Monday, December 20, 2010

Trade Rant - Why Trades Involving Cash in Excess of Contracts are Bad for the League

We’ve all seen these trades - you know - where one team deals a mediocre prospect and a pile of cash to another team for a good player or high end prospect. I’ve been in enough leagues to have seen dozens of these deals proposed, and most of them get vetoed. However, I’ve never seen anyone take a stab at an in-depth explanation of why these trades harm competitive balance and are bad for leagues. So - here’s my swing at this.

Let’s start with the basic game design, and move from there. Each team - in theory - starts with a relatively level playing field. Each franchise gets $185 million to budget. It’s a fixed amount and works as a HARD cap on resources. Now we all know teams start at very different competitive places, and I’d argue (and can prove I think) that it takes 12-14 seasons for the initial bias towards the better teams at a league’s INCEPTION to work their way out of the mix. So - we come to each season in different starting places, but we ALL start with the same two core challenge areas: talent and budget. So - we are all required to allocate our $185 million as we see fit and - hopefully - in ways that meet our current franchise needs. For some teams, it means having money for an FA or two and maintaining a talented team. For others, the challenge is to find a way to use our funds to build for the future - scouting, training and prospect budget.

So how does allowing teams to essentially buy and sell players affect this design?

  1. Selling players skews the budget and CAPPED resource design feature giving the selling team an unfair financial advantage over other teams.
  2. Buying players likewise skews the fixed cap, because the buying team gets to use player payroll dollars at full value for a purpose beyond player payroll. Generally, when you use your payroll after the season starts, you get the benefit of only 50% of those funds when transferred to prospect budget.

So, let’s take an example:

Owner A - budget for payroll of $80 million, prospect budget $20 million. Spent to date - $79 million of payroll, and $17 million in prospect budget (2 excellent INT FA’s signed).

Owner B - budget for payroll of $60 million, prospect budget $20 million. Spent to date, $42 million payroll and $12 million prospect budget.

The amateur draft is around the corner. Owner A cannot afford to sign his prospects. He has to raise cash - and fast.

Owner A offers his AA 20 year old SS with a current OVR of 72, projected OVR of 82 to Owner B in exchange for a 25 year-old SS at AA with a current OVR of 61 and a projected OVR of 64, AND $4 million. The players agree to the deal.

Here’s the net effect if the trade gets approved:

Owner A: $80 million in payroll budget with $75 spent - increase of $4 million in available funds in PAYROLL. Owner A can transfer all $4 million to his prospect budget. The amount that gets moved is $2 million - 50% of the available $4 million, giving him $5 million to sign his draft class, and he’s still got cap room for the RL payroll of $240,000 (30 players X $8,000 each). Owner A now has $189 million in total resources at his disposal, while the rest of the league (except for Owner B) has $185.

Owner B: Now has a $56 million budget, with $46 million spent, and he still has $12 million in his prospect budget, PLUS he got a first round quality draft choice player for $4 million. The INT FA’s in the league - for comparable quality are going for $8-9 million. So, Owner B has likewise added $4 - $5 million in player VALUE to his franchise beyond what he would have been able to acquire under his $185 CAP.

But the inequities go farther. Most teams allocate say $12 million for HS and college scouting and another $16 or so for INT scouting. But let’s focus on the amateur draft first.

We draft 25 players, and if we allocate $12 million each to HS and college scouting, AND we have to use $5 million to sign the drafted players, that comes to a TOTAL allocation of $29 million to acquire 25 players and only 3-4 of which will ever make the ML team. That’s a cool $1.16 million PER player acquired in the draft. (Makes those draft decisions seem a bit more important, doesn't it?)

Now to the INT FA market. We’ll spend $16 million for INT scouting, and then another $20 to sign 2-3 potential ML players a season. That’s a cool $12 million average for an ML prospect. (I’ve seen these numbers a LOT higher in many leagues.)

Owner B has just landed a first rounder ($1 mil to sign and another $1.16 to scout - using our averages here) or a very good INT FA quality player for $4 million and has NOT affected his ability to sign a complete draft class or sign other INT FA’s.

Under the CAP, for Owner B to land an extra INT FA - one of the things teams with low payrolls ought to be doing, he’d only have use of 50% of his excess payroll budget when he transfers the budget. Under the sale above, Owner B STILL has budget to transfer, has acquired a player for which he paid NO scouting fees, and has gained substantially MORE from the transaction than the simple acquisition of a good prospect. He’s done so without incurring any of the NEGATIVE financial impacts the rules set up to make transferring large sums from payroll an ineffective long-term team building strategy. For short-term rebuilding projects this budget transfer strategy is an excellent way to add a lot of young talent quickly.

Owner A is also coming out ahead of the rest of the league. By having extra funds - beyond his hard cap, he’s effectively been let off the hook for a combination of poor strategic choices - budget too tight on player payroll and over spending the INT FA market. So there are NO negative consequences for either of these bad choices. And he’s got extra funds he’s not supposed to have.

As a matter of policy and standard practice I veto every trade I see where funds are exchanged that exceed the value of the contracts changing hands. I hope my explanation makes some sense.