March 28, 2011
Diversifying Doug Melvin
“[I]n the domain of zero to one, not-something to something, Pointsman can only possess the zero and the one. He cannot, like Mexico, survive anyplace in between. Like his master I. P. Pavlov before him, he imagines the cortex of the brain as a mosaic of tiny on/off elements. . . . [E]ach point is allowed only the two states: waking or sleep. . . . But to Mexico belongs the domain between zero and one—the middle Pointsman has excluded from his persuasion—the probabilities.
—Thomas Pynchon, Gravity’s Rainbow
The Milwaukee Brewers have assembled a formidable 25-man roster. Our most recent playoff odds report projects them to win 85 games—a total that would be their second-highest since 1992—and assigns them a 38.9% chance of making the playoffs. They have four position players (Rickie Weeks, Ryan Braun, Prince Fielder, and Casey McGehee) and three pitchers (Zack Greinke, Yovani Gallardo, and Shaun Marcum) projected to contribute at the roughly league-average level of two wins or more. Compare that collection of talent to that of the Cardinals, who have three such positions players and one such pitcher, or the Reds, who also have three of the former and one of the latter. Needless to say, the Brewers’ is a roster stocked with plenty of talent.
By now, the story of how it was assembled is familiar. The Greinke trade involved dumping a bunch of coupla-win guys on Kansas City, and the Marcum trade required giving up their star hitting prospect. The Milwaukee farm system is small beer, and that’s putting it Lite-ly. Put it this way: their best prospect is a 25 year-old pitcher drafted in 2004 who walked more than five batters per nine in Double-A last year.
This is a sell-the-farm team; make no mistake. After this year, Prince Fielder is splitsville, which means that four or five wins are about to walk out the door. It might take half a decade of shrewd drafting and player development to restock the cupboard, even in the low minors. The Melvin Plan is clear: win now or go home. The question is whether it's a sound one.
Pavlov Never Was Much of an Investor
In the 1950s, an economist called Harry Markowitz introduced an idea that upended the prevailing wisdom about finance. His breakthrough, for which he won a Nobel memorial prize in economics, was to recognize that, for a given portfolio of assets, the way to analyze a potential addition was not in isolation but in comparison to the other assets held by the investor.
Later dubbed “portfolio theory,” this approach allowed for the possibility that a group of assets—take stocks, for example—might all go up or down at the same time. If that were true, then adding another similar stock to the portfolio would add to the volatility of the whole. But adding a stock whose price varied completely independently of the other stocks in the portfolio, or even one that varied negatively with the other stocks, would reduce the overall volatility in the portfolio.
Consider a portfolio that contains shares of a stock that goes up when it’s sunny and down when it’s not. It’s not always sunny, and it’s difficult to predict when it will be, so there is some volatility in the stock. If you add more shares of Sunny Co., the volatility may increase, since you’re effectively doubling down on the bet. If, however, you buy shares in Rainy Co., the expected volatility will almost certainly go down, since it is rarely rainy and sunny at the same time. (“Sunshine showers don’t last half an hour.”) So the relevant question is whether the addition will rise and fall alongside the current holdings in the portfolio.
Health is a Skill—But Does it Correlate?
That’s the relevant question for the Brewers as well. Certainly going for it in the here and now has its virtues. From an aesthetic standpoint, it’s terrific baseball, but the strategy comes with considerable costs. Those costs manifest in the volatility—and the attendant risk—in the performance of the stars you sign to propel you to the playoffs.
The Brewers have assembled a group of players good enough to win 90 games or more if they could all be expected to be healthy. Say the perfect-world scenario is 95 wins. That’s what would happen if Weeks’s excellent 2010 is repeated, Marcum’s stellar strikeout-to-walk ratio survives the conversion to U.S. dollars, and Corey Hart plays more like he did in 2010 than 2009.
Obviously, 95 is not the expected number of games that the Brewers will win. We now know that Greinke will open the season on the DL, and that Marcum may join him there. Those injuries, combined with the potential for injuries to other players down the road (the kind that applies to every team in March), are factored into our expected win total of 85.
In considering the Brewers’ decision to go for it all in 2011, though, it’s important to recognize the degree to which they stacked similar risk in their roster. Are the injuries to Zack Greinke and Shaun Marcum to the same part of their respective anatomies? No. But are their recovery times linked by a common thread? Absolutely. What will get their star starters back on the mound in an efficient fashion is the ability of the medical staff to diagnose and treat the problems correctly. That goes for any potential problems with Gallardo as well. Not so long ago, Milwaukee's medical staff won Will Carroll’s Dick Martin award as the best of its kind, so there is reason to be optimistic. A quick look at Gallardo’s new player card demonstrates the effectiveness of the Brew Crew’s medheads. With any luck, they can whip their new acquisitions into shape as well.
If that isn't compelling evidence that the players in the Brewers’ portfolio have a negative correlation of risk, it is perhaps evidence of exactly the opposite. If the unknown variable is how well the medical staff can keep the aces on the field—but that variable is applicable to all three of their star pitchers—then perhaps 85 wins is understating their chances of success. Put another way, the Brewers’ volatility in wins may be especially high. That isn’t necessarily a bad thing: if things break their way, the team won’t win 85 but 90-something games and would be almost guaranteed a playoff spot. If they don’t, however, then the Brewers aren’t much worse off than they would have been in the 82-win doldrums in which they have resided for the past few seasons.
Imagine here a two-peaked distribution of wins, where instead of being an 85-win team, the Brewers are more like a team that has a 50% chance of being an 80-win team and a 50% chance of being a 90-win team. Now, certainly there is substantial evidence that luck alone accounts for a big portion of team’s win/loss record in a 162-game season. But a team that had a bimodal distribution of wins would be even harder to predict. Effectively, the medical (and other) outcomes would determine the true talent level, and then the luck of the schedule would push its win total up or down by five or six victories.
All of this is to say that the Brewers could conceivably end up with 75 or 95 wins this year. Given that amount of uncertainty, was it wise to sell the farm altogether? Since Milwaukee had a middling farm system even before the Greinke and Marcum trades, the organization didn’t sacrifice that much future value. Keep in mind also that the team's decision makers are probably in the best position to judge the quality of their medical staff. Their fans will just have to hope that the Brewers' brass had an accurate sense of how healthy they could keep Greinke and Marcum when they executed the trades.