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April 7, 2023

Reminder: Adam Grossman has taken the reigns to JohnWallStreet on Friday mornings. You will find his 'Revenue Above Replacement' column below.

Part 1: What Wins Above Replacement Actually Means

Given that JohnWallStreet is introducing this column to a new audience, and that it is the start of the Major League Baseball (MLB) season, I will use the next two editions of the Friday newsletter to explain what the 'Revenue Above Replacement' (RAR) metric means.

RAR is a play on Wins Above Replacement (WAR)–the most well-known advanced metric used in sports. The origins of WAR

trace back

to Bill James in the 1980s, but it was made famous by Michael Lewis’ 2003 book

Moneyball

  (and even more famous by its blockbuster movie release in 2011).

To understand WAR, it is helpful to breakdown the metric into its two main component parts. Essentially, what does it mean to “win” and what exactly is a “replacement” player.

Most people’s intuitive sense of winning reflects what winning means in the context of WAR. Essentially, baseball teams win games by scoring more runs than the opponent. Players that can increase the number of runs scored for their team or decrease the number of runs scored for the opposing team have greater WAR values.

Excel Analytics has identified hitting, pitching, baserunning, and fielding as the variables with the highest correlations to winning. While we have created our own proprietary “Excel Wins” metric, which includes unique ways to calculate these winning variables, our base player win totals are often consistent with other WAR models

created

by FanGraphs (or fWAR) and Baseball Reference (or bWAR).

We will focus on hitting and pitching in this column given that those variables tend to have the most impact on runs scored and runs prevented, respectively.

One common long-time baseball mantra is that “a walk is as good as a hit.” Walks are a good outcome in WAR, but statistical analysis shows a walk is not as good as hit–at least certain types of hits.

Since a half inning only has three outs and an out is the most likely outcome of any at bat (i.e. the MLB batting

average

across all players was .243 last season), triples, and doubles are far more valuable than walks; the fewer at bats it takes to score runs the better.

Home runs are also valuable because there is no amount of fielding prowess than can cause an out (also true with walks). Better fielding teams or players can only prevent runs from being scored if the ball is in play.

There is also relatively little downside to a strikeout relative to any other type of “out” (i.e., an out is an out regardless of if it is a strikeout, a pop-up out, or a ground out).

That is primarily why home runs and strikeouts have generally increased (and batting averages generally decreased) with the increased usage of advanced analytics in baseball.

Hitting the ball harder tends to lead to more multi-base hits, even if not a home run.

So, players that can hit the ball harder (i.e. have a higher exit velocity) and are more likely to hit the ball in the air (i.e. have the right launch angle) are most likely to maximize the probability of runs scored. 

The converse of this analysis is that the players that prevent the ball from being hit (and hit hard) are the most valuable. The pitchers that can throw the ball the hardest and have the most pitch movement are the ones most likely to generate strikeouts. Pitchers that prevent the ball from being put in play are also not reliant on fielders to make outs on their behalf. 

Similar analysis can be done for baserunning and fielding. All the metrics are then combined to create a single value (WAR) that is focused on players either increasing their teams’ runs being scored or preventing opposing teams’ runs from being scored.

If we now understand winning, then what exactly is a “replacement” level player?

Essentially, economics dictate that teams should only pay above the MLB league minimum when a player generates performance greater than (or “above”) a player that can be acquired for the league minimum. The thinking is a team can almost always sign a Triple-A level minor league player to its roster that can perform at a “replacement” level and would “only” command a salary at or near the league minimum.  

It may seem like a low threshold. But further analysis shows that is not the case. Minor league players are often the very best high school, college, or international players in the world not on an MLB roster.

Finding players better than those at a replacement level seems more difficult given that context and helps to explain why 

Fangraphs

recently projected that teams pay between $6.5 million and $8.5 million more per win (i.e. the market value for wins), with the best players making on the higher end of the scale.

The Fangraphs piece specifically breaks players into groups of 2+ WAR and 0-2 WAR projections. That is because average (but still better than replacement) players typically generate 0-2 additional wins, good players generate 2-4 more wins, and very good players generate 4+ additional wins for their team.

Applying the Excel Wins measurement model across MLB players, Shohei Ohtani tops the list. That's no surprise given that he was both one of the best hitters and best pitchers in MLB last season.

His 10.21 Excel Wins shows how good Ohtani was and how difficult it is for one player in baseball to help a team reach the postseason. Clubs typically need to win at least 85-90 games to make the MLB playoffs.

The other challenge with relying exclusively on WAR is that it typically undervalues a player's contributions to the team from an economic perspective. More specifically, a player’s star power and ability to drive revenue for his team is not fully captured by his on-field performance.

What does star power mean and how can it can it be measured? I created RAR to examine a player’s combined on-field and off-field contributions to their team. I will explain how it works in depth in next week’s column. 

About the Author:

Adam Grossman is the Vice President of Business Insights & Analytics at Excel Sports Management. He works with companies, sports properties, media rights holders, athletes, agencies, and events to determine the value of their most important assets. He is also a professor at Northwestern University Master’s In Sports Administration program and the co-author of The Sports Strategist: Developing Leaders for a High-Performance Industry. He can be reached at [email protected].