Case 2: Assessing the Value of Alex RodriguezAlex RodriguezTexas RangersHitter is the Center of AttentionWhat is the most important offensive statistic for a baseball player?Important stats according to MoneyballOn-Base PercentageOn-base Plus SluggingRuns CreatedAVM SystemsHow do these statistics relate to Rodriguez?ReferencesCase 2: Assessing the Value of Alex RodriguezTeresa SonkaGail BernsteinAlex Rodriguez Year Team Batting Avg. Home Runs RBI Stolen Bases1996 Seattle 0.358 36 123 151997 Seattle 0.3 23 84 291998 Seattle 0.31 42 124 461999 Seattle 0.285 42 111 212000 Seattle 0.316 41 132 15•First overall pick in the 1993 Major League Draft at age 17•Played with the Mariners for 5 years•Set the American League record for home runs by a shortstop•Became a free agent in 2000Texas RangersOwned by the Southwest Sports GroupThe strategy of the founder, Tom Hicks, was to spend considerable resources on talentThe Texas Rangers were one of the main teams interested in RodriguezNeeded to determine the incremental benefits of RodriguezWanted to determine an offer price that would attract Rodriguez without overvaluing himHitter is the Center of AttentionAll eyes are on the hitter and no one notices the other basemen and outfielders until the ball comes their wayWe don’t notice the third baseman until a hitter smashes a ball down the third base line and the third baseman makes a diving stop to throw the hitter outo Runs win games and hitters create runso There are more significant offensive than defensive statisticsWhat is the most important offensive statistic for a baseball player?A. RBIB. Batting AverageC. Home RunsD. On-base percentageE. Slugging averageImportant stats according to Moneyb allSlugging Average: Total Bases/At BatsEach base is weighted differentlySLG = (1B + (2 x 2B) + (3 x 3B) + (4 x HR))/ AB For example, if in 1 inning a team sent 4 people to the plate and 1 got a home run but the other 3 struck out, the slugging average would be a 1.0Rodriguez 2000 Mariners’ season slugging average: .606On-Base PercentageMeasures how often a batter reaches a baseOBP= (H+BB+HBP)/(AB+BB+HBP+SF)H= home run, BB= walks, HBP= times hit by pitch, AB= at bats, SF= sacrifice flyAn on-base percentage of 1.0 for a team would mean that every hitter got on base; theoretically a team could then score an infinite number of runs because they would never get an outOn-base percentage is given a higher weight than slugging average for this reasonRodriguez 2000 Mariners’ season on-base percentage: .420On-base Plus SluggingWeighted addition of on-base and slugging percentagesConvential baseball wisdom assigns on base percentage a weight of 1.5 and slugging a weight of 1Paul DePodesta, Oakland A’s statistician, assigns on-base percentage a weight of 3Rodriguez 2000 Mariners’ season statistic according to the Oakland A’s weight: 1.866Runs Created According to Bill James: Runs Created=(Hits +Walks) x Total Bases/(At Bats + Walks)Used to determine how many runs a team will scoreBatting average and stolen bases, two traditionally important statistics, not included as factorsAVM SystemsFounded in 1994 by two former derivatives tradersWanted to find the “derivatives” of runs; to value the worth of each tiny event in a baseball game and extract luckAimed to assign values to the minute components of a baseball player’s performance by analyzing the value of these events on average in the pastTurned every major league diamond into a mathematical matrix of location pointsThey did not reference any traditional baseball statisticsFor example, hits were defined by their velocity and trajectoryHow do these statistics relate to Rodriguez?Rodriguez had both great traditional and unconvential stats for his 5 years with the MarinersThe key to the Oakland A’s (a team with one of the lowest player salary budgets in MLB) success is recruiting based on performance statisticsPerformance statistics are especially important when paying huge salariesWas the Rangers decision to sign Rodriguez based more on his outstanding statistics or the glamour factor?ReferencesLewis, Michael. Moneyball. New York, NY: W. W. Norton & Company, 2004. Cohen, Randolph B. and Jason Wallace. A-Rod: Signing the Best Player in Baseball. Boston, MA: Harvard Business School Publishing, 2002.