Economics for Baseball Fans 1: Sunk Costs

I wish I could say that Tavares was an asset that depreciated quicker than we figured, but he was not. In fact because we paid him as if he was decent, and it turned out he was nearly worthless, he depreciated almost instantly (as a new vehicle does when driven off the lot).

Now as with any business we should be looking to maximize the utility of this good by trading him for pennies on the dollar. It is clear that we have replacement parts (players) that will be upgrades at every facet of the game, so trading Tavares is the only way to avoid the full brunt of the sunk cost. At this point we should sell him for a bag of balls, as we would get more utility from that than we would having him on the bench.

In addition, I would love to see a cost/benefit analysis of worth of Tavares being on the team vs. anger induced in fans. If someone could get on that, I would appreciate it.

Methinks the marginal utility of trotting the Virus out as our leadoff hitter has reduced itself to zero. Doing this also shifts the Production Possibility Curve of Votto, Phillips, and Bruce inward, lowering our overall potential output. Heck, he’s likely hurting our team’s GDP as well given there are zero people who will pay to see him.

My question is this: which one of Orlando Cabrera or Jonny Damon will find their supply/demand curves have shrunk to the Reds’ level of spending ability? We’ve wiggled ourselves a few million $$ to play with for a 1 year deal, and our needs are LF and SS…..

It would not surprise me if The Dusty gives The Virus every, and I do mean every, chance to show he should still be the starting CF for 2010 in ST due to the fact that his leg(s) are now healthy.

If The Virus doesn’t completely stink up the joint, I have a feeling The Dusty will chalk that up to rust, and then give The Virus an extended ST look during the 1st month of the regular season. Hell, it might go even longer.

If the Reds owed The Virus $1MM or less, then this decision would be moot, they’d ship The Virus down to Louisville, or they’d just keep him on the bench. Unfortunately he was signed last year to be the starting CF, so I fear 2009 will resemble 2010 in regards to The Virus.

When did you become singularly obsessed with this topic?

The decision is:

Taveras Production.

or

Other Outfielder Production + $400k (probably).

If Taveras projects for under “replacement level” (CHONE has him at -0.3 wins overall, which equals roughly a $1 liability), then a true replacement player making $400k should be used to replace him. If we can do better than replacement (e.g. Chris Heisey, probably), then it’s a slam dunk.

I don’t see that happening, though. In fact, I think the bigger question is unfortunately whether or not the guy starts. A bad spring by Stubbs and a good spring by Taveras could give Willy the job again.
-j

Here’s to another 80 years of health and happiness!

the Reds draft budget took a hit, but was not nuked by the Chapman signing, then another way of posing the choice might be:

Would you rather put $400K toward signing an amateur in this year’s draft or toward having Taveras replaced by Heisey on the 25-man roster? It’s plain as day that Heisey – and possibly even Josh Anderson – provides more value to the team (- $400K) than Taveras does, especially considering Taveras is a third-string CF who only plays one position. But the choice might be, considering playing time for a 4/5 OF, whether the Reds want a 0.5 – 1.0 WAR bump in 2010 or the chance at more in a couple years?

The choice is still clear to me that they need to add better players where they can, especially if they want some good PR that says they’re a young, but improving team – it’s just not as stark when you consider how tight the Reds budget still is and how little impact swapping Taveras out might actually make on the teams competitiveness in 2010.

You’re the professor/professional, but I think you’re making a mistake in your thought process and making a bad analogy.

The Reds still have to trot out 25 players; the cost of cutting Taveras isn’t $4M, but $4M+ the cost of the new player (whether just the league-minimum they’ll pay the loser of the Heisey/Dickerson/Balentien derby, or the salary they’ll pay a player plus the opportunity cost of the prospects/players they give up in a trade). So the cost is somewhere between “more” and “much more” than just Taveras’ salary. The other thing is, it’s real money; we’re lead to believe the Reds can’t just piss away $4M. The ideal world that your book deals with (where resources are infinite) doesn’t exist, at least in Redsland.

Because the Reds still have to trot out 25 players, I think the proper analogy is that you have bought a non-refundable ticket for a flight to the Bahamas. Delta comes out with a special, and you can buy a first class ticket for $100 off. You’re not choosing A or B; you have to choose whether B is worth the extra cost of A, which ultimately gets you to the same place.

How many fans will see it as a sign of good faith (because we all like to believe) and make an extra trip or two to the ballpark next season? Further decreasing the salary loss

If we are factoring, let’s not forget NPV (Net Present Value)
To calculate net present value NPV, first add together all the expected benefits from the investment, now and in the future. Then add together all the expected costs.

Plus who knows if we get some young kid game experience and he takes off? Happened before

The Virus has zero trade value. Hope that someone signs him for the minimum so you don’t have to eat the comlete $4 million.

rec’d

what were you doing reading the comments over there and how many I.Q. points did you lose in doing so?

Assuming their premise comes to pass – that Willy has something near a career year – I would probably rather keep him around than let him go.

Now, we all know the event in the premise will not come to pass, but I’m just sayin.

Marty is calling the game. Nolan is a miracle because they removed a calcium buildup in his shoulder. Wow modern medicine, pitchers can have surgery for arm issues.

Can’t we use this to our advantage?

We offer Willy to some dumb GM… take your pick. Here’s the deal: we’ll trade you Speedy Willy and his Imaginary 100 Steals, for some kid you drafted in the 248th round. PLUS, if you order now, we’ll pay $3 MILLION of his salary! Just imagine! We’d be paying a guy to play for YOUR TEAM!

Wisdom from Gray:
How we should perceive it: “Hooray! We magically recovered $1 MILLION of sunk costs!”
How most fans will perceive it: “Stupid Tavares sucked for us, and now we’re paying him to play for somebody else. Every time he gets a hit against the Reds I’ll throw a brick through my TV.” (Note: most fans will enjoy TVs through the playoffs)
How the Other GM will perceive it: “Willy may not produce much, but I’m getting that production for 25 cents on the dollar! I’m a genius!”

it at least gives the other teams an option to trade for him and if it doesn’t work out then we can release him.

in one scenario, we trade him and cash for a prospect, and in the other scenario we release him and pay the difference of whatever the new team signs him for—

that’s how it works, right? i’m not 100% clear on DFA rules…

either way, we get him off the 40-man but don’t get stuck paying all of that 4 mil. then dickerson, balentien, haisley, and frazier compete for the starting job (i’m rooting for wlad).

why on Earth did the Reds decide to pay this guy $4 million?