The Right and Wrong Ways to Think About Prospect Hugging

I'm a prospect guy. I've always been most passionate about baseball when I'm reading about or watching some guy in High-A who might make the major leagues some day. Last week, I advocated trading four young Yankee players, including top outfield prospects Mason Williams or Slade Heathcott, in a package for Padres star Chase Headley

Reacting to my post, several readers dug in their heels against the idea of trading prospects in general. Their reaction is probably best summarized by OldYankeeFan's comment:

I would NOT give up any prime meat for a 2 year rental. You never know who is going to make it large. We dangled Mo, Cano and others in the past. Fortunately, they weren't taken. AJax was!

Remember. THE DYNASTY WAS BUILD ON THE BACKS OF FIVE HOMEGROWN PLAYERS!!! That will NEVER happen again if we keep trading our better/best prospect for ONE shiney object.

I share some of this instinct, but I think it is misguided. Obviously, if any given talented group of prospects were going to turn out to produce all of (or really, any single one of) Mariano Rivera, Jorge Posada, Derek Jeter, and Andy Pettitte, you would handcuff them to the team and throw away the key. But we know that's not the reality. All four of those players have an argument for the Hall of Fame, and two are arguably the best players ever at their position. Prospects turning into these four players are rare events.

However, in the realistic world, even successful prospects rarely become Big-4 level. Most of them come slightly-below-to-slightly-above-average major league players, if they become MLB players at all. Take a guy like Tyler Austin. He is a very solid outfield prospect. While he doesn't have a huge ceiling, Austin is a serviceable outfielder who looks like an above average to very good hitter. You could easily see him hitting .290/.350/.460 for a long career, putting up 2.0-3.0 seasons with some regularity. At the same time, you could see Austin never hit much of anything above Double-A, get stuck at 1st base, or become a career platoon or bench player. Taking all this information, you could (in theory at least) come up with a probabilistic value for Austin's future. Let's say Austin is worth 8-10 WAR over the next 8 years on average, for sake of argument.

The wrong way to think about Tyler Austin as a prospect is, "He might be a future X wins contributor, therefore the Yankees should keep him." This is prospect hugging, and leads to both misallocation of wins (more on that later) over time, and probably overestimates their future probabilistic value.

To back up: Let's assume that all major league teams are equally good at evaluating how valuable prospects and current MLB players are (a fallacious assumption, but necessary for the thought experiment). Obviously, if the Yankees think they are fleecing another team, they should make that trade, but those opportunities are rare and impossible to predict. When we make this assumption, what we can see are three reasons to make trades. The first two are unimportant for this post: financial flexibility (Rays trading away James Shields) and addressing positional strengths and weaknesses of a roster (Rays trading Young for Matt Garza). But the third is what trading prospects are all about: trading short term wins for long term wins.

If both teams are evaluating prospects and MLB players equally, that's what is going on. One team is contending for the playoffs now, and needs wins in 2013 or 2014. Another team is rebuilding, and wants to accumulate wins in 2015-2018. Because the wins take place further in the future, like any financial transaction, the team trading for the prospects likely demands more value over long periods of time. So, if the Yankees want to acquire X wins in 2013, they are probably going to have to give up at X + Y wins to get them. Call it the iron law of baseball yield curves.

So, a trade between the Yankees and San Diego Padres involving Chase Headley going one way and David Phelps, Mark Montgomery, Slade Heathcott, and Corban Joseph is a transfer of wins between the 2013 New York Yankees and the 2015 San Diego Padres, in theory.

A big budget team like the Yankees can afford to trade away some of their long term wins in order to acquire short term wins, then make up the difference on the free agent market. Therefore, it makes some sense for the Yankees to more often than average trade away their prospects. The real question is: how often?

I don't think the Yankees can survive today's budget environment without sometimes holding back on trading away future wins. They don't need to sit back and rebuild nearly as much as other teams, but as long as every big free agent contract they sign doesn't miraculously work out amazingly, they are going to need to be sellers: trading away present wins in order to acquire future wins. I made this argument about the potential for trade deadline selling two weeks ago.

But there's other things going on here. By trading for Chase Headley, you're getting more than just two seasons of his service. You also receive two seasons of exclusive negotiating rights, which extension after extension have proven to be very, very valuable. You could sign Chase Headley to a long term deal, and secure many future wins.

I think this is a strong model for the Yankees to follow. They should not be trading their cheap future wins right now for 1-year rentals that they intend to discard as soon as they reach free agency. Instead, they should target players that they intend to sign to long term contract extensions, or are already signed to big contracts. The Tigers and Phillies did the former with Miguel Cabrera and Roy Halladay, and the Yankees did the latter with Nick Swisher and Curtis Granderson.

What you're really doing here is trading cheap future wins for expensive future wins. The Curtis Granderson trade is a good example of this, as were a lot of classic Yankee trades that helped build the 90s dynasty teams (O'Neill for Kelley, Clemens trade, Tino, etc), and one of the most underrated trades in franchise history: Alfonso Soriano for Alex Rodriguez.

Obviously, there's a limit to how expensive your future wins can be. If the Yankees could afford to trade for two Chase Headleys (say, Headley and Elvis Andrus) and re-sign them to big long term deals, I would totally pull off both trades. But I'm not convinced that the Yankees can pull off two long term deals. I'm in favor of keeping the cheap future wins of Mason Williams, Tyler Austin, Manuel Banuelos, and Gary Sanchez while exchanging the cheap future wins of Phelps, Heathcott, et al. for the expensive present and future wins of Chase Headley.

So yeah, don't automatically hug prospects, but don't undervalue them either. Find the Goldilocks zone of prospecting.