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February 21, 2012 at 8:34 AM

Understanding the limits of “sunk cost” theory when it comes to the Mariners, other ballclubs

Lots of talk the past 48 hours or so about Chone Figgins and the playing time he’ll get this year. I went on ESPN 710 Seattle yesterday and chatted with the on-air hosts about Figgins, his contract and what the M’s can reasonably expect to re-coup.
But there’s this line of reasoning I keep seeing cropping up online in both the mainstream media and the blog world. It has to do with the whole notion of “sunk costs” and how the Mariners should be prepared to just jettison Figgins and move on.
Sorry, just can’t let that one go.
We’ve been having this discussion since the end of the 2010 season and I think it bears repeating.
Teams don’t just chuck $20 million, or $30 million out the window. Certainly not teams like the Mariners, with sub-$100-million payrolls. The owners of those teams don’t look kindly upon general managers who cost them that amount of money with little to show for it.
As I said yesterday, for every five good moves a GM makes, they can be negated by a single free agent contract gone bad. In the case of Jack Zduriencik, the four-year, $36-million Figgins deal signed prior to the 2010 season is not something the ownership of this team is just going to let him walk away from without trying to recoup some of the value.
That’s where the whole “sunk cost” theory becomes bogus when applied to Major League players in this context.

When you actually stop and think — an exercise many have abandonned when the topic of Figgins comes up — every single player contract in baseball is technically a “sunk cost” where money is guaranteed regardless of performance. That doesn’t mean teams should just walk away every time a contract goes bad just a quarter, a third, or halfway into it.
Since those employing the “sunk cost” theory want to play amateur economist, we’ll throw some more accounting terms around.
A team buying into Figgins, or any other player for that matter, would be like you or me buying a car. The minute you drive it out of the showroom, it becomes a depreciating asset. In fact, MLB owners are allowed to treat players like depreciating assets for tax purposes, but that’s a whole other topic for another day.
Sticking to today’s theme, if that car turns out to be a clunker early on and you don’t have a good warranty plan, it’s technically a “sunk cost” yes. But you, as an owner, will still have a choice.
You either junk the car and go buy a new one to replace it.
Or, you put some effort in, fix the car up and make do with it. Or, if you don’t want to keep it long-term, you try to sell the fixed-up car to somebody else and recoup some of the money you invested.
That’s what the Mariners are doing now with Figgins.
He’s been a bit of a clunker so far. But rather than junk him, they’ve seen him get fixed up this winter and now are hoping to ride him a bit in the short-term to see how it goes. If he runs well, they either keep him or they try to recoup some of his value.
So, yeah, the cost is “sunk” in that his salary is guaranteed. But the entire value of his $36 million is not necessarily going to be covered by the Mariners if they can generate some value for him going forward.
And those people who insist on employing the whole “sunk cost” phrase when it comes to MLB players have to be able to make that distinction.
Because I don’t know of too many teams in baseball that will simply swallow $18 million and move on without exhausting every avenue at their disposal when it comes to recouping value. I’ve written this winter about how teams like the Angels have shown a willingness to “spend past their mistakes”.
What that means is, rather than freezing up any new expenditures because they saddled themselves with a bad Vernon Wells contract, the Angels went out and threw new money at Albert Pujols and others to make the team better. The Mariners have not chosen to do that when it comes to Figgins and other expensive contracts for underperforming players — like Ichiro, for instance. Instead, they’ve chosen to keep the pricey players in regular roles without spending big money to take on new ones.
So, they are different from the Angels in that regard.
But in terms of bad contracts, you also don’t see the Angels cutting Wells loose right now, do you? Don’t see them releasing Wells so that any team can pick him up for the MLB minimum.
That type of move is just so rare in baseball when that much money is involved. Not totally unheard of, just extremely rare.
So, those who want to employ the whole “sunk cost” terminology can keep on doing so and will be technically correct. But there is a massive gray area between guaranteeing money to a player and staying on-the-hook for it for the duration of a contract if the player underperforms.
Right now, the Mariners are in that gray area. Understand it, you might get a better sense of what’s going on with Figgins and why the team is proceeding this way.

Comments | Topics: Chone Figgins


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