clock menu more-arrow no yes

Filed under:

Trading Strategy: Opportunity Cost

Are there simple ways to evaluate whether a trade in an auction keeper league is a good one or bad one?  Sure there is.  Both players play the same position and have the same draft salaries.  Then compare how each one compares with the other in the stats categories and decide if you feel the exchange of one's production for the other's production is worth it.

But what if the two players had different salaries?  Then you'd have the additional consideration of the difference in salaries to consider.  A $24 Raul Ibanez for a $9 Jonny Gomes could be seen to favor the Gomes owner because Ibanez is expected to out-produce Gomes in 2008.  However, the Gomes owner may balk because he or she can use the difference in salaries to obtain a $16 player at the draft.  Why $16?  Because the Ibanez owner have to get a $1 player to match the against the player the Gomes' owner argues he'd have by not acquiring Ibanez and using the savings on a decent player.

Simply, $24 Ibanez plus $1 player equals $9 Gomes plus $16 - two players each for a toal cost of $25.  If you're in a league that evaluates trades on this basis, then you must consider it a league with very astute owners.

I'm going to kick that up another notch by claiming the logic has an unevaluated consideration - the opportunity cost the Gomes team has with the acquistion of a $16 player.  Say the Gomes team makes Akinori Iwamura that $16 player.  (The team owner is a Rays fan, expects Iwamura to improve in his second season away from Japan and the league has high inflation.)

The Ibanez team gets Brandon Fahey as that $1 player.  There is little doubt which of the two players will out-perform the other, and this would validate the Gomes owners original rationale for turning down the Ibanez-for-Gomes offer.  But the season still has to be played!

During every season, players emerge from the free agent pool who go on to produce on par with an Akinori Iwamura.  But which of these owners will be able to strike with the quickness necessary to grab these players?  The one with Brandon Fahey filling a roster spot of the one with Akinori Iwamura?

The question is rhetorical.  The Fahey owner would make the fast decision while the Iwamura owner talks him- or herself out of grabbing that free agent because Iwamura 1. plays everyday and 2. cost $16.  Who wants to waive a player like that?  No one.

But the Ibanez owner now has, let's say, Brandon Wood.  Who's better off now?  The team with Raul Ibanez and a $5 Brandon Wood or the one with Jonny Gomes and a $16 Akinori Iwamura?  

That is the opportunity cost that is not being considered by the Gomes owner in the original trade proposal - cheap fantasy keepers!