Sometimes an idea just outlives its usefulness and it's clear that that's exactly what has happened to the idea that you "never trade within your division."

That particular philosophy seems to be a relic of days gone by.

Recently, I had the opportunity to discuss a potential Erik Bedard trade with an Oriole fan. I mentioned that I thought they should send him to the Boston Red Sox for  a package of Jed Lowrie, Lars Anderson, and Michael Bowden. His response, of course, was that the Orioles wouldn't trade within their division, which got me to thinking about just how illogical that philosophy really was.

PRE-FREE AGENCY

The idea that you shouldn't trade within your division is seemingly as old as baseball itself. While there was a time when it was a sound philosophy, free agency has changed all of that.

Prior to the arrival of free agency in 1977, the idea had merit for two reasons:

1. There was limited access to talent, so depriving your opponent of players was almost as important as acquiring talent for your own organization.
2. The team who owned the player's rights could control them for as long as they wanted, so trading a player within the division meant that he could be playing against you for a decade or more. The player had no independent ability to leave that organization.

For example, you wouldn't trade, say, Babe Ruth to a division rival, because that rival could utilize his services to torment you for the next 16 years.

Given those two facts, it made sense to not deal with your direct competition, as by not trading talent to your divisional rival you were denying him access to talent he simply couldn't acquire anywhere else. However, that's just not the case anymore, as free agency has created a new labor market where anyone can shop for players.

POST FREE AGENCY AND THE MODERN GAME

In the modern game, free agency has completely altered the labor market for players. In the past, you either had to develop you're own talent or trade for it. There was no way to sign veteran players, so the methods of acquiring players were limited. That's not the case with free agency, where any team can go onto the market and sign a veteran player to add to their lineup.

The emergence of this new labor market has undercut the trade philosophy. In fact, not only does the philosophy no longer make sense, the benefits and burdens of the philosophy have completed inverted and now cut against the team that implements it. In the modern game, the burdens of not dealing within the division are no longer borne by the opposition, but rather they are internalized by the organization who uses the strategy.

The scarcity of available talent and the ability to control that talent is what made the philosophy tenable. Obviously, free agency has eliminated that scarcity and subsequently the effectiveness of the philosophy as well. The decision to not trade with a division rival no longer deprives the competition of rare, controllable talent, but rather deprives your own organization of the ability to maximize value of its assets.

Again, the Orioles and Bedard are the perfect example. By choosing not to deal him within the AL East, they are removing two of the most valuable suitors from the mix. When trying to trade players, most organizations WANT the Yankees and Red Sox to be in the mix, as they drive the trade value of the player up. In addition, the existence of free agency removes the scarcity of talent and provides the Yankees and Red Sox of another means of acquiring talent. The reality is that the philosophy doesn't really hurt them at all, as they can sign an equivalent to Bedard next year in free agency.

In the grand scheme of things, does it really matter to the Yankees and Red Sox if they trade for Bedard or sign C.C. Sabathia as a free agent after the season? Both are going to provide equivalent production, so what have the Orioles gained by not trading within the division? They can no longer deprive the opposition of talent, so, they will still be facing a top flight lefty, but now they'll do so without having maximized the value they received for Erik Bedard. So, the decision really only reduces the value the Orioles get for Bedard, rather than harming the AL East competition in any appreciably manner.

The changing business model means that it's well past time to throw the "don't trade within the division" idea into the fire, as it just isn't a sound principle anymore. The lack of scarcity of talent means that depriving division rivals of talent just isn't effective anymore, so all it really does is reduce the demand and value you can get for your own player. If you are trying to deal a truly unique talent like Johan Santana, for whom there is no equivalent replacement on the free agent market, then the scarcity returns and there may in fact be value in not trading him within the division, but outside of that the modern marketplace has simply made the philosophy obsolete.

Anyway, just my $.02.

Something unusual has been happening in baseball as of late and it is very relevant for us over the next month. In fact, I think it portends badly for our chances of rebuilding via firesale.

