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Gunslingers, Gamblers, and Hedge Fund Managers
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I know at times it feels like I’ve secretly started a Kiley McDaniel fan-account here under cover of There R Giants prospecting. And that’s somewhat a matter of coincidental timing as I started this Substack project at about the same time I began reading Future Value. But I really do believe that the former Yankees, Orioles, Pirates, Braves, and Fangraphs and current ESPN employee is writing some of the most thoughtful, insightful, and substantive work in the industry today.
At the trade deadline this year, McDaniel dropped a 4,000 word addendum to Future Value and I’ve been turning it over in my mind ever since:
I want to use this as a framework for thinking through where the Giants might be heading, but first let me try to give you the basics of McDaniel’s thought process here for those of you who don’t have access to the subscriber only article (for those of you who do — read the whole thing!).
McDaniel is laying out a framework for viewing organizational philosophy writ large — understanding that 1) teams are not fixed onto this chart with a pin like an insect on a display board, they can move around depending on their contexts; and 2) even within an organization individual departments may behave slightly differently due to the specific nature of their work (international amateur scouts trying to sign Dominican teenagers out of buscones’ camps are likely to have a different balance of scouting/data analytics in their decision making than their colleagues on the domestic side who have years of high-level game data to work with).
On McDaniel’s X-axis he has placed the scouting/analytics spectrum and let’s just caveat here that there are no teams at the 0 or 100 positions of those spectrums. All teams blend the two information sources to greater or lesser degrees, though it’s true that at the far right side of the chart you have teams (Houston, Milwaukee, Baltimore, Cleveland) who are starting to empty out their scouting departments and move entirely to analytics models and video.
On the Y-axis he then is placing teams on a Risk Tolerance scale high to low. In the original version of this chart in Future Value McDaniel and Longenhagen posited that they originally thought this would be a pretty squishy exercise, but after passing it around to various industry sources were surprised how much consensus there was on which teams went where on the chart.
The 60,000’ view of this chart is there are a couple big picture observations: 1) teams can find success from most any position on this scale. The two most recent World Series’ champs occupy fairly extreme right to left positions on the scale while teams who are in or approaching major windows of contention (e.g., Cleveland, Atlanta, San Diego) can be seen all over this chart. 2) there’s an industry trend towards the bottom right hand quadrant — which is, extreme use of analytical models to control decision-making processes going hand in hand with an extreme Risk Averseness that seeks to maximize many bites at the apple over “going for it” in any given season. Ironically, the movement down and to the right seems to have been kicked off by the Jeff Luhnow-model in Houston, but when it came right down to it, the Astros ended up making several “big risk” type moves once they got into their window of contention, pushing them up higher on the Y-axis, while their followers have instead tended to avoid risky maneuvers and prioritize length of window over any one season’s chance at success.
That tendency towards being Risk Averse can take different forms depending on which department you’re looking at. It’s most obvious to fans in terms of major FA or trade acquisitions. So, for instance, San Diego and Cleveland sit just about as far apart on this chart as it’s possible to get and the difference in their behavior this trade deadline was obvious — San Diego was the one team in “go for it mode” even picking up a slightly dented ace who Cleveland felt forced to move out of town. Cleveland, on the other hand, blessed with perhaps the finest pitching staff in baseball, adamantly refused to do anything to shore up the single worst OF in the game, a group that collectively posted a 53 wRC+ this year. The Indians will, no doubt, look to move Francisco Lindor this winter and acquire multiple cheap, major-league ready pieces they can plug in and hope that their industry-best pitching development continues to keep them relevant. A step behind Cleveland might be the Atlanta example — they have been unwilling to spend resources bulking up their starting rotation the last two years but they were willing to make smaller moves to bolster the bullpen last year, changing it from a HAZMAT site to a team strength.
In other departments, Low Risk Tolerance may take the form of seeking under-slot bonuses for the top of the draft or avoiding the million dollar players at the top of the J2 international market, and seeking to spread money around more players. As McDaniel says in article, there’s a school of thought that no team can really have a sustained advantage in identifying amateur talent so the best approach is to stay small, try to get value, and use analytical models to strip away emotional bias that can push your decisions toward greater risk. McDaniels own work (while with the Braves) suggested to him that that’s a strategy that tends to work better in the domestic draft than in the international market, where avoiding the high dollar players comes at a huge opportunity cost. But he’s also been told by members of some of the “Hedge Fund Managers” type front offices that they universally view million dollar signings on the international market as a bad investment and the only reason to sign those players is if you think you can flip them quickly in trades as an inflated asset.
In the upper-left quadrant, High Risk Tolerance can come in a lot of different forms, as well. While A.J. Preller was making big moves at this year’s trade deadline, from 2017-19 he made fewer trades than any GM in the game. But that doesn’t mean he wasn’t still making bold and decisive moves — they were just coming in other areas (e.g., big over-slot signings in the draft, top of the international market signings, and big FA deals).
