Trade Leverage Is A Hoax

When last we met practically a year ago (ahem, December 19), we discussed trade negotiations – specifically one of my standard processes. Although I think a forthright and (semi) honest conversation is the surest approach to building a mutually beneficial swap, not everybody likes the way I conduct my trade talks. Common complaints include that I’m asking the other owner to do all the work while giving up their leverage.

To the former point, um, no. To the latter point, also no.

As a concept, ‘trade leverage’ refers to circumstances in which one owner has the ability to extract economic rent from their trade partner. In my experience, this is usually achieved by holding a sword aloft and exclaiming “By the power of Grayskull, I have the LEVERAGE.”

But wait! There have to be at least some scenarios in which trade leverage is a thing, right? Let’s try an extreme example.

Imagine it’s July 25, 2018 and you’re playing a dynasty league. You own Adrian Beltre (and let’s assume you know he’ll retire). Your team is not competitive. None of the competitive teams need a first or even second string third baseman. He would be a luxury item for every single one of them. In this scenario, you’re holding an asset which literally has no value except as a tertiary backup. You have no hook with which to catch a trade partner. This is a classic scenario in which a rival would accuse you of lacking leverage.

Here’s the key phrase: “you’re holding an asset which literally has no value.” Leverage has nothing to do with it. You simply have the misfortune to own something nearly valueless. As a result, you can either acquire something of comparable valuelessness or spitefully hold on to Beltre (I often choose spite). If you’re lucky, his value might change.

Is this a semantic distinction? I don’t believe so. It’s important to think about players in terms of their value to you and others – either directly or by preventing a rival from acquiring them. Fantasy baseball is a closed economic system. In most leagues, we’re playing for points in the roto standings, head-to-head wins, or some alternative universal points system. A player’s true value relates directly to their ability to affect those scoring scenarios.

Players often have a perceived value too – this is usually attached to their name brand, draft day ADP, and/or current in-season rank. When marketing a player in a trade, you should very much aim to induce your rivals to pay for positive perceived value. However, people usually get way too caught up in perceptions of value rather than the real thing. That’s a topic for another day, but it merits a mention here.

Getting back to leverage, the idea is most commonly misapplied to scenarios in which only one trade partner has an obvious need. This does positively affect the value of a player. If I’m selling a third baseman that you desperately need, I seemingly have you over a barrel. I can ask almost anything because you’re desperate. Leverage!

Not so fast. Rationally*, the cost for acquiring my nameless third baseman should be the second highest offer “+1” where “+1” equals whatever is required for me to prefer one offer over another. As the seller, I’m hoping to exploit informational asymmetry – i.e. I try to inflate your impression of that second-best offer. My so-called leverage evaporates if you’re willing to be patient.

*Beware! The world is not rational nor is the realm of fantasy baseball trading. 

In the opposite scenario – when an owner with a need claims to have leverage because nobody else has the same need – patience is once again the answer. Let your rival feel the pain. Cultivate offers from not-so-needy teams by explaining what’s happening. In effect, ask for some help with price enforcement. This is not collusion.

In any league that doesn’t change owners year-to-year – a scenario economists refer to as ‘repeated games‘ – you can take the last paragraph a step further. If your should-be ideal trade partner won’t pay an acceptable price because they’re hiding behind leverage, accept a lesser alternative offer from a different partner – especially in a scenario where you must trade the player or get nothing. You’ve now taught at least one opponent the value of their so-called leverage.