Okay, this may be more detailed than you'd like but that's how I roll. I tend to be stats/analysis oriented over traditional, so take the following with an appropriate grain of salt.
1) Not to paraphrase Peter Brand in Moneyball, but don't think about buying players (a closer, a pitcher, a second baseman); think about buying wins. These are most easily captured with the WAR (Wins Above Replacement level) stat, which is pretty much perfect (except for relief pitchers; because your best relievers more often pitch in situations where the game is on the line, their performance is slightly more valuable than their WAR indicates).
2) If your team puts up, between all players, zero WAR then you should expect to have won 46 games or so. Every WAR you add gives you another win (give or take). Your team needs about 35 WAR to be average, 45 WAR to have a real shot at the playoffs (that's 91 wins), 50 WAR to have a great shot at the playoffs (96 wins) and 55+ WAR for a monster team.
2a) For quick reference for WAR (assuming you're not familiar): 0 WAR is a complete scrub, 1 WAR is a poor starter, 2 WAR is a solid starter, 3 WAR is a good player, 4 WAR is an excellent player, borderline all-star, 5 WAR is an all-star, one of the best at their position, 7 WAR is one of the very best in the league at any position and 10+ WAR is an all-time great performance/player. A team with five 2-WAR SPs, 9 2-WAR batters and 7 WAR between their bench and bullpen is 35 WAR, which is a completely average team.
3) So this is your goal; assembling a team that will combine for 50 WAR or so.
4) The next challenge is money. You only have so much money to acquire those 50 WAR. Players acquired different ways cost different amounts of money because of the way the MLB salary structure works.
4a) The first three years a player you control is in the majors, you pay them league minimum, which is $571k or so. For these three years they are incredibly valuable to you. Consider a player worth 2 WAR (decent starter) who is in his first three years. 2 WAR is nothing to brag about, but if you have five of those players you're already 10 WAR to your 50 WAR goal but you've only had to spend $3mill to get there. This is what makes prospects so sexy; the more good young players earning the minimum you have in the majors the more money you have to buy the remaining WAR you need.
4b) The next three years players are in "arbitration". This means that for years 4, 5 and 6 they will generally make 50%, 65% and 80% (estimates) of their free agent cost. This makes them more salary-efficient than free agents, but much less efficient than players in their first three years. So here's the rule of thumb; be controlled with whom you offer arbitration. The 5-WAR SP who is estimated to get $8 million? Arbitration. The 2-WAR 2B who is estimated to get $900k? Arbitration. The 0.3 WAR MR who is estimated to get $1.1 mill? Screw him. The 1.1 WAR OF who is estimated to get $2.7 mill? Screw him.
4c) Don't be stupid with arbitration; replacement level is a powerful concept. The closer to 0 WAR a player is, the more easily you can grab a spare somewhere else at an affordable price. If your farm system is worth anything you should be able to produce 0-1 WAR players on demand relatively easily. And you should be able to snag 1-2 WAR players in free agency for under 2 million, in theory.
4d) Free Agency / Extensions. This is the most expensive way to get players. Not saying that you can't get good deals this way, you can, but it's still pretty costly. This is where you got every player that isn't in their first three years / arbitration. Be wary of the excitement of a big free agent signing or extension. Players get worse as they get older. Imagine a 5-WAR 29 year-old whose extension request is 8 yrs at $20 mill per. $20 million for 5 WAR? That's pretty reasonable at $4mill per WAR. But they won't be 5 WAR forever. In 8 years they'll be 37 and they sure as heck won't be 5 WAR then; you'll be lucky if they're 2-3 WAR. Long-term deals become burdens very often; watch out.
4e) So, now what? A lot depends on your team's payroll budget. If you have $200 million to spend on payroll then you're needing to average $4mill per WAR, which is near free agent levels. In this case you can afford to be pretty aggressive in free agency and worry less about prospects. Packaging your valuable prospects for great players is much more palatable in such a case because you have the money to pay those great players and you don't really need the efficiency of those young players. But imagine that you're a super-poor team who is working with a payroll of $50 million. You need to be averaging only $1 million per WAR, which means your team will need to be made up of almost exclusively young players in the first three years or arbitration, and in some cases, you won't be able to keep them for their full three arb years because it will get too inefficient. Your team operation must be centered on only picking up replaceable cheap pieces from free agency, and be constantly trading away young players approaching free agency for new prospects to keep the cycle going. Getting 50 WAR this way is really, really hard but you'll find that this isn't really your goal. But I'll get to that in a second.
