Georgetown 2013 Diamond Dollars Case Presentation

Georgetown UniversityDiamond Dollars Case PresentationPresented by:

Preston Barclay, Kyle Franco, Camden Hu, Nikhil Oza, Xavier Weisenreder

November 22, 2013

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•Forecast Ubaldo Jimenez and Brian McCann’s actual contracts that they will receive in the 2013-14 offseason

•Explain our process in developing our forecasts:• Performance Projection• Player Performance and Projection to Monetary Value• Comparing Market Factors of Previous Years to This Year

•Estimate the players’ contracts had they not received a qualifying offer

•Assess how the length of the contract affects the Average Annual Value (AAV) of the deal

Our Objective

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•Investigate and conduct studies into the price of a win ($/WAR) historically and moving forward

•Assess the value of the compensation pick attached to qualifying offers

•Brian McCann and Ubaldo Jimenez forecasts•Scouting•Mathematical Regression Models with Hitting, Defense, Baserunning, Playing Time, Aging, and Probabilities of Injury and Position Change

•Player Intrinsic Value and Player Value by Team•Effects of Potential Suitors on Contract•Relationship between Contract Years and AAV•Prediction

•Source Presentation and Question & Answer Session

Our Approach

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Monetary Value of Player Performance:MLB Payroll Inflation Estimates

•Best determination of growth rate (organization revenue) unavailable, thus the utilization of team payrolls.

•Ten-year (2004-13) average growth: 5.08%•Sans recession years (2009 and 2011), growth: 6.45%

•Our conservative estimate for next five years: 5.50%

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Monetary Value of Player Performance:Payroll Inflation on Free Agent Expenditures

•Hypothesis: Free agent expenditures increase at slightly higher rate than league payroll increases sans recession.

•Results: Not a strong correlation, but ten-year average of FA expenditures similar to league payroll – 4.85%

•Conclusion: League payroll growth rate (5.50%) serves as an adequate predictor for overall free agent market growth in 2013-14 offseason.

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Monetary Value of Player Performance:Empirical Research for Free Agent $ per WAR

•Fundamental question: How much does it cost to acquire a win on the free agent market?

• Lewie Pollis’ research – 2008-13 average: $6,692,719

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Monetary Value of Player Performance:Empirical Research for Free Agent $ per WAR

What about players that require draft pick compensation?

• Projecting future $/WAR with our growth rate of 5.50%:

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Monetary Value of Player Performance:MLB Win Curves

• Value of a win depends on franchise, market, where on the win curve a team currently sits.

• Value increases for wins that have increased leverage for playoff probability.

Gennaro, Vince. "Diamond Dollars: The Economics of Winning in Baseball (Part 1)." The Hardball Times.

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Qualifying Offer:Calculating the Value of a Draft Pick

•Methodology•Sample: All first round and supplemental first round picks from ten drafts from 1995 to 2004.

•Average of each pick’s WAR in each of their first seven years.

•Fit a logarithmic regression to project each pick’s WAR in each of the years.

•Assume $7,048,721/WAR in 2013 and growth of 5.50% per year in the future.

•Assume the picks from 2014 draft reach the Major Leagues in 2017.

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•Assume salary of picks in each year to be:

•Subtract the salary of the picks from their values to get the surplus of the picks in each season.

•Discount the surplus in 2017-23 using the growth rate of 5.50%.

•Subtract the draft slot assigned to each pick selection to obtain the net value of each of the first 50 picks in the 2014 draft.

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Average of Picks 11-40 = $12,400,523

0 10 20 30 40 50 60$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

Net Value of Each Pick versus Pick Number

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Value of Compensation Pick:Improving Prospect Prediction over Time

Source: Ball, Andrew. "2013 MLB Draft: How Valuable Are Draft Picks? - Beyond the Box Score." Beyond the Box Score.

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Value of Compensation Pick:Improving Prospect Prediction over Time

Source: Ball, Andrew. "2013 MLB Draft: How Valuable Are Draft Picks? - Beyond the Box Score." Beyond the Box Score.

