CSS Button No Image Css3Menu.com

Baseball Prospectus home
  
  
Click here to log in Click here for forgotten password Click here to subscribe

Premium and Super Premium Subscribers Get a 20% Discount at MLB.tv!

<< Previous Article
The Curse of the Moose (04/09)
<< Previous Column
The Daily Prospectus: ... (04/09)
Next Column >>
The Daily Prospectus: ... (04/10)
Next Article >>
The Daily Prospectus: ... (04/10)

April 9, 2002

The Daily Prospectus

The Daily Prospectus: Sunk Costs

by Joe Sheehan

the archives are now free.

All Baseball Prospectus Premium and Fantasy articles more than a year old are now free as a thank you to the entire Internet for making our work possible.

Not a subscriber? Get exclusive content like this delivered hot to your inbox every weekday. Click here for more information on Baseball Prospectus subscriptions or use the buttons to the right to subscribe and get instant access to the best baseball content on the web.

Subscribe for $4.95 per month
Recurring subscription - cancel anytime.


a 33% savings over the monthly price!

Purchase a $39.95 gift subscription
a 33% savings over the monthly price!

Already a subscriber? Click here and use the blue login bar to log in.

One of the points we've been pounding for years is the concept of sunk costs. In baseball, it refers to the amount of a guaranteed contract yet to be paid. The money is committed, and must be paid to a player regardless of whether he's playing or not.

Throughout the free-agent era, teams got themselves into bad contracts with players whose performance immediately went south. Flops cost their teams millions of dollars while providing virtually no performance. However, the standard practice was to carry the player until his contract expired, in the hopes of getting something for the money.

This was a double whammy: not only were teams out the money spent, but they were also often being hurt on the field as a player performed at a replacement level or worse. Beyond that, these commitments led teams to stifle the development of better players while waiting for the free agent to right himself, or even to trade promising young talent blocked by the albatross.

The thought process is wrong. Teams need to extricate themselves from the idea that they have to try and keep a player whose performance doesn't warrant a roster spot, regardless of his salary. Of late, the idea has gained some momentum, and in just the last week, there's been a flood of good decisions by teams making roster moves based on talent, not contracts. It's not easy to pay a man millions of dollars to not play for you, but some teams have stepped up and made the tough calls:

 

It's important to note that the cost in each case isn't the money remaining on the contract, but the price of the replacement. The Pirates were paying Bell regardless; the only additional cost they incur is that of his replacement on the roster (Rob Mackowiak, in this case). In general, the marginal cost of the decision to release a player with a bad contract is $200,000--the minimum salary, and generally what the replacement player will earn.

In baseball terms, $200,000 is nothing, certainly not a barrier to a decision. No, what keeps teams from releasing players owed money is the idea that to do so would be a waste, that they need to get something back from that investment. Often, though, it's hopeless, and the best thing to do is accept that the contract is a sunk cost and ignore it in the decision-making process.

As the Dodgers, Royals, and Pirates demonstrate, this concept is taking greater hold in front offices. Each of those teams is better for their decision. 

Joe Sheehan is an author of Baseball Prospectus. 
Click here to see Joe's other articles. You can contact Joe by clicking here

0 comments have been left for this article.

<< Previous Article
The Curse of the Moose (04/09)
<< Previous Column
The Daily Prospectus: ... (04/09)
Next Column >>
The Daily Prospectus: ... (04/10)
Next Article >>
The Daily Prospectus: ... (04/10)

RECENTLY AT BASEBALL PROSPECTUS
Premium Article What You Need to Know: August 29, 2014
Premium Article Pebble Hunting: This Article Mentions Fehlan...
Premium Article The Prospectus Hit List: Friday, August 29
Premium Article The Call-Up: Dilson Herrera
Premium Article Minor League Update: Games of Thursday, Augu...
Prospectus Feature: Roast A Parks
Premium Article Raising Aces: Mis-Priced

MORE FROM APRIL 9, 2002
Prospectus Feature: The Curse of the Moose
The Curse of the Moose
Rany On The Royals: The End
The Daily Prospectus: Sunk Costs

MORE BY JOE SHEEHAN
2002-04-12 - The Daily Prospectus: Showdown...Sort Of
2002-04-10 - Premium Article The Daily Prospectus: The Daily Prospectus: ...
2002-04-10 - The Daily Prospectus: Just Riffing
2002-04-09 - Premium Article The Daily Prospectus: The Daily Prospectus: ...
2002-04-09 - The Daily Prospectus: Sunk Costs
2002-04-08 - Premium Article The Daily Prospectus: The Daily Prospectus: ...
2002-04-08 - The Daily Prospectus: Regression
More...

MORE THE DAILY PROSPECTUS
2002-04-11 - The Daily Prospectus: The Future
2002-04-10 - Premium Article The Daily Prospectus: The Daily Prospectus: ...
2002-04-10 - The Daily Prospectus: Just Riffing
2002-04-09 - Premium Article The Daily Prospectus: The Daily Prospectus: ...
2002-04-09 - The Daily Prospectus: Sunk Costs
2002-04-08 - Premium Article The Daily Prospectus: The Daily Prospectus: ...
2002-04-08 - The Daily Prospectus: Regression
More...