opportunity cost is neither good nor bad unless compared with marginal gain from a prospective transaction. When adding player A, the marginal gain is the production the team receives from player A over the default option for the team had they not made the transaction. The opportunity cost is that separate action prevented or forgone by acquiring player A.

Let's look at the proposed Fuentes FA acquisition. The marginal gain is not how much better Fuentes makes our bullpen over last season. The marginal gain is how much better will Fuentes be than the inhouse options of Perez, Motte, Kinney. There is an argument that we are moving these three down a slot in the bullpen, thus, Fuentes is really displacing a guy like Brad Thompson. Reasonable minds can debate it but the marginal gain is the prospective bullpen with and without Fuentes. I'm not a fantasy stat guy so I'll not debate win share and other metrics.

The opportunity cost is the lost 1st round draft pick and the player that the Cards could have acquired with the $10 mil annual salary going to Fuentes. If I say this is Ben Sheets, you may retort that he will cost more than $10 million per season. True but that is not the test. If the Cards forgo signing Fuentes, it is possible they may find modest payroll savings at other positions to put them into a position to acquire Sheets. For instance trading Rick Ankiel ($3 million) and replacing him with Rasmus (league minimum). There is not a way for the Cards to wangle the cost savings to acquire both Fuentes and Sheets but I think they could find the money to land Sheets alone. That's an opportunity cost. Then calculate the marginal gain to the team of Sheets in your rotation versus the dumpster dive for a Dave Duncan reclamation project that will occur if we sign Fuentes. Of course, it's possible JMo could pull another rabbit out of the hat as he did last season with the Lohse deal or signing Fuentes frees up McClellan to go to the pen.

Reasonable minds can differ on the facts but I think this has to be the analysis. I'm sure most people on this board already make these assessments mentally when sizing up a deal ... but I wonder if guys like Strauss actually sit down and think about it.

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so what is worth more?

Looper + Fuentes or Sheets?
The payroll obligations should be approximately equal (~6M + ~9M = ~15M). I believe that Mo is talking about Fuentes now and believing that Looper or a pitcher of similar quality will be available for less than or equal the amount of years that Looper is seeking and a lower yearly salary than Looper would have got in arbitration. Both packages give up the first round pick. One pickup allows the youth in the pen to show how far it has progressed, the other fills both of the pitching needs. I think the marginal gain from looper over Thompson/Boggs/Pineiro + Fuentes impact on the bullpen (if he performs as he has in the past) is greater than the impact that Sheets alone will have on the rotation. Add in the unlikeliness of even signing Sheets, seen by the FO’s absolute unwillingness to take on risky pitchers and the effective stranglehold it would have on the team’s payroll, and Fuentes + Looper/O.Perez/pitcher w/o a team in ST seems to be a more prudent route.

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by jacksonian on Dec 13, 2008 12:25 AM EST reply actions 0 recs

Probability of signing Sheets

I think that’s an important aspect of the calculation that should be accounted for in some fashion. If you forgo signing Fuentes to bank the money for a run at Sheets, what’s the likelihood the Cards emerge as the winning bidder? If these lose the Sheets sweepstakes, will Fuentes still be there? I have no idea how quantify these probability factors.

by jjray on Dec 13, 2008 10:58 AM EST up reply actions 0 recs

I think that the best move would be too

Trade away Rick Ankiel for a good young starter. I was thinking about a guy like Sonnastine, but since the Rays traded away Jackson they probably won’t want to trade him. Also Jackson netted the Rays six low cost years of Matt Joyce, a player who figures to have close to Ankiel’s power with good defense as well. If we packaged Freese and Ankiel in a deal, we good really get a quality young starter.

Then we use the savings we got from trading away Ankiel for someone who costs nothing to get Fuentes. I know that 10 million is a little to much for a closer, but if we are able to fill our starting role with a trade than we can afford a luxury like Fuentes. He will definitely help our bullpen because he is a big strikeout lefty, who can close and be used situationally also.

by vivaelpujols on Dec 13, 2008 12:51 AM EST reply actions 0 recs

A couple of things

you say that even though Sheets will cost more than $10 M per year, Sheets is the opportunity cost of Fuentes b/c the Cards could save the difference other places. That’s not true. If Fuentes will cost us $10M per year (counting the draft pick) and Sheets would cost us $15, the opportunity cost of Fuentes is 2/3 of Sheets. If you say we could trade Ankiel, dump Miles, forget Fuentes and add Sheets then Sheets is the opportunity cost of Ankiel, Miles and Fuentes. Truthfully, that would make the opportunity cost of Ankiel, Miles, and Fuentes — Sheets, Rasmus, and whoever Ankiel is traded for. But you can’t say that the opportunity cost of a $10 M player is a $15 M player. That’s just not true.

