Sunk Costs and Trade Deadline Baseball Deals
Wednesday July 23, 2003
I really wish that more sports writers would read my "Baseball Players and Opporunity Costs" article as some of them need a lesson in economic concepts such as "opportunity costs" and "sunk costs". For instance, consider the recent trade that sent Shannon Stewart to the Minnesota Twins and Bobby Kielty to the Toronto Blue Jays.
One of the major differences between the two players is their level of experience. Bobby Kielty, an outfielder playing in his third season of Major League Baseball, will earn $325,000 this season. Shannon Stewart, a 9 year veteran will earn $6.2 million. In order to make the deal happen, Toronto had to agree to pay the remainder of Stewart's salary this season. A few talk radio show hosts felt that the Jays made a bad trade as they're now paying Stewart, a very good player, to perform for someone else. So not only have they given up Stewart, they have to give the Twins the money remaining on his contract.
This "analysis" leaves out a very important fact: baseball salaries are guarnateed, so the salary was a sunk cost for the Blue Jays. The Economics Glossary defines a sunk cost as "Costs that are irrevocable and should not be used to influence current decisions. " The key idea is this: The salary obligations for the Toronto Blue Jays have not changed at all. Because of this, we do not need to consider the change in the Blue Jays financial situation. Since the amount the two teams are require to pay in payroll has not changed and since the trade was essentially one-for-one, we do not need to consider a change in the number of avaiable roster spots. So the trade was simply Kielty for Stewart.
Important Economics Links Important Baseball Trade Links
One of the major differences between the two players is their level of experience. Bobby Kielty, an outfielder playing in his third season of Major League Baseball, will earn $325,000 this season. Shannon Stewart, a 9 year veteran will earn $6.2 million. In order to make the deal happen, Toronto had to agree to pay the remainder of Stewart's salary this season. A few talk radio show hosts felt that the Jays made a bad trade as they're now paying Stewart, a very good player, to perform for someone else. So not only have they given up Stewart, they have to give the Twins the money remaining on his contract.
This "analysis" leaves out a very important fact: baseball salaries are guarnateed, so the salary was a sunk cost for the Blue Jays. The Economics Glossary defines a sunk cost as "Costs that are irrevocable and should not be used to influence current decisions. " The key idea is this: The salary obligations for the Toronto Blue Jays have not changed at all. Because of this, we do not need to consider the change in the Blue Jays financial situation. Since the amount the two teams are require to pay in payroll has not changed and since the trade was essentially one-for-one, we do not need to consider a change in the number of avaiable roster spots. So the trade was simply Kielty for Stewart.
Important Economics Links Important Baseball Trade Links
- For more detailed analysis on the Kielty-Stewart trade see "Bobby Kielty is a Blue Jay"
- Baseball Primer has a really good discussion board about baseball trades called "<"http://