New Rating System Puts $ on Player's ValueBy Stan Isle
Associate Editor, The Sporting News
March 24, 1979
St. Louis - Vince Gennaro said his "wheels" began to turn back on December 31, 1974, when Catfish Hunter signed that free-agent contract with the Yankees for an estimated $2.85 million.
Gennaro, a Chicago-based economic consultant and an avid baseball fan who heads Sports Planning Associates, began to wonder if the Yankees would get their money out of the veteran righthander, then 28 years of age.
After extensive research and the application of statistics, mathematics and computer technology, Gennaro concluded that Hunter's value to the Yankees that first season was $680,000.
While Hunter has not yet approached his 1975 performance (23-14 with a 2.54 earned run average), Gennaro calculated that Catfish was responsible for attracting 4,150 fans beyond normal attendance every time he went to the mound in '75. In 19 starts at Yankee Stadium that year, he figured Hunter alone pulled 79,000 fans into the park.
This was only the start for Gennaro who since refined his methods and developed a Player Valuation System which, in addition to analyzing the value of specific players, shows how winning percentage, promotional days, ticket prices, attendance and other factors interact and affect the bottom line in the operation of a major league club.
Significant changes such as the weakening of the Reserve Clause and the growth of player agents have dramatically affected baseball, Gennaro pointed out. Seven-figure, multi-year contracts make it increasingly important to determine the value of star players.
How many tickets can a Rod Carew or a Pete Rose really sell? Gennaro believes he is addressing that question - "really getting to the bottom line"- with his Player Valuation System. "The system estimates how much a player can earn for a team," Gennaro explained. "It does not necessarily represent what a player's salary should be. If a player isn't paid less than his ‘true value', then a team owner will receive no return on his capital nor will he receive any rewards for bearing the risk of the player's performance differing from what is expected".
"In contract negotiations," Gennaro said, "a player and his agent need to say more than ‘if so-and-so can get $600,000 a year, then I want it too'. If in a few cases owners have made mistakes in salaries paid to players, why should any owner be expected to throw good money after bad? You've got to look at how much money a player can earn for a team"
Commissioner Bowie Kuhn, in his address at the winter meetings in Orlando last December, voiced fear that baseball's present collective bargaining agreement will create a group of elite teams with potentially great damage to competitive balance. The approximate player salary, before the first reentry draft, was $50,000. Today it is approximately $100,000, Kuhn pointed out.
"If the Player Valuation System becomes widely used, it may help bring salaries into balance," said Gennaro. "In cases where the player is ‘underpaid', the player or agent will use this as leverage in contract negotiations. In cases where the player is being paid more than he is worth, the team owner or general manager will have an incentive to use this analysis"
Gennaro emphasized two points. First, the Player Valuation System does not attempt to predict a player's performance. Second, a player has a different value to each team.
How does Gennaro's system work? The process begins by feeding "expectations" about a player's performance (for example, his statistics for the previous season) into the computer. The computer traces the performance expectation through four phases - performance, team winning percentage, attendance and revenue sections. The final result enables the system to estimate a player's value to his team.
Gennaro relates statistics for the previous season to "expectations" because many contracts seem to be negotiated on the basis of a player's recent accomplishments, however, he said the system could apply career averages or any set of performance statistics.
In the performance section, individual playing performance (batting average, home runs, etc.) is translated into team performance (team batting average, team home run totals, etc.). Continuing, the team winning percentage section evaluates the effect of team performance on winning percentage, the attendance section assesses the impact of a team's winning percentage on attendance and, in turn, the revenues section converts attendance into revenues.
To project attendance, the system considers population of the metropolitan area, changes in consumer attitudes, competition from other sports, recent pennants or divisional titles which Gennaro terms "spillover", and winning percentage. By examining recent history, Gennaro measures explicit relationships between attendance and three non-controllable factors (area population, opposing team and weather) and four controllable factors (team winning percentage, ticket prices, promotional dates and weekend vs. weekday games).
Gennaro said a general manager could translate a player's performance expectations into his probable contribution to team revenues, assess the financial impact of a potential trade or free-agent signing, analyze the dollar value of an increase in winning percentage, estimate the dollar value of promotional days and evaluate fan responsiveness to a change in ticket prices.
The Player Valuation System takes expectations of individual performance and measures that player's dollar value to any club by considering the size of the metropolitan area in which his team plays, the effect of a change in winning percentage on attendance, the ability and quality of other players on the team and the club's average ticket price. Fielding averages are not considered in the Gennaro system because, in his opinion, "they are not significant enough, in a statistical sense."
Jim Rice, the American League Most Valuable Player of 1978, stirred speculation early in January before signing a seven-year contract with the Red Sox for a reported $5.3 million. Some suggested that Rice, with another impressive season, might have written his own ticket had he chosen to go the free-agent route. He had one full season, plus an option year on his old contract.
The publicity attendant to Rice renegotiating his Red Sox contract prompted Gennaro to assemble comprehensive team and individual statistics and other related data to determine the slugging outfielder's worth to the Boston club. (See accompanying table below.) Without Rice, and with the "average" Red Sox player in his position, the Player Valuation System showed that the Boston team average would drop from .267 to .260 and home run production would slip from 172 to 143. The stolen base total would increase from 74 to 76 (Rice had only seven stolen bases), the strikeouts-to-walks ratio would remain at 1.52 and the 3.54 earned run average would not change. The Red Sox winning percentage would drip from .607 to .567, home attendance would decline from 2,322,578 to 2,140,340 and revenues would dip from $8,709,669 to $8,026,276. That's a decrease of $683,393.
Without Rice, and with an "average bench player" in the Red Sox lineup, team batting average would slip to .256, the home run total to 133, the winning percentage to .544, attendance to 2,029,630, and revenues to $7,611,143, according to Gennaro's calculations.
The Player Valuation System alone is not the answer to a player's worth," Gennaro admitted. No ‘system' will ever totally resolve that issue. There are too many factors that can't be measured, such as a player's effect on the attitude of other team members, or his ability to perform best under pressure. However, I believe the Player Valuation System is better than anything else and more importantly, it is objective. It may not be the final word," Gennaro said, "but it gets you 75 percent of the way there."
"At the heart of the Player Valuation System," Gennaro said, "is the ability to (1) translate traditional performance statistics into expected winning percentage and (2) translate winning percentage into expected attendance for each team specifically."
"Without question, this can be a valuable piece of analysis for a player and his agent or for a general manager. Even with a specific player in mind, The Player Valuation System can give a team some insight into its relative ability to compete for players in the free-agent market.
Gennaro was in Orlando for the winter baseball meetings December 3-8 and received some interesting "feedback" from general managers and other club officials with whom he discussed his system. While he was in Orlando, the Phillies reached agreement with free agent Pete Rose on a $3.2 million four-year contract. "The Pete Rose situation is unique," said Gennaro, "in that WPHL (Philadelphia television network) put up $600,000 toward the first year of Rose's contract. How may teams (or players) have the leverage to go to their network for part of a player's salary?"
"It broadens the meaning of the word ‘value'- adds a new dimension. It's more than ‘how many tickets can Pete Rose sell?' It's also, ‘How many minutes of TV advertising can Pete Rose sell?'" Even with the lucrative new contract, Gennaro doubts that Rose will ever get back what he earned for the Reds over the past 16 years. "When Rose's career is over," Gennaro said, "the Reds will have benefited most from his services, yet the Phillies will have paid the most money."
Vince Gennaro, 27, was an economic consultant to various industries in addition to working as an economic analyst at the Federal Reserve Bank of Philadelphia. His academic training includes an MBA from the University of Chicago.