from Amazon
Sunday, June 07, 2009
Ross Ohlendorf, smartest baseball guy in pro ball?
Kurkijan makes his case.
His thesis was written on the June amateur draft, which will be held on Tuesday. Ohlendorf examined the top 100 picks from 1989 to 1993, tracked the progress of each player for a 12-year period, starting with the draft, to determine the value of the picks. Ohlendorf studied the investment (signing bonus) and the financial return from signing the player.
“The financial return is not cut and dry like the signing bonus, so I did my best to estimate it for the players in the study,’’ he said. “The vast majority of the return was determined by the player’s contribution in the major leagues prior to reaching free agency, and his salary over that period.’’
What were his findings?
“On average,’’ Ohlendorf said, “the player brought twice the return.’’
The 126-page thesis is brilliantly written and so complex, only a mathematician would be able to completely comprehend its meaning. So Ohlendorf broke down his thesis in layman’s terms. For each player, he estimated how much less the team paid the player in each of his pre-free agency years than it would have paid a comparable free agent. He gathered salary data for both the players in the study and for all free agents for the relevant years. He used Win Shares (a statistical formula used by Bill James) to determine each player’s value.
“Many of the players in the study did not make the major leagues,’’ Ohlendorf said. “However, many of those who did produced tremendous returns for the teams who drafted them. When looked at as a group, the internal rate of return on all the draft picks in the study was 60 percent. This is an extremely high rate of return. It is saying that if you invest $1, it will grow to $1.60 after a year and $2.56 after two years, and so on … I believe the stock market has had a historical rate of about 7 or 8 percent, prior to the last year. So even though many of the investments did not work out, the upside on those that did was so great, signing the high picks to large bonuses appears to have been a very smart investment.’’
Ohlendorf determined that the average signing bonus during those years was $210,236, and the average return was $2,468,127. Here are the top 10 players from his study.
Hat tip: Draw.
It would be interesting to see his paper. Giambi’s a pretty typical case - he made $15M (in 2006 baseball dollars) while the A’s controlled him - they bought out his arb years. So he left 50-60% on the table. If you have to invest salary in a player, you don’t exactly have a direct ROI on the signing bonus.