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Forecasting Brian McCann’s Contract:Scouting Brian McCann – Pitch Framing

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Forecasting Brian McCann’s Contract:Scouting Brian McCann – Pitch Framing

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Forecasting Brian McCann’s Contract:Variable Value of Framing re: Pitching Staff

• Different pitchers throw different pitches in different locations

• Different catchers could be more or less skilled at framing different pitches/locations

• Therefore, value of framing is variable depending on pitching staff repertoire

• McCann great at snapping wrist inside zone – 2 seam fastball running in on righties, away from lefties, largely benefitting Tim Hudson

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Forecasting Brian McCann’s Contract:Uncertainty in Game-calling & Pitch-sequencing

• What is the value of Game-calling/Pitch-sequencing?

• Entirely reflected in Pitcher WAR values

• Massive amount of uncertainty: +/- 2-3 WAR per year?

• Anecdotal evidence says McCann is probably positive

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Forecasting Brian McCann’s Contract:Catcher Hitting WAR Aging Curve

• Catchers tend to have less batting regression as they get older, this is probably due to the fact that they are, on average, less valuable as hitters, and therefore have less regression to the mean.

• Brian McCann is not “most catchers,” however, and has consistently been a very good hitter so we used the all-hitter curve as our age curve for Hitting WAR.

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All Player Batting

Catcher Batting

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Forecasting Brian McCann’s Contract:Other Contributing WAR Factors

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-1.8

-1.6

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BR

Linear (BR)

DP

• Double Play WAR has very little significant variance as a player gets older. Therefore, for McCann, we set his RAA for a double play as a constant value of the average of his career so far.

• Base-Running WAR has a very small, linear decrease, so we found the regression equation for the line, as used the coefficient (.2007) as a constant decrease for every year older

• Defensive WAR was found using a regression of all Catcher’s previous Runs Saved By Passed Pitches, and Stolen Base Runs saved from year to year

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Forecasting Brian McCann’s Contract:Future Position Change

• There is a very strong possibility that McCann will play less catcher (and play 1B or DH instead) as his career progresses, greatly reducing his Position WAR

• To account for this, we have included a percentage of Plate Appearances as catcher, in order to more exactly pinpoint his Position WAR year to year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.760.780.8

0.820.840.860.880.9

0.920.940.96

%GS as Catcher

• Based on his history of GS% as catcher, we can start his percentage at around 90%, and then, after finding no pure mathematical models we have subjectively decided to reduce the percent by 5% for each additional year.

Forecasting Brian McCann’s Contract:First Year Value

• Using a regression of hitters over 300 PA during consecutive seasons from 1995-2013 on predicting Runs Above Average, with BB%, SO%, ISO, BABIP, and HR per plate appearances.

• Using our regression equations, we were able to use McCann’s history in these categories in order to come up with a model to determine his values in these five categories.

• BB%: 9.69% • K%: 16.70% • ISO: 0.179• BABIP: 0.274 • HR/PA: 0.04092• From these values, we were able to come up with the 2014 Value for

McCann’s RAA: 5.389• All other First Year Value WAR components were either made from a

direct regression in a similar way (defWar), or were constants found from analyzing hitter Aging Curves (Double Play, and Base-Running)

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Forecasting Brian McCann’s Contract:Valuation of Brian McCann (without QO)

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Using Pitch Frame

McCann Future WAR Projection, Year By Year

Projecting expected WAR into a Contract

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Forecasting Brian McCann’s Contract:Valuation of Brian McCann (without QO)

• Right to extend own qualifying offer and likelihood of acquiring compensatory future pick with short deals (adjust up)

• More variability/risk with long-term deals (adjust down)Breakdown of WAR to various contracts:

• 2 Year Contract - $44 Million, $22MM AAV• 3 Year Contract - $56 Million, $18.67MM AAV• 4 Year Contract - $66 Million, $16.5MM AAV• 5 Year Contract - $75 Million, $15MM AAV• 6 Year Contract - $82 Million, $13.67MM AAV• 7 Year Contract - $86 Million, $12.29MM AAV

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Forecasting Brian McCann’s Contract:Potential Suitors, Market for Catchers in ‘14

• Two FA Catchers to set the market – McCann and Saltalamacchia

• Potential Suitors gain critical high-leverage Wins• Value of Framing has not been significantly

reflected in market for Free Agents

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Forecasting Brian McCann’s Contract:Valuation of Brian McCann (With QO)

• Value of Draft Picks for McCann’s Market pushes McCann’s Free Agency potential down significantly (~$5-10MM)

• We used $6MM, as there is very high variance with draft picks and teams would rather win now

