Thursday, February 15, 2007

Inflation Reduces Your Team's Value

To those of you who have played Roto for years, that isn't much of a headline. It's a "Dog Bites Man" headline. Actually, it's more of a "Dog Takes a Nap" headline. Anyone who plays Roto knows that inflation will take a chunk of value out of your team.

But what I think owners don't understand is just exactly how much value inflation sucks out of a team. Today, I thought I'd take a look at just that phenomenon.

Let's look at a league with 20% inflation. Let's assume you had zero freezes in this hypothetical league. How much would your team be worth?

The answer is $217 (rounded). To get to $260, you would need to make $43 in profit in the auction. Of course, the odds of a team having no freezes is extremely slim, though I've seen teams (and owned teams) with as few as three freezes of marginal value.

As we all know, the goal in an auction is to draft better than what many analysts call "par." In our hypothetical 20% inflation league, that means that if you have Julio Lugo down for a $20 bid on your sheet without inflation, you have him down for $24 with inflation. If you pay $24, you're doing nothing more than matching inflation. This will surely lead you into the second division, unless you have the strongest freeze list heading into the auction.

This is all pretty basic. Yet when I throw out the example of $217, I think people get more than a little lost in the concept. So let's look at another example:

Assuming 20% inflation, which one of these teams, heading into Auction Day, is better?:

Team A: $160 in salary, $180 in value
Team B: $60 in salary, $95 in value.

The answer, which once again shouldn't surprise anyone who knows about inflation, is Team A.

Team A's $100 to spend in the auction will buy $83 worth of players, assuming Team A keeps pace with 20% inflation. This leaves A with a $263 team. Team B's $200 to spend will allow him to buy $167 worth of players, which leaves him with a $262 team.

So now my headline becomes a little more timely, doesn't it? Inflation reduces your team's value, but it reduces your value more if you have more money to spend. Think of the money you have at auction as a weak dollar, and the money you have before the freeze date as a stronger dollar. That doesn't mean you're going to freeze Mark Buehrle at $30. But it does mean that you're going to seriously consider freezing Victor Martinez at $26 and Vernon Wells at $34.

And it also affects the trades you're going to make this winter, which I'll talk about in a future post.

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