There has been a subtle, but substantial shift in the way the market values players. In short, baseball organizations are beginning to value their top prospects like never before. Baseball writers mention it from time to time, but I think the shift has really become evident this year.

I read a chat with ESPN's Jerry Crasnick last week in which he suggested the reason for the shift was that fans had become more knowledgeable about the prospects in their organization, so GMs would come under fire if they were dealt. He cited Clay Bucholz of the BoSox as an example. Personally, I don't think that's the reason.

In years past, top prospects were often dealt for half season rentals. The best example that comes to mind is the Tigers trading John Smoltz to the Braves for Doyle Alexander. That trade worked out about as well as any half season rental can, as Doyle went 9-0 with a 1.53 ERA for the Tigers and helped them reach the postseason in 1987.

However, those deals have become increasingly rare, as the opportunity cost of dealing blue chip prospects is higher than ever before. The cost of giving up the production of blue chip prospects has begun to heavily outweigh the benefits. If you are dealing away inexpensive prospects, then you likely have to find replacement production via free agency or trade. No matter where the replacement production comes from, it's going to more expensive than the prospect that was dealt away, because prospects are the only inexpensive production available in the market. Not to mention, the cost of replacement production for the prospects that are dealt away is skyrocketing.

The average MLB salary in 1988 was $453,020 and players in their first 3 years of service time earned ~$85,000-150,000 and the top veteran pitchers were earning ~$1.75-2.0M. In 2006, the average MLB salary was $2,834,521 and players in their first 3 years of service time were earning $330-550K and veteran pitchers were making ~$10M in free agency.

Over the years, salaries have increased on average about 10% per year. The difference is that a 10% increase in $350,000 salaries is much less in real dollars than a corresponding 10% increase in the cost of free agents. Accordingly, the disparity between the cost of veteran free agents and the cost of prospects has grown by leaps and bounds.

If you deal away a young prospect, you are throwing away three years of VERY inexpensive production and three years after that of below market production. Instead of getting good production over the next three years for ~$350-500K, you have to replace that production with expensive free agents at a cost of $10M. It costs you $9.5M more per season for the next three seasons ($28.5M over three years) in order to acquire a half season rental. In the past, you could find replacement production at a much lower cost, likely ~$2M in 1988.

So, in 1988, the Tigers could replace top prospect John Smoltz for ~$1.75M. In 2006, that same type of move would cost ~$10M. Personally, I think that it is this cost increase that has led to organization valuing their prospects MUCH more highly. They are just very reluctant to deal these types of prospects.

Inflation certainly plays a part, but prospects are just a much more valuable commodity than in years past. The salary for first year players has risen 3.5 times (from ~$100K to ~$350K), but the cost of free agent pitchers has increased 5-6-7 times (from ~$2M to ~$10-12-14M).

By trading away top notch prospects, you are incurring a huge opportunity cost, because you can no longer take advantage of 6 years of bargain priced production. Dealing away top prospects for half season rentals is becoming impracticable because the cost of replacing the future production of that prospect is exponentially higher than in seasons past. The market has begun to factor in these increasing costs and the valuation of top flight prospects has changed accordingly.

Unfortunately, that bodes poorly for us, as we are unlikely to reap a huge return for Adam Dunn. The cost of replacement production just doesn't make it feasible to rent high priced veteran players anymore.

This trend seems likely to continue until the salaries at the beginning of a player's career begins to increase. Until then, dealing away top prospects is a risky proposition.

The disturbing part of this is that I'm not sure that Krivsky has realized this market shift in prospect valuation.

The idea that Krivsky is asking for such a massive package of talent in return for Adam Dunn makes me wonder. The market is not going to yield that kind of talent for an expensive veteran and setting such a high asking price is serving no purpose but to scare off potential trade partners. If we can get one elite prospect for Dunn, then I think we should be very happy with that.

At this point, I think the Reds should be willing to pay the market rate or perhaps even overpay to get certain targeted players (i.e. Matt Kemp, Jarrod Saltalamacchia, etc). It's time to recognize the market shift and cut a deal with the realization that they can still be beneficial under the new market paradigm.

My $.02.