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Case 2: Assessing the Value of Alex Rodriguez

Case 2: Assessing the Value of Alex Rodriguez. Teresa Sonka Gail Bernstein. Alex Rodriguez. 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 2000.

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Case 2: Assessing the Value of Alex Rodriguez

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  1. Case 2: Assessing the Value of Alex Rodriguez Teresa Sonka Gail Bernstein

  2. Alex Rodriguez • 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 2000

  3. Texas 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 him

  4. Hitter 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 out • Runs win games and hitters create runs • There are more significant offensive than defensive statistics

  5. What is the most important offensive statistic for a baseball player? • RBI • Batting Average • Home Runs • On-base percentage • Slugging average

  6. Important stats according to Moneyball • 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: .606

  7. On-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: .420

  8. On-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: 1.866

  9. Runs 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 factors

  10. AVM 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 trajectory

  11. How 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?

  12. 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. • http://www.baseball-reference.com/r/rodrial01.shtml • http://www.latinosportslegends.com/stats/baseball/Rodriguez_Alex-career_stats_highlights.htm

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