Tuesday, January 4, 2011

How Well is Your Organization Run?

Larry Beinfest and Andrew Freidman have proved very effective at doing more with less

In a brief respite from the prospect rankings, we thought we’d share something that we have been working on for the past eighteen months. We spend a lot of time trying to ‘project’ longer-term performance of Minor League baseball players. Ultimately, we have settled around a method that evaluates the expected ‘Win’ contribution a prospect will eventually make in the Major Leagues. While an individual’s performance/skill set plays the greatest role in that determination, a player’s eventual development is somewhat dependent on other people. First, the player has to be discovered by some Major League organization’s scouting system. Once they are selected, coaches and trainers play important roles in maximizing a player’s development. Finally, an effective GM must create ‘opportunity’ for the player to have a place to play in the Major Leagues. The cold, hard facts are that some organizations perform these functions more effectively than others.

As part of this year’s prospect guide, we are taking a closer look at organizational performance. For the last eighteen months we have been gathering data—payroll data, bonus data, scouting data, organizational infrastructure data—in an effort to better understand who is really good at maximizing assets…and why? As part of this, we have developed some new metrics that help us evaluate the effectiveness of General Managers, Scouting Directors and Minor League Operations Directors. This year’s edition of the guide, will shed light not only on how capable individual prospects are, but how capable are the people who will be responsible for their development. As a preview of some of this, we thought we’d share a bit of what we have found out.

The foundational premise that this work is based on, lies in the belief that an effective organization is one who maximizes profits—while winning. For instance, the Kansas City Royals will never have the financial resources available to them that say the New York Yankees or the Boston Red Sox do. However, that does not mean that Royals aren’t capable of maximizing their resources to find and develop prospects and utilize those resources to construct the most productive team at the Major League level that those resources will allow. What our goal was, was to develop a way to measure their success or failure at it. The beauty of having an efficient prospect/player projection engine, is that it allows us to value a team’s assets at any point in time of the asset’s development cycle. If a team has limited resources available to put together a scouting organization, how well do they utilize those resources to find ‘assets’? How well do they manage the resources available to develop players? Most importantly, how well do they manage the available assets in order to put a winning product on the field at the Major League level?

Drawing on my background in financial modeling in the business world, we decided that—at least from an organizational level—a ‘return on investment’ approach seemed to be the logical approach. Some quick statistical analysis verified two, what should be, obvious concepts: 1) Teams that spend more money win more often and 2) Teams that win more often put more bodies in the stands—thereby generating more money. Therefore, the effective organization is the one that successfully manages their financial resources to produce ‘Wins’. Somewhat tangential to this, all ‘Wins’ are not created equal. Even the poorest of Major League teams, win a little more than 40 games each year. So winning those games does not produce any marginal value. But when you start looking at later wins, and comparing them to what they do for jumps in attendance--and revenue, each Win is incrementally more valuable than the next. For example a Win in the 81-90 range is worth marginally about three times the value of a Win in the 51-60 range. What we have done is determine the marginal value of each win and created a metric that we call Adjusted Marginal Wins. For the period between 2003-2010, this value—while averaging 81.0 for all teams—ranges from 31 to 143. We then compile organizational expenditures. What does an organization spend on team payroll and associated fringe? How much do they spend on scouting and signing bonuses? What do they spend on their manager and coaching staffs? How much does it cost them to run their farm system? We divide this total expenditure by the number of Adjusted Marginal Wins to determine a Cost per Adjusted Marginal Win (CAMW). In 2010 dollars, the average CAMW was just under $2.1 million. Now it isn’t quite that simplistic as we do look at marginal potential values that are inherently contained in an organization’s farm system (remember these are assets that can be converted into players at the Major League level) and adjust Marginal Wins slightly (this can vary as much as 6-7 Marginal Wins for a given season), as well as a couple of other minor adjustments, but you should be getting the picture by now.

To give you an idea of what we can do with this information, here are some interesting lists that we have compiled at an organizational level from the period of 2000-2010…

Organizational Amateur Scouting Expenditure Rankings

1) New York Yankees
2) Boston Red Sox
3) Kansas City Royals
4) Atlanta Braves
5) Cleveland Indians
26) Los Angeles Dodgers
27) Washington Nationals
28) St. Louis Cardinals
29) Philadelphia Phillies
30) Houston Astros

Amateur Scouting Production Rankings

1) Boston Red Sox
2) Washington Nationals
3) Kansas City Royals
4) Tampa Bay Rays
5) Arizona Diamondbacks
26) Philadelphia Phillies
27) Minnesota Twins
28) St. Louis Cardinals
29) Florida Marlins
30) Houston Astros

Organizational CAMW Rankings (2003-2010)

1) Florida Marlins - 1,274,054
2) Tampa Bay Rays - 1,369,213
3) Minnesota Twins - 1,447,123
4) Oakland Athletics - 1,501,962
5) Cleveland Indians - 1,679,702
6) San Diego Padres - 1,687,306
7) St. Louis Cardinals - 1,823,604
8) Milwaukee Brewers - 1,855,950
9) Colorado Rockies - 1,861,935
10) Los Angeles Angels - 1,863,737
26) Detroit Tigers - 2,378,455
27) Seattle Mariners - 2,432,502
28) Baltimore Orioles - 2,550,242
29) New York Yankees - 2,667,173
30) New York Mets - 2,698,492

Top 10 Single Season CAMW Values

Team ... CAMW ... Actual Wins
1) 2008-Tampa Bay Rays … 847,470 … 97
2) 2008-Florida Marlins … 893,206 … 84
3) 2010-San Diego Padres … 931,504 … 90
4) 2005-Cleveland Indians … 1,009,519 … 93
5) 2009-Florida Marlins … 1,022,908 … 87
6) 2003-Oakland Athletics … 1,032,051 … 96
7) 2006-Florida Marlins … 1,037,041 … 78
8) 2007-Cleveland Indians … 1,092,142 … 96
9) 2003-Florida Marlins … 1,130,167 … 91
10) 2010-Tampa Bay Rays … 1,145,090 … 96

Bottom 10 Single Season CAMW Values

Team ... CAMW ... Actual Wins

1) 2003-New York Mets … 4,353,268 … 66
2) 2004-Arizona D’backs … 4,169,527 … 51
3) 2003-Detroit Tigers … 4,139,346 … 43
4) 2009-New York Mets … 4,079,971 … 70
5) 2006-Chicago Cubs … 3,718,848 … 66
6) 2003-Texas Rangers … 3,591,877 … 71
7) 2008-Detroit Tigers … 3,527,424 … 74
8) 2004-Seattle Mariners … 3,501,036 … 63
9) 2004-New York Mets … 3,451,278 … 71
10) 2010 - Seattle Mariners … 3,446,939 … 61

In the 2011 Diamond Futures Prospect eGuide you can find the complete lists that include rankings for all current GMs and Scouting Directors.

1 comment:

  1. Great thoughts you got there, believe I may possibly try just some of it throughout my daily life.