• 2 Year Contract - $38 Million, $19MM AAV• 3 Year Contract - $50 Million, $16.67MM AAV• 4 Year Contract - $60 Million, $15MM AAV• 5 Year Contract - $69 Million, $13.8MM AAV• 6 Year Contract - $76 Million, $12.67MM AAV• 7 Year Contract - $80 Million, $11.43MM AAV

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Forecasting Brian McCann’s Contract:Our Prediction

• 3 Year Contract - $50 Million, $16.67MM AAV• 4 Year Contract - $60 Million, $15MM AAV• 5 Year Contract - $69 Million, $13.8MM AAV

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Forecasting Ubaldo Jimenez’s Contract:Scouting Ubaldo Jimenez – Pitch Frequencies

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Forecasting Ubaldo Jimenez’s Contract:Irrelevance of First/Second Half Splits

• Pre All-Star Break ERA and FIP: 4.56 4.50• Post All-Star Break ERA and FIP: 1.82 2.17

• Adjusted for opponent hitters’ FIP components (BB%, K%, HR%) no difference

• Consistent pitch frequencies Pre ASB and Post ASB

• Scouting: Lagging and slower arm action with current mechanics forces more stress on the shoulder and elbow on breaking pitches.

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Forecasting Ubaldo Jimenez’s Contract:Aging Curve

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10 RAA All Ages

RAA

Polynomial (RAA)

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RAA Looking At Age 30-37

RAA

Polynomial (RAA)

• Historic difference in RAA from year to year by age.

• Looking at the “all ages curve,” it is clear early values suffer from sample bias (only top players play at age 21, 22, 23)

• Therefore, we looked at the curve for just 30-37 year olds, in order to more accurately project the change in Jimenez’s pitching effectiveness as he ages.

Forecasting Ubaldo Jimenez’s Contract:Aging Curve

• Similarly to our Batting WAR projections for McCann, before we apply the aging curve, we had to find a projection for the current Pitching Runs Above Average by calculating the expected values of the components of Pitching WAR

• Ran a regression for each component on the previous values of that component from using past data from consecutive pitcher seasons

• Through this regression, we were able to predict the following values for Jimenez’s 2014 season.

• FB% - 35.70% • HR/FB - 10.47% • K% - 21.98% • BB% - 9.80% • BABIP - 0.30089219• LOB% - 0.7194523

• This totals to a predicted RAA value of -.08

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Forecasting Ubaldo Jimenez’s Contract:Playing Time: Starts and Innings Pitched

• Starts and Innings Pitched need to be determined to both project future as a starter and determine his Replacement WAR

• We ran regressions on both GS and IP (from qualifying pitchers in a given year)

• Significant variables: ERA last year, GS last year, IP last year predictive values for GS and IP year to year

• The further that Ubaldo ages, the less he projects as a starting pitcher, the more he projects as a reliever

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Forecasting Ubaldo Jimenez’s Contract:Potential Suitors, Market for SP in ‘14

• Masahiro Tanaka set to be posted• No clear top-flight pitcher on the market, many similar

options• Lots of teams could use starting pitching help

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Forecasting Ubaldo Jimenez’s Contract:Valuation of Ubaldo Jimenez (Without QO)

Year in Contract Season GS IP ERA RAA RR RAR WAR $ Per WAR Year Value

Total Contract AAV

1st. 2014 29.64 163.37 3.88 -0.18 20.42 20.24 2.02 7.85 15.88 15.88 15.88

2nd. 2015 24.51 137.24 4.11 -3.72 17.15 13.43 1.34 8.28 11.12 27.00 13.50

3rd. 2016 19.43 112.86 4.47 -7.53 14.11 6.57 0.66 8.73 5.74 32.74 10.91

4th 2017 13.86 87.35 5.06 -11.56 10.92 -0.64 -0.06 9.21 -0.59 32.15 8.04

5th. 2018 6.93 56.27 6.39 -15.73 7.03 -8.70 -0.87 9.72 -8.45 23.70 4.74

6th. 2019 -4.23 6.17 33.03 -19.99 0.77 -19.22 -1.92 10.25 -19.71 3.99 0.67

7th. 2020 -126.32 -569.59 3.49 -24.27 -71.20 -95.47 -9.55 10.82 -103.28 -99.28 -14.18

8th. 2021 -97.97 -405.29 3.24 -28.51 -50.66 -79.18 -7.92 11.41 -90.36 -189.64 -23.71

• 1 Year Contract – $15.50 Million, $15.50MM AAV• 2 Year Contract – $25.00 Million, $12.50MM AAV• 3 Year Contract – $29.00 Million, $9.67MM AAV

After the third year, Jimenez is projected to have a negative WAR value, and it is thus unlikely that he would still be a starting pitcher.

