Inflation Dynamics

In our continuing conversation, anonymous asks:

Do you have data about how keeper leagues affect auctions? I'm in a 10-keeper, NL-only league, and from past auctions (I joined this league in mid-July), it seems that so many players cost far too much money (ex: Dunn went for $36, Pujols went for $54).

I apologize for this being a far too general question. I've never done an auction before, so this is causing me lots of headaches.

And finally... Ronnie Belliard for $3 or Kelly Johnson for $15?

No, this is a great question, and I think it's one of the most misunderstood elements of Rotisserie Baseball. Even seasoned owners often don't fully comprehend the dynamics of inflation.

Before providing data about how a freezes affect auctions, it would be better to begin with the general example you already provided.

In an earlier post, you had mentioned that you had the following freezes: Hanley Ramirez $17, Eric Byrnes $17, Kelly Johnson $15, Adrian Gonzalez $10, Jonathan Broxton $5, Matt Cain $5, Manny Corpas $5, Sean Hill $5, Brandon Lyon $5, Tony Pena $5. The total salary of these players is $89.

Using the values provided in Rotoman's The Fantasy Baseball Guide: Professional Edition 2008, the anticipated values for these 10 players is $162 (don't worry, I've adjusted Lyon and Pena's values based on their switched roles and made minor adjustments for your league's $271 team cap).

If your league had zero freezes, you would have $3,252 to spend on $3,252 worth of talent. If you were the only team that had freezes, the league would now have $3,163 to spend on $3,090 worth of talent. This would give your league a modest 2.4% inflation rate (3,163 divided by 3,090).

But you know and I know that the 11 other teams in your league are going to have freezes as well. Let's assume, for a moment, that your league's inflation rate comes out to 20% after you run through all of the freezes in your league and calculate this value.

Suddenly, the prices that you see all over the Internet and in those magazines you bought back in December don't matter. If your "raw" value for Jimmy Rollins was $35, his inflation value is now $42. If he goes for $38 in your auction, he's not a $3 loss, but a $4 gain.

Here's the rub, though. Let's assume that Rollins, when all is said and done in 2008, goes out and earns $35. You didn't make a $3 profit on his statistics, you took a $4 loss. Even though Rollins was a "bargain".

All inflation does is change the prices of the players in the auction. It doesn't change their value at the end of the year. Since the players we already have on our rosters at slave wages are bargains (we hope), it means that the guys we buy in the auction are overpriced.

In most leagues, every time you buy a player in your auction, you're sucking value out of your team. The goal in a competitive keeper auction generally isn't to keep adding value to your team, but to avoid losing too much of the value you've accrued through your freezes.

Inflation also changes the dynamic of your second question about Kelly Johnson vs. Ronnie Belliard. Let's assume, for a moment, that you think Johnson is worth $16 this year but Belliard is going to be worth $6. Without inflation to think about, you'd simply keep Belliard. After all, you're getting $3 worth of profit on Belliard versus only $1 on Johnson.

Inflation, however, makes the more expensive players more valuable.

I posed a similar hypothetical last off-season. Using the same example for Johnson/Belliard:

0% inflation - Belliard +3, Johnson +1. Belliard +2
10% - Belliard +3.27, Johnson +2.36. Belliard +0.91
20% - Belliard +3.5, Johnson +3.5. Even
30% - Belliard +3.69, Johnson +4.46. Johnson +0.77

In an inflation-rich auction, the $12 difference between Johnson and Belliard actually makes Johnson more valuable. The $12 extra dollars Johnson costs protect you from spending more money on less valuable players due to inflation.

Of course, I think Johnson is worth more than $16, so I'd probably keep him over Belliard anyway.