In economic terms, a sunk cost is the cost of a good or service that has already been paid, regardless of if the service has been completed or the good has been transferred. The idea is that when making a decision, any sunk costs related to that decision should not be considered. For example, let’s say you spend $10 on a movie ticket, just before a friend tells you that he’s having a party at his place the same night. In making your decision you should not compare -$10 and a movie to the party, because the $10 is gone either way. You should compare the movie to the party.
The Mets have a number of these sunken costs, in particular…every one of their players’ contracts. Sure, they haven’t paid their players for the full terms of the their contracts, but it’s written in stone (barring a player smacking his father-in-law), so it’ll count. Some of these sunken costs (contracts) are quite significant, so let’s take a look at how to approach each one of these if you’re Sandy Alderson taking over the team.
Johan Santana - due $22.5MM in 2011 and $77.5 through 2014
Santana is due a lot of money, there’s no question about it. But all that money is a sunken cost – for all intents and purposes, it’s already been spent! The only thing that should matter for the 2011 roster (and beyond) is Santana vs his potential replacement. We do have an added consideration that the Mets can control Santana through 2013/2014 (option) if they desire. Another consideration is the cost of a replacement, which is not yet “sunk.” With little money to spare, and Santana already on the books, we’ll consider his replacement to be paid at league minimum, or $0 (it’s close enough); or the replacement could be in-house. Of course, in the end this is a no-brainer – even with injuries, Santana will likely be better than a scrap-heap replacement.
Verdict: Keep him
Carlos Beltran - due $20MM in 2011
The scenario is the same, excluding long-term control, as his salary doesn’t matter due it being sunk. Would you rather have Beltran on your 2011 team or a cheap (or in-house) replacement? The answer should be Beltran, even with his bad knees.
Verdict: Keep him
Oliver Perez – due $12MM in 2011
Again, the $12MM due to Perez is already sunk, so we won’t consider it. Many fans want to see Ollie in spring training, because “why not?” The question should be stated: if Perez was unsigned, would you sign him for free for the spring training squad? This is debatable, but I wouldn’t sign him. Just because a player is cheap (or free) doesn’t mean that player deserves a spot on the squad and doesn’t mean there are other costs. Only so many players can be evaluated, and everyone extra player takes time away from another. If you wouldn’t sign the other scrubs no team wants, then Perez shouldn’t be kept on the roster either.
Verdict: Drop him
Francisco Rodriguez – due $12.2MM in 2011 and $15.7 through 2012
Similar to Carlos Beltran, Rodriguez provides value to this team above replacement level, and should be retained. That is, unless you take serious issues with his personal life, and believe he should be dropped solely for that. I do not.
Verdict: Keep him
David Wright - due $14.3MM in 2011 and $30.5MM through 2013
This is beyond a no-brainer.
Verdict: Keep him
Jason Bay – due $18.1MM in 2011 and $57.4MM through 2014
This is an interesting case, where, like Santana, his incredibly high sunk cost should be discounted. The argument “Jason Bay should start for the Mets because they are paying him $18MM/year to do so” is completely invalid from an economics point of view. He’s being paid regardless of what he does, so the Mets should only worry about finding the best production at his position. Given Bay’s past, it’s fair to hope that he can return to career norms, hence contributing at a higher level than a replacement.
Verdict: Keep him
Luis Castillo – due $6.3MM in 2011
Would you prefer Castillo or a cheap replacement, such as Tejada, Murphy, or someone off the scrap-heap of free agency? If you would prefer another, then there’s no reason for the Mets to keep Castillo on the roster. His $6MM is already paid, and should not be taken into consideration.I really think this is a borderline case – but mainly for using him as a backup. I believe the Mets have better options for a starter, but Castillo may work at a backup infielder. It depends on the replacement players available for that role.
Verdict: Borderline
Jose Reyes - due $.5MM in 2011
I’m looking at Jose for a bit of a different scenario. Currently, his sunken cost is only half a million, but he has an option of $11MM (10.5 minus the sunk .5) for 2011 that has yet to be picked up. So, the question is: is Jose Reyes worth $10.5MM for the 2011 season? This is different than all the previous scenarios, as most of Jose’s 2011 cost is not yet sunk. Personally, I’d keep him – and word is that the Mets are thinking the same way.
Verdict: Keep him
9 comments
GravediggerHebner
10/28/2010-3:07pm at 3:07 pm (UTC -4)
Completely agree with your premise and assessments but forgive me if I try to scalp my movie ticket before I head to the party!
njstuckintx
10/29/2010-9:22am at 9:22 am (UTC -4)
That was my thought, actually. Nothing is truly a “sunk” cost unless there is no way to get any compensation back for them. If that movie ticket was to Ishtar, then yeah, you aren’t scalping that ticket for anything. The only real “sunk” cost I see above is Ollie. Castillo you may be able to get pennies on the dollar for. Beltran, maybe 50 cents on the dollar, maybe more. The rest are actually decent/good and would contribute.
saltygary
10/28/2010-3:19pm at 3:19 pm (UTC -4)
Definitely on the same page with Ollie and I would get rid of Castillo simply to reduce distractions from him wanting to start and to settle down the fan-base.