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Forecasting Ubaldo Jimenez’s Contract:Valuation of Ubaldo Jimenez (With QO)

• Value of Draft Picks for Jimenez’s Market pushes his Free Agency potential down (~$4-8MM)

• We used $5MM, as there is very high variance with draft picks and teams would rather win now


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Forecasting Ubaldo Jimenez’s Contract:Our Prediction


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Summary

• $/WAR going forward, variance in Hitter $/WAR vs. Pitcher $/WAR

• Variance/uncertainty in projections• Value of a win for different franchises in different

years• Draft pick valuation effect on Qualifying Offer FAs

• McCann will get long-term, multi-year deal• Uncertainty because of value of game-calling/pitch-

sequencing, variable value of framing

• Jimenez will get a much smaller and shorter deal• Roughly league average pitcher• Pitchers are extremely risky

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Further Considerations

• Always use more data• Adjust Aging Curves for only players who entered

league at 22, 23, … etc.• Reliever Value – High Leverage Innings vs. Low

Leverage Innings, Low Run Environment vs. High Run Environment

• Empirical estimation of McCann’s likelihood to move to 1B/DH

• Probability that a draft pick does not resign (~5%), resulting in protected pick one slot lower next year

• Adjust McCann’s framing value for each potential pitching staff

• Adjust Jimenez’s “pitching value” for each potential catcher

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Further Considerations

• Predict Years, AAV, Total from previous production for all top Free Agents, top Free Agent Hitters, and top Free Agent Pitchers with much more data

• Incorporate other prediction models• Simulations of probability distributions instead of

averages• Value of McCann’s contribution to Roster Flexibility

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Conclusions

• 1 Year Contract – $10.50 Million, $10.00MM AAV






• 3 Year Contract - $50 Million, $16.67MM AAV

• 4 Year Contract - $60 Million, $15MM AAV




• 5 Year Contract - $75 Million, $15MM AAV

Brian McCann Ubaldo Jimenez

No Qualifying Offer:

Qualifying Offer:

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Sources & Questions

Key Research Websites (Statistical Databases):

• Baseball Reference (baseball-reference.com)• Beyond the Box Score (beyondtheboxscore.com)• Brooks Baseball (brooksbaseball.net)• Fangraphs (fangraphs.com)• Stat Corner (statcorner.com) – Catcher Framing

Articles:

• Ball, Andrew. "2013 MLB Draft: How Valuable Are Draft Picks? - Beyond the Box Score." Beyond the Box Score. SB Nation, 25 June 2013. Web. 21 Nov. 2013. <http://www.beyondtheboxscore.com/2013/6/25/4457048/2013-mlb-draft-how-valuable-are-draft-picks>.

• Gennaro, Vince. "Diamond Dollars: The Economics of Winning in Baseball (Part 1)." The Hardball Times. N.p., 22 Mar. 2007. Web. 21 Nov. 2013. <http://www.hardballtimes.com/main/article/diamond-dollars-the-economics-of-winning-in-baseball-part-1/>.

• Loftus, Stephen. "Adjusting Components for Pitcher Opposition - Beyond the Box Score." Beyond the Box Score. SB Nation, 8 Nov. 2013. Web. 21 Nov. 2013. <http://www.beyondtheboxscore.com/2013/11/8/5080680/adjusting-components-for-pitcher-opposition-2013-matt-harvey-max-scherzer-FIP-WAR-sabermetrics>.

• Pollis, Lewie. "How Much Does a Win Really Cost?" Beyond the Box Score. SB Nation, 15 Oct. 2013. Web. 21 Nov. 2013. <http://www.beyondtheboxscore.com/2013/10/15/4818740/how-much-does-a-win-really-cost>.

• Sarris, Eno. "Hitters Age Like Wine — Power Like Cheese? | FanGraphs Baseball." Fangraphs. N.p., 12 Jan. 2013. Web. 21 Nov. 2013. <http://www.fangraphs.com/blogs/hitters-age-like-wine-power-like-cheese/>.

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Georgetown 2013 Diamond Dollars Case Presentation