FanPost

An economic approach to the trade deadline: Sunk Costs


As we approach the trade deadline, I've seen a lot of reports on possible trade candidates and how their value is affected based upon the remaining money on their respective contracts. The basic economic thought goes something like this:

1) The more likely a player is to help a team win the world series, the more a team is willing to part with top prospects to receive the services of that player. And...

2) The more a player costs, the less "valuable" he becomes in the trade market.

In today's world of advanced statistical analysis, there are so many ways to quantify players' value based on offensive and defensive performances in relation to their salary, that GMs and fans alike can project what kind of "value" a player should be worth via trade. But I'm not writing this to state obvious facts about our trade pieces. I'm writing to suggest applying an economic principle known as "sunk costs" to the Astros' trade deadline strategy.

Using the Investopedia definition of the sunk costs gives us this definition: "A cost that has already been incurred and thus cannot be recovered." This term is typically applied to bad business ventures that are doomed to fail, and yet people keep throwing money into it "because I've already seen it through to this point, I might as well see it to the end." Examples of sunk costs include:

1) Investors who pour money into a restaurant that's going out of business because they think they have a duty to contribute at the end just like they did at the beginning.

2) Poker players who lose all of their chips on the river "just to see the hand that beat them."

3) Social Security

4) Sports teams who continually give playing time to bad players strictly because they'd rather not pay them a large salary to sit on the bench.

It's human nature to indulge in sunk costs every now and then, but it's a sinking ship that when looked upon objectively can be terrible for business. There are examples of teams throughout history that keep giving ABs to terrible players strictly because they're paying them $15 million a year to be on their team. Why else do you keep 2010 Carlos Lee in the 4-hole all season long (answer: because you're paying him to HIT like a 4-hole hitter)?

And when teams get into sell-mode for the trade deadline, my suggestion would be this: those contracts are sunk costs. You already agreed to pay Carlos Lee $18 million this season (or whatever his pro-rated amount will be at that point). You've already agreed to pay Brett Myers $10 million. And so on, and so on. If these players stay on your roster and don't move for the remainder of the season, their salaries are sunk costs that you will never recover. (Before someone comments that these players have not been paid these FULL salaries to this point, I want to point out that I'm aware of that, and I'm basing my point on the concept that these players were budgeted to make this money before the season began, therefore the Astros were financially committed to paying these players their designated salaries in their entirety.)

To gain full trade value for your trade chips, please use the principle of sunk costs to your advantage, Astros. Please apply the idea that you will receive greater compensation for players you were already planning on paying anyways and focus on getting the team to be competitive as soon as possible. Jeff Lunhow's a smart, shrewd business man. I'm sure he's heard of sunk costs before. I can only hope that he can avoid its tempting pull....

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