I personally would attempt to trade KROD but that extension would probably kill anydeal that wasn’t a salary dump.
With discussions like this I wish Ike played a different position. As a fan I want to see the kid grow but if the team was still dealing with 1st in terms of Dan Murphy it would be real easy to sign a big bat for 1st, cut Reyes and put a cheaper option at SS. There are not great options at short, Reyes is looking like a “Sunk Cost” but it would probably make sense to wait one more year on him before making a long term decision. Injury aside if his production doesn’t come back to what we are used to then I am fine with letting him walk.
Ceetar
10/28/2010-3:21pm at 3:21 pm (UTC -4)
We’ve pretty much addressed this many times, but i’ll bite.
First grave’s scalping point. valid. I’d wait until I got to the party before I ripped up the ticket. maybe someone wants it. Maybe the party giver ends up sick and the party’s cancelled last minute (I guess this translates to like Pelfrey getting hurt and missing April and needing Perez to pitch or something), maybe the reviews for the movie are just so mind-blowing you change your mind and go instead of the party. avoid spoilers or whatever. (chances are slim, but it’s not impossible Perez looks like the 5th or better best pitcher in Spring Training)
In the case of Perez, it’s almost a given he’s gone. But I _would_ take him for free if he wasn’t under contract. There is enough time, there are enough games, that I don’t feel he’s taking away time from anyone else that would hurt the decision making process for 2011. Chances are even if he looks like 2007-2008 Ollie you don’t put him on the team, but there’s always that chance. Someone gets hurt, who knows. Maybe you want to take Gee, but want to baby him in the minors for a month and keep his innings down a bit proactively. Ollie’s throwing well, maybe you can trick someone into taking him off of a good April start or two.
With Castillo, right now I think he should be the 2B, of what we’ve got. So I say keep him. I also think he’s not washed up or done, though people disagree. I think his OBP has value, and a decent amount of it. I think ti’s very possible you could move him, even if you have to eat 5million. Would you not accept a pop tart for you movie ticket you’re not using anyway?
With Frankie, A lot of the debate over him seems to boil down to sabermetrics and budget. people don’t think a closer’s very important, and people think the option year is rediculously priced. I maintain he’s still easily one of the best 7 pitchers on the team, and you’re unlikely to have 7 guys b etter than him if you trade him. So don’t. the option year though is a lot of money, and I hope it won’t restrict the Mets in the future if it vests.
Mr North Jersey
10/28/2010-3:29pm at 3:29 pm (UTC -4)
Nice breakdown Prismo
stickguy
10/28/2010-3:30pm at 3:30 pm (UTC -4)
true abotu sunk cost in contracts.
But, it is not quite so simple to just cut guys. There are also additional fixed and opportunity costs to be considered.
The fixed cost is the 2nd salary you have to add for a replacement player (even if a low service or scrub guy, you are still looking at $400K-$1mill or so).
And the opportunity cost is what you don’t get from them, either playing for you during the contract (IOW, what you signed them for in the first place!), via a trade down the road, or even draft picks if they end up declining arbitration eligible.
Obviously some of these opp costs don’t apply to eveyr player (can’t offer arb to Beltran, won’t to Ollie!) but they still have to be considered for all the guys you are evaluating. And, it is also the reason it makes sense to hang onto them as long as possible before taking the defcon 3 step of outright release.
stickguy
10/28/2010-3:36pm at 3:36 pm (UTC -4)
anyway, nice job Pris. For an Okie.
I actually mostly agree with you. Slappy I think should be gone, but I can live with the borderline if it means they had absolutley no nibbles in the off season, and are letting him participate in the ST 2B scramble steel cage match. With the caveat that it is best man wins, and if it ani’t Luis, his contract means nothing and he will get cut.
The other one I might change is Bay, to borderline. By that, they should shop the hell out of him, just in case someone bites. I do not think any realistic offer will come for him, but if they could get out from under, I would love to take it an move on. Use some of the many cheaper COF options for now if needed (even a Evans/Duda platoon).
I just hate the idea of bay clogging up a position for the next 4 years where they potentially have options coming from the minors that will probably need to play there. Duda, FLores at some point, etc.
TRS86
10/29/2010-9:34am at 9:34 am (UTC -4)
This truly is an interesting view but like most things in life and baseball nothing is that clear cut. Sure I would not release Krod, Beltran, Bay, Reyes…. however in a guy like Beltran’s case it may be very wise to see what they would net in trade and weigh that cost with the reward. Example you can get a decent prospect for Beltran IF you eat 10M. Then you have to weigh Beltran at 20M and nothing in return for 2012 or a new prospect under team control for years to come and 10M saved to spend towards other needs. Again that deal may or may not even exist but in my opinion deals like that have to be entertained by Sandy.
njstuckintx
10/29/2010-9:45am at 9:45 am (UTC -4)
This is a good summation of what Grave stated above.