Since the Holliday trade there's been a lot of talk about the actual value of cheap prospects vs expensive MLB talent. So far, I've read a lot of good posts that give good qualitative points on the issue, but nothing that really boils the issue down to numbers that can be manipulated and compared directly. So, i decided to take a stab at creating a useful analysis tool for this situation.
I recently took an engineering economic analysis class and it partly focused on the concept of Time Value of Money (TVM). Basically, what this boils down to is that money gained or lost in the present is worth more (or has more power) than that gained or lost in the future. This is based upon an annual Minimum Acceptable Rate of Return (MARR), which is usually based on what you could get for putting the money in low risk investments.
While I'm fairly new to advanced baseball stats - Vorp,WAR and such - I thought that this concept could be modified to express the Time Value of a Player, which would help put the whole Prospects vs MLB Talent debate into a clearer perspective. I've created a spreadsheet and It basically breaks down like this:
- For each of years 0 through 5, (0 is considered the current season, which is the time at which the present worth comparisons are "scaled" to and compared) Salary, WAR and the seasons $/Win (found by estimating a $400,000 increase/yr from the values found at fangraphs) are entered in.
- The Future Worth (called this because it is in the future from the time when the values are to be compared) is calculated as WAR*($/Win)-Salary. (This value isn't shown on the spreadsheet).
- The Present Worth is then calculated with a simple formula based on the year and the MARR.
- All the Present Worths are added together to give a total which represents the current value of the player over the entire analysis period.
Now, the confusing part in all this is how you define the MARR. Minimum Acceptable Rate of Return doesn't make a whole lot of sense for this analysis. The way I see it, MARR (from now on called SVal) in this situation is how much you value the current season over the next season. The way you would calculate this is
MARR = SVal = 1-(Value_of_Next_Season/Value_of_Current_Season)
So if you value winning this season twice as much as winning next season you would have 1-(1/2)=50%
Teams currently in contention over the last few years would have a large SVal, while teams in rebuilding years would have a small or possibly negative SVal (meaning gains and losses in the future actually have MORE weight than present gains and losses).
Anyway, the whole thing is a fairly crude analysis tool, depending on how much weight you put into WAR and how accurate you feel your projections are.
- Salary might need to be an adjusted value compared to a replacement player (figure this out on your own and plug it in and it will work just the same)
- Because a single SVal is given to represent a large period of time, it can only represent a teams general philosophy for that whole period. The spreadsheet could be reworked to allow for a changing mindset over that time (a team in contention one year might be rebuilding the next) but would require a lot more work than I wanted to do at the time)
Anyway, just wanted to get your thoughts on whether or not you think this would be useful.
Also, the values that are currently in the sheet are complete guesses. I know next to nothing about projecting WAR and how minor league (and major league) salarys work. Just fill in what you want.