And the final thing to say about this chart in general is that the more teams you have in the bottom right quadrant it creates a drag on industry’s ability to make trades because the teams are all more or less calculating value in the same way. As more teams value players, team control, prospect asset value out of the same models AND have similar tolerance to risk, finding a way to match up that makes sense to both parties becomes more complicated. Differences in valuation (separation on the X-axis) or a difference in risk tolerance (separation on the Y-axis) make the process much easier.
What Does All This Mean to the Giants?
Ok, so other than just regurgitating Kiley (and hopefully not tromping on his intellectual property too much), let’s bring this all back to the Giants. What does it mean for them and how can this framework help us predict their future path?
McDaniel has the Giants inclining into the Hedge Fund Managers quadrant though they’re staying on the periphery of the center on both axis (fairly situated in the middle of the Bell Curve). So McDaniel sees them as moving stronger into the use of analytical modeling in their decision making and coming with fairly low risk tolerance — though not extremely so.
There has to be some tentativeness in this position simply because the Giants’ creative team is still pretty new and, one would imagine, is plenty capable of delivering surprises. That said, there’s good reason to place them where they are. A major element of the Giant’s change of directions at the end of 2018 was ownership’s sense of having been burned by big contracts — so a lowered risk tolerance baked in from the beginning makes sense. And certainly there’s every reason to believe that Farhan Zaidi has bulked up the organization’s analytical modeling across departments and moved the decision-making processes further in that direction.
So far, that’s all taken the form of low-risk, low-cost major league acquisitions, a draft strategy that has focused on college hitters who can be signed underslot at the top and a spread of the saved dollars on players who the Giants value but who aren’t necessarily in the “high upside/difficult signability” camp. The Giants have also stayed away from million dollar signings on the international market since Zaidi took over, though as Ben Badler and I discussed in an earlier podcast, the long-lag time in the international market can make it harder to discern who gave the sign-off on those deals.
The real question though is: will the Giants be staying in this “Hedge Fund Manager” quadrant in the future? Earlier in the week, I talked about whether the Giants might follow the Dodgers’ model or the Rays’ and it’s noticeable that both of those teams are in the upper right-hand quadrant — the advantage gamblers who play the odds to make big, bold moves when the circumstances are advantageous. I think it’s been assumed by the writers who cover the Giants and the fans who follow them that they will, in time, become more like the Dodgers and take big swings of the bat again when the time is right.
But if the Giants truly establish themselves as a lower-right quadrant team, they may not end up being the path they take at all. They may, like Atlanta, seek to control their upcoming talent as economically as they can for as long as they can and then surround it with small, cost-efficient supplements (a lá Kevin Gausman or Drew Smly) from year to year. Or they make, like Cleveland, simply let the young talent get as far is it can on its own, try to use their development ability to get players to their maximum productivity and refuse to spend resources to supplement — though that approach would, no doubt, be met with howls of derision from the Giant faithful (it’s been met with that in Cleveland as well, but ownership there doesn’t seem to mind so much).
As I said at the top, we shouldn’t think of these positions as static and permanent. Teams float up or down depending on circumstances. Tampa is highly risk tolerant because their low payroll forces them to be. LA is because their payroll allows them to be. Milwaukee, one day three years ago, was higher on the Y-axis but they essentially used up all of their Risk Tolerance the day they spent capital trading for Christian Yelich and signing Lorenzo Cain. With those two moves essentially capping out their payroll, they moved down the Y-axis in Low Risk Tolerance in all future dealings. Houston, on the other hand, moved up the Y-axis when they got into their World Series window — swinging big deals for Justin Verlander, Gerrit Cole, and Zack Greinke and signing Jose Altuve to a large extension — but now, sitting on the game’s third highest guaranteed payroll for 2021, they’re likely going to slide back down the other direction.
Stung by the low return on big deals to Matt Cain, Johnny Cueto, Jeff Samardzija and others the Giants moved squarely into the Hedge Fund Managers quadrant. With those deals off the books (as they mostly will be after next year), will they start to move back up into a more Risk Tolerant position or will they, too, prioritize flexibility, efficiency, and long windows over “going for it?” Of course, stuck as we are in a Trilogy of Horror, where the coronavirus pandemic and labor unrest are likely to significantly impact (if not outright eliminate) the next two free agent market cycles, we’re not likely to learn the answer to this question for some time.
All of this comes back to that old familiar question that seems to tower over this off-season and the coming era — where will the pitching come from? Risk Averse strategies tend to stay away from “top” pitching whether it come at the top of the amateur draft, in the free agent market or through trades. But at some point, a championship team must have championship pitching. Cleveland has solved the puzzle through the best pitching development in the game. Tampa invented bullpenning around Three Cheap Aces. Atlanta went heavy after “broken” pitching prospects in their sell-off and made a series of 1st round pitching picks in the draft (all of which were led by current Giants’ National Cross-Checker Brian Bridges). Houston finally went against their risk averse ways and spent prospects on expensive star pitchers.
Ultimately, every team has to cross that bridge to get to where they want to be. How do you manage risk in assembling pitching? How the Giants handle that question may decide their fates.
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