You know the old joke about someone who possesses a "face made for radio"? Well I thought I'd cleverly avoid that wisecrack by agreeing to appear on a podcast for my first book-related interview. However, after recording the podcast it was revealed that I in fact have a voice made for The Artist. It didn't help that the host, Gill Alexander, has the smooth, deep voice of a late-night disc jockey. Listening to me after he speaks is like telling jokes after Chris Rock. Still, it was a lot of fun. We covered some American League team previews, the origin of the book and even had the time to throw some Melrose Place, Jersey Shore, Night Shift and The Usual Suspects references in there as well. You can listen to it here: http://t.co/1LD394Nc
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San Diego Padres
What They Did: 71-91, 5th Place NL West.
Actual Runs: Scored 593 runs, Allowed 611.
Expected wins based on RS and RA: 78.8 (7.8 above actual)
Restated: Scored 576 runs, Allowed 626.
Exp. wins based on restated RS and RA: 74.8 (3.8 above actual)
Given that 30 Teams in 30 (Week) Days moves today to the last remaining division, the National League West, and given that the previews are presented in a top-to-bottom format, today’s headline begs the question: Were you expecting someone else at the top of these pages?
San Diego finished 23 games behind the division-winning Arizona Diamondbacks last year. In attempting to get to the top of its division, for San Diego it's not just the distance that’s the problem – the traffic is bad too, as there were three other NL West teams that finished ahead of the Padres in 2011. Before I step you through the logic of how San Diego can make up that ground in one year, let’s take a step back and see where we’ve been so far, and do so using a financial analyst’s approach.
For the most part, investment managers, in constructing their portfolios, choose stocks to buy in one of two manners, either through a bottom-up or a top-down approach. In a bottom-up approach the portfolio manager, or PM, examines a specific company and after studying the company’s products/financials/valuation, etc. determines whether it’s an attractive investment. If so, she buys the stock of the company. After the PM repeats this process dozens, maybe hundreds of times, a portfolio results. Based on this approach, the portfolio is a collection of individual stocks, picked for inclusion based on the specific merits of each company and were purchased independently of one another.
On the other hand, when a PM uses a top-down approach, she is more concerned about whether stocks as an asset class are suitable investments. Under this approach the PM is vitally concerned with the economy in which companies operate. After considering the macro environment, the PM may decide that a period of rising interest rates is about to commence and therefore, in that setting, there are no stocks, no matter how attractive a specific company’s outlook might be, that are worth owning. Conversely, when she decides the macro environment is favorable for owning stocks she may not even care which single stocks are in the portfolio, instead she may simply buy any company with exposure to say, energy-related commodities.
It’s pretty clear (I hope) that in creating valuations for each MLB team, I employ a bottom-up mentality. I examine the components of each team’s hitting, starting pitching, and fielding, and make marginal year-to-year adjustments to arrive at a 2012 outlook. However, after examining five divisions to date, which resulted in a look at 25 of the 30 MLB teams, it’s a good time to take a macro-look at the league.
An astute reader pointed out to me that he knew I would have the Astros as a 100-loss team because in writing the NL essays on a team-by-team basis, I didn’t project anyone to have an under .500 record until I got to the 9th team, the Chicago Cubs, and even then I only had them four games under .500. That was very observant, but there is another factor at play which is worth examining at this time. Each year 252 interleague games are played and since 2005 the AL has dominated the match-ups, averaging nearly 28 more wins, each season, over that seven-year period. Last year the spread dropped to 10 games, making the NL more competitive than in any of the prior seven seasons. I believe the spread will widen back to 28 games or so this year and the reason is simple. The talent disparity between the leagues is even larger now that it was in September. Albert Pujols and Prince Fielder changed leagues, free-agent Cuban-defector Yoenis Cespedes signed with the Oakland A’s, and highly-sought Japanese import Yu Darvish signed with the Rangers. The league defections (Pujols and Fielder) alone shifted about 11 Wins Above Replacement value in 2011 from the NL to the AL and the foreign signings project to add another 7 to the AL. Put those four changes together and the AL, collectively, picked up 29 wins on the margin vs. the NL (AL: +18, NL -11). To be sure, those are full season figures, and the four players are only going to play about 72 games, or a little less than a half-season versus NL squads, but that still comes to about 13 games of value, pro-rated. That would make the AL 23 games over .500 and the NL 23 games under .500 in head-to-head play in 2012.
Honestly, I think that’s a best case scenario, and the spread could be significantly larger. Given that premise, and given that the combined projection for the 11 NL teams I’ve previewed so far is 16 games over .500, the macro environment has a profound impact on the remaining teams. Specifically, I think there is an excellent chance the winner of the NL West ends the year with a losing record.