5) Team finances evolve. While your owner and market do set the baseline, how your team is playing affects your budget. Take a $250 million team but give them a series of 60-win years and they'll drop by 10-20 million each year (if not more). Take a $70 million team but give them a series of 85-90 win seasons and they'll probably pick up another $5 million a year. So when I was talking about working with super-tight teams, your journey to 50 WAR (if you do it right) should lead you to 35 and 40 WAR, and by 40 WAR you should start growing your budget with your performance. As you raise your budget the path to 50 WAR should become more and more easy.
5b) This is an aside on long-term contracts. If you're making the playoffs your budget will go up (or stay the same if it's already high). There are contracts for players that make sense if you're a repeat playoff team (the $20/yr 8 year deal for example) that stop being good if you're not winning. It's all too easy to sign a bunch of bigger deals when you're winning, then have a few off-years, have your budget crater by $20-40 million and suddenly be crushed under the weight of these big contracts that only made sense when you were competitive. Such deals can turn a few off-years into full-on rebuilding by crippling your ability to work with a tighter budget. Be wary.
5c)
This is a chart of how much adding an individual win to a team adds to that team's revenue. You'll note that for any team winning less than 80 games, adding a win is worth only $750k to the team. It's only when a team starts going above 500 that wins become more valuable, climaxing at a $4.5 million to go from 90 to 91 wins. You shouldn't take this too seriously per se, but it illustrates an important point. Don't ever trade prospects away to jump from 65 to 70 wins. There's almost no point. Losing is losing. If you're patient and smart the wins will take care of themselves. If you're thinking of doubling down to jump from 85 to 90 wins, or 90 to 95 wins, go for it. I mean, if you have the room in your budget to buy in free agency do so; you always want your team to be as good as possible. But you never ever want to sacrifice your future to do it; try and keep your FA deals (as far as filling in spots when your team isn't in contention) to one year if possible.
6) Evaluating how good your team is can be one of the hardest and most important parts of the game. If, going into the season, you believe your team is a 25 WAR team (70 wins), then you should play them very conservatively and build prospect depth. But if you believe that your team is a 45 WAR team (90 wins) you should be playing aggressively for trades (prospects for stars) and perhaps even in free agency. And yet the two may look the same from many points of view.
6a) Consider this: even ignoring injuries (which by themselves can cost a team a lot of wins) 80% of the time a team's win total will be within ten wins of it's true talent. That means that a true 80-win team will win between 70 and 90 wins 80% of the time, which means that 10% of the time they will win less than 70, and 10% of the time they will win more than 90. Again, this team is just average. It's only random variation that has them do well or badly; a combination of luck in games and players having up or down years. It's kind of like how a 260 hitter will hit between 241 and 279 68% of the time, another 27% of the time they'll hit between 223 and 241 or between 279 and 300. And another 2.5% of the time they'll hit below 223 and 2.5% of the time they'll hit above 300. This is a long way of saying that you need to be dispassionate about trying to figure out what's actually going on with your team/player. If you just won 90 last year and you think that's a true reflection of your team's ability, double-down. But if you just won 90 out of luck (and you're team is more in the 80-85 range) then doubling down will likely hurt your long-term without helping your short-term much. Be patient and be objective.
7) One really quick addon; bring your prospects to the majors as late as you can. Until they're on your 25-man roster their major league timer doesn't start. Since the players develop better in the minors your best bet is not to bring up your good prospects until they're at or approaching their peak. If you're in a playoff push obviously, all bets are off.
tl;dr Always figure you need to field 50 WAR from all your players and plan your finances accordingly. Never sacrifice the future for the present unless it pushes you from 90 to 95+ wins.
Thanks for reading; I know this was a lot
