Looking at the Market Impact of the MLB Trade Deadline

Today is August 1, and we are smack in the middle of the annual August Long Weekend here in British Columbia (and many other Canadian provinces, for that matter). The weather has been great, and there are tons of events happening across the province this weekend, including the Victoria Electronic Music Festival, the Vancouver Pride Parade, and the encore evening of the Celebration of Light fireworks display.

But away from our corner of the globe, today is another significant day in professional sports: it’s the first day with season rosters set for Major League Baseball teams. Yesterday was the trade deadline, and teams will no longer be able to move players between organizations. And what’s the significance of this? Well, it creates the usual excitement for fans trying to speculate which players will be dealt, and to where. It also tends to expose the teams that have all but conceded their chances of winning the World Series this year, as evidenced by the dumping of big-money player contracts in favor of acquiring young, inexpensive prospects for rebuilding.

But something else happens that rarely gets reported in the media during trade deadline season, and that is the undeniable changes to teams’ expected chances of winning as a result of the trades they make at the deadline. It also provides a great example of why the tools that we are developing here at Bet Smart Media will provide our users with incredible value. But how so? Let’s look at what happened yesterday.

The Seattle Mariners traded away two of their key players – Jeff Clement and Jarrod Washburn – and received what has been perceived to be less valuable players in return. Looking at the prices of MLB Futures – that is, what oddsmakers feel are the Mariners chances to win the World Series – we can see that the Mariners were devalued as a result of the moves they made. Before the deadline, furures market oddsmakers had the Mariners at +15000 (0.66% chance of  winning the World Series), and after all the moves were made, they were reduced to +25000 (0.40% chance of winning).

The team that acquired Mariners’ pitcher Jarrod Wash burn, the Detroit Tigers, saw their futures market odds actually improve with the move. The were upgraded from +1700 (5.5% chance of winning the World Series) to +1200 (7.7% chance of winning).

For bettors out there that were holding Seattle Mariners futures, their portfolio was significantly devalued, that is unless they were able to sell some (or all) of their holding prior to the trade deadline. For those that were holding Detroit Tigers futures, their portfolios increased in value: buying one unit of Detroit Tigers futures contracts cost $5.56 before the trade deadline, and $7.69 after the trade deadline (assuming $100 unit sizes).

It’s sort of starting to look like something else a lot of people recognize…  public equity markets! Having access to timely market-relevant information made is extremely valuable. Imagine if you could have sold your Seattle Mariners futures before the market reacted to the news of Washburn’s trade? Or, if you could have loaded up on Tigers futures at $5.56 before the market priced them up to $7.69?

Kind of interesting, isn’t it?

Let that be a bit of a window into what we’re working on here at Bet Smart Media