When I was a young NASDAQ market-maker, a grizzled salesman tormented me regularly. With a phone to his ear indicating he was talking to a customer, he’d ask me about one of my stocks and, if I even hesitated long enough to simply inhale, he’d scream “Have an opinion!” which would send the entire trading floor into laughter at my expense. So my old friend, given that no team has ever made the playoffs with a losing (or even a .500) record, how’s that for sticking my neck out?
Given the scenario I laid out, if you believe in the explicit superiority of the American League and the comparative superiority of the NL East collectively and of the NL Central triumvirate of playoff teams from the last two years, then the only way the NL West will have a team with a winning record is if one of its teams can dominate its division foes. I find that unlikely as all five teams in the NL West look very similar to me, each possessing a clear strength or two but also sporting a pronounced weakness. I’ll try to illustrate that over the next four issues of the newsletter.
Sticking just with the Padres for the remainder of this issue, after stripping out cluster luck (for new readers consult the archives at http://tradingbases.squarespace.com/ for an explanation within the Boston Red Sox preview) the Padres played to 75-win talent last year. If it’s really only going to take 81 wins to be post-season-competitive in the NL West, that’s not a long road to climb and I absolutely love the boldest step the Padres took this off-season to prepare for the task. San Diego didn’t have many potential stars on its roster but one was 23-year old starting pitcher Mat Latos. In two and one-half big-league seasons through 2011 Latos has established himself as a potential rotation anchor, easily possessing talent to be a number one starter on a team playing deep into October. No product of San Diego’s home field, pitcher-friendly PETCO Park, Latos has allowed only .24 runs more per 9 innings on the road than at home and he has a 3.37 ERA over those two and one-half years while striking out just short of a batter an inning.
Latos is the definition of a franchise building-block, an established, extremely cost-effective talent with nothing but upside ahead of him. The Padres promptly traded Mat Latos this winter to Cincinnati for first baseman Yonder Alonso and I heartily applaud the move.
While the debut last year of the Yankees’ Jesus Montero rightfully garnered a lot of attention, especially after he hit .328/.406/.590 (batting average/on-base percentage/slugging percentage) in 69 MLB plate appearances late in the season, in the relatively obscure setting of Cincinnati, Yonder Alonso came to the plate 98 times and hit .330/.398/.545. The Padres woefully needed to increase its run production and in acquiring Alonso they’ve added a young, high-ceiling bat to the line-up for years to come. The Padres didn’t stop at acquiring just one big bat however, also trading for right fielder Carlos Quentin whom the White Sox shed as a way to cut salary.
These two additions are of huge importance to the Padres because they got below-average production at first base and right field in 2011, the two highest offensive producing positions in baseball. Suddenly the Padres don’t have a below-average bat in the entire starting line up. That’s a huge competitive advantage over their division brethren who all have a better-known hitting star but also a significant hole at a couple of spots in their respective line ups.
The Reds’ badly needed an ace so swapping a young slugger for an established starting pitcher made sense for both teams, but the Padres were clearly operating from a position of strength because the Reds also threw in Edinson Volquez, a former rotation ace himself. Volquez has battled injuries for three years and, as a fly ball pitcher, has been victimized by the home run so common at the Reds’ home park. A move to pitcher-friendly PETCO should help immensely. I mentioned that every team in the division has notable holes and in the case of the Padres, it’s in the starting rotation. Outside of Cory Luebke (highly underrated for fantasy purposes) who will slip into the number one starter role vacated by Latos, the rest of the rotation projects as below-average. A healthy Volquez and a return to the 17-6/3.21 ERA form which made him a star in his rookie season would go a long way to solidifying the staff.
The Padres offer everything a value-oriented investor could possibly ask for. Low expectations due to a last place finish the prior year? Check. A team that actually played better than its final record? Check. A newly potent line up improved without any headline grabbing players? Check. The Padres, so long an offensively-challenged team have a chance to lead the division in runs scored and I don’t think anyone sees it coming.
Oddsmakers' expectations: A squad that is expected to finish behind a number of teams in its own division offers the potential for value in the futures market that doesn’t exist with any well-regarded team. Last year, the Cleveland Indians and the Milwaukee Brewers fit that profile and this year so do the San Diego Padres. Forget World Series or even pennant-winning odds, I’ve found 20-1 odds on San Diego winning its division. Over the course of Spring Training, San Diego’s total wins over/under has crept higher but even at 73, where it sits now, it’s my favorite over in all of baseball this year. Just don’t be surprised if a division-title for San Diego results in screaming from baseball traditionalists when the Padres, without benefit of a winning record, get to play in October.
81-81 – First in NL West
679 Runs Scored 683 Runs Allowed
Mop Up Duty:
Joe Peta is the author of Trading Bases, the Newsletter, a companion piece to Trading Bases, A Story about Wall Street, Gambling, and Baseball* (*) Not necessarily in that order, a Dutton Books/Penguin (U.S.A.) February, 2013 release.
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