The trickiness of Nolan Arenado’s trade value
Recent reports suggest the Rockies are seriously entertaining the idea of trading Nolan Arenado [27.7], who is of course their franchise player and one of the best in baseball. Setting aside the issue of why, let’s break down how we’ve arrived at our median estimate. But admittedly, it’s tricky.
Salary and control
Arenado is guaranteed $234M over the next seven years — $35M per year over the next five (lined up with his peak period), then cascading down to $32M in 2025 and $27M in 2026. He also has a no-trade-clause to any team.
That’s pretty close to the top market rate. Keep in mind Mike Trout is making just over $35M per year in AAV. So any team trading for Arenado would have to commit to that contract, which already eliminates quite a few suitors who simply can’t afford to have one guy take up that much of the budget. And if he were to get injured, there’s no getting out from under it, so you’re taking on seven years of risk.
But he also has an opt-out after 2021. On the one hand, that reduces the risk if he takes it. On the other hand, there’s no guarantee that he will, which means you can’t plan for that. But since it’s his option, you have to factor that into his overall valuation: Scenario A is that you pay him $234M for seven years; Scenario B is that you pay him $70M for two years.
Is he worth that, in either scenario?
Arenado is obviously an elite player. Based on our weighted average of WAR projections, in Scenario A, we estimate he’ll produce 32.6 WAR on the field over the next seven years. In Scenario B, it’s 11.7 WAR over the next two years, while he’s in his prime.
We do need to adjust that for injury and contract risk, however, and in Scenario A that becomes more of a factor in his post-30 years. Each year he gets older, it gets a little more pronounced, such that his risk-adjusted WAR is knocked down to 24.4 over seven years. Over two years in Scenario B, it’s 9.5.
When we multiply those projected AFVs by our inflation-adjusted dollars-per-WAR estimate, we get $250.2M over seven years, and $92.1M over two years.
Comparing that to his contract numbers, we get a surplus value of $16.2M over seven years (250.2 – 234 = 16.2); and $22.1M over two years (92.1 – 70 = 22.1).
So which one do we go with? The problem here is we don’t know if he’d opt out after 2021 or not, because there are too many unknowns to even assign a probability. How will he perform? What will teams be paying for free agents that year? And oh yeah, isn’t that when the current CBA expires? What might a new one look like? How might that affect the market?
Now, if we wanted to keep this simple, we could go 50/50 on the probability and split the difference between the two surplus value numbers. That would put us at $19M (between $16M and $22M). Seems reasonable, right?
Well, maybe not. Let’s remember that any team trading for him has to plan for that seven-year commitment, and the negative-value years that will likely happen at the end of it. So prudently, it makes sense to stick with $16.2M as our surplus.
Given his status as a premium player, we know it would take an overpay, and with players of his caliber, the low end isn’t much lower than fair value. So we have his low end at $14M, his high end at $41.2M, and his median between them at $27.7M.
For a similar trade comparison, let’s look at the Giancarlo Stanton [-108.5] trade in December 2017. At the time, Stanton was guaranteed $295M over the next 10 years. He was coming off an MVP season, and the Marlins were arguably in a similar position as the Rockies are today — a few good core players, but not enough to be a consistently winning team. So what did the Marlins get? Jose Devers [8.0] , Jorge Guzman [4.8] and Starlin Castro [0.3] (who was included mostly to offset salary). The Marlins also agreed to kick in $30M if Stanton does not opt out after 2021. That was it. For an MVP.
More recently, Anthony Rendon [-24.5] just signed a free agent contract with the Angels for $245M over seven years — remarkably similar to Arenado’s contract, save for $11M and an opt-out. Now, Arenado is arguably a tick better than Rendon, and he’s a year younger. So his equivalent free agent value may be a bit higher. Then again, it’s important to remember that free agency is an auction model, which means in theory that 29 other teams were not willing to pay what the Angels paid for Rendon. So knock a tick off of what the non-Angels teams would pay, and you’re back down to Arenado’s number. In other words, there is no surplus value for Rendon at that level. And only a reasonably small surplus for Arenado.
The bottom line is that, since any team trading for him has to commit to either paying him $234M over seven years, or losing him after two years, we think it’s unlikely he’ll command a big return unless the Rockies pay down some of his contract (which is reportedly on the table).
Now as to why the Rockies would even entertain trading him? That’s a question for another article…