There is a reason that the latest wave of front office executives comes from economic and business backgrounds. That reason is playing out on the North Side of Chicago, as the Theo Epstein and Jed Hoyer regime is putting on a clinic on maximizing asset values.
After sending Jeff Samardzija and Jason Hammel to the A's on Friday, a pattern became even more apparent in their dealings. When the Cubs signed Hammel to a one-year deal in February, it was clear that they were following the same template that led them to sign Scott Feldman the previous offseason. They would pick a mid-tier free agent pitcher with promising peripherals, give him a one-year deal with a contract that would make him an attractive trade option at the trade deadline.
It makes sense to bring Wall Street thinking into front offices, because the Cubs are running their team like a stock portfolio. They are incurring minimal risk to acquire high upside potential by focusing their efforts on finding players they consider undervalued by the market and signing them to fleeting deals at mid-range money. The Cubs thus take a relatively small gamble on assets that carry the upside of the prospect of being flipped in the three months before the deadline for far more value than they paid
Like other smart value investors, the Cubs also reap solid income while they hold their investments. They acquire the stock for two to three months of the season, extracting the players' performance value for those months in addition to the gain they receive when they cash in on the stock. This income value can be found in obvious spots as well as the innings absorbed by said stock. In the case of Jason Hammel, the Cubs acquired 2.1 wins of value according to fWAR, as well as the 108.2 innings absorbed by him instead of a developing prospect or the bullpen.
In addition to picking value "stocks," the Cubs also exploit the arbitrage opportunity created by their current competitive situation. Because the Cubs likely will not contend for a playoff berth for several years, players who can help a team compete now are worth more to contenders than they are to the Cubs. Meanwhile, the Cubs long-term development plan values prospects that are several years away from their prime more that current contenders do. This permits the Cubs to acquire and hold an asset for one year of with minimal cost, reap the income that asset vides, and then trade it to a contender for a more valuable asset in the form of promising young players with more cost controlled years.
Let's look at the year-by-year at the free agency expenditures under Epstein and Hoyer. In the 2012 offseason, they signed four players for a total of five years and $18.9 million. Two of those players, OF Reed Johnson and LHP Paul Maholm, were packaged to acquire blue chip pitching prospect Arodys Vizcaino.
In 2013, they spent a large sum of money on a four-year deal with Edwin Jackson. Besides Jackson, they signed eight players for a total of ten years and $33.5 million. They turned 112 poor PA from Scott Hairston into pitching depth with Ivan Pineyro. In addition to a full win of value in 15 starts, they acquired also a combined nine years of control between Jake Arrieta and Pedro Strop by signing Scott Feldman to one-year $6 million deal. Strop looks like an effective bullpen weapon and Arrieta has a 48 ERA- in 64.2 innings this year.
In 2014, they signed five players all on one-year contracts with the exception of Ryan Sweeney worth a total of $15.925 million. While they cashed in on Hammel and have consummated some awesome value trades over the past few years, it's worth noting that a good percentage of the players acquired on the aforementioned short contracts haven't worked out. Scott Baker threw only 15 innings, Ian Stewart posted a wRC+ of 64, and Jose Veras posted a 195 ERA- before being cut. However, the upside in value acquired by the assets that do work out outweigh the small gambles lost by the front office.
It looks as if the Cubs have found a true market inefficiency. By acquiring multiple assets on similar contracts, they benefit if at least one can be cashed in for younger, cheaper, and controllable assets. Their front office is combining tactics used in both growth and value stocks, acquiring undervalued assets with good peripherals expected to improve and then cashing in on them.
Comments from Epstein make it seem that the Cubs hope that they will no longer have go this route in free agency in coming years, instead looking for players who will help them compete. However, for team that is multiple years out of contention, acquiring mid-level assets and then optimizing their values through trade is a paramount tactic to restock the farm system and acquire cheap talent.
Daniel Schoenfeld is a contributor at Beyond the Box Score. You can find him Twitter at @DanielSchoe.