Also, you contradict yourself in your second paragraph. You say, “The marginal gain is not how much better Fuentes makes our bullpen over last season. The marginal gain is how much better will Fuentes be than the inhouse options of Perez, Motte, Kinney.” Then at the end of the paragraph, you say “the marginal gain is the prospective bullpen with and without Fuentes.” Those statements directly contradict one another. Your second one is correct. Your first one is incorrect. The marginal gain is the improvement our pen would make as a result of Fuentes’ addition or, probably even more correctly, the amount the team would improve as a result of Fuentes’ addition.

I’m nitpicking here, I’ll admit, as we seem to agree on the merits of the Fuentes acquisition but if we’re going to define marginal gain (or benefit) and opportunity cost in terms of this acquisition, we should define them correctly.

by chuckb on Dec 14, 2008 11:52 AM EST reply actions 0 recs

So in your analogy where Ankiel is the opportunity cost of sheets,

could you elaborate on that math?

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by hazel on Dec 14, 2008 7:07 PM EST up reply actions 0 recs

I say the opportunity cost of Sheets

is Ankiel, Fuentes, and Miles. More correctly, I point out, the opportunity cost of Ankiel, Fuentes, and Miles would be Sheets, whoever Ankiel is traded for, and Rasmus.

by chuckb on Dec 15, 2008 10:25 PM EST up reply actions 0 recs

Goes to the technical definition of "opportunity cost"

>>you say that even though Sheets will cost more than $10 M per year, Sheets is the opportunity cost of Fuentes b/c the Cards could save the difference other places. That’s not true. If Fuentes will cost us $10M per year (counting the draft pick) and Sheets would cost us $15, the opportunity cost of Fuentes is 2/3 of Sheets.<<

There are alternative definitions of opportunity costs. One is “The cost of an alternative that must be forgone in order to pursue a certain action.”
http://www.answers.com/topic/opportunity-cost

What you described is the merely the cost, not the opportunity cost, i.e., Fuentes salary = 2/3rds of Sheets. Saying that three goats equals a cow is the cost stated in barter fashion.

At it’s essence, an opportunity cost is an alternative opportunity forgone to pursue a certain course of action. It’s an alternative course of action blocked by the move under consideration. Let’s say the Cardinals can acquire Sheets for $15 mill. I have not gone back to look at the matrix but I think we can fit Sheets into our budget if we take all available $$$s plus shed Ankiel (replaced by Rasmus) and shed Miles (replaced by Barden). However, if the Cardinals acquire Fuentes there is no way to also acquire Sheets. Sheets then is an alternative opportunity forgone to acquire Fuentes. It does not necessarily mean the two alternatives have exactly equal monetary value. I like this analysis because it puts the alternatives into perspective. It is why wasting $1 mill or $2 mill here and there in past years on broken down reclamation projects was so harmful to the team. They sapped the team’s ability to make larger plays for more valuable players.

If the argument is that #1 alternative is Fuentes plus keeping Ankiel and Miles v. #2 alternative of going to get Sheets, then I’ll relent.

by jjray on Dec 14, 2008 8:06 PM EST up reply actions 0 recs

I know the definition of opportunity cost

it’s the highest valued alternative that must be given up as a result of a decision.

In order to get Fuentes, you don’t have to give up all of Sheets — just part of him. It’s not as straightforward as saying it’s either Fuentes or Sheets b/c Sheets’ value is higher than Fuentes’ (in my example, and in real life, btw.) I don’t think we’re arguing about what you have to give up in order to get Sheets. It seems we both say that it’s something on the order of Fuentes, Ankiel and Miles. Where we differ is apparently in our definition of “opportunity cost.” You simply cannot say that the opportunity cost of Fuentes is Sheets b/c it is not since Sheets’ value is higher than Fuentes’.

Yes, you must give up Sheets if you sign Fuentes but — since Sheets’ value = Fuentes, Ankiel, and Miles — simply keeping Ankiel on the roster or resigning Miles prevents us from being able to afford Sheets. Would you argue that the opportunity cost of signing Miles is Ben Sheets? It certainly is not. The concept of opportunity cost implies a tradeoff of 2 goods or services. If Miles’ opportunity cost is Sheets, it implies necessarily that the team has chosen Miles over Sheets. No one in his right mind would make that argument. If you have $20 to spend and choose to spend it taking someone to the movies rather than buying a Cardinals t-shirt, it’s b/c you personally value the date to the movies more than you do the t-shirt. The t-shirt is the opportunity cost. You can’t say that you went to the movies instead of taking a Mediterranean cruise and therefore the cruise is the opportunity cost. You’re not comparing apples-to apples. You’re comparing apples to Tuesday.

In order to determine opportunity cost, price is held constant — ceteris paribus. Which do you value more? Do we value Fuentes, Ankiel, or Miles more or Sheets, Rasmus, and whoever Ankiel is traded for more?

BTW, in your barter example, if 3 goats = a cow and the cow is the highest valued alternative, then it is the opportunity cost. Fuentes, Ankiel and Miles could probably get us Lowe rather than Sheets. If we value Sheets more, he’s the opportunity cost. If we value Lowe more, or Manny, or some other $15M player, then he’s the opportunity cost.

by chuckb on Dec 15, 2008 10:39 PM EST up reply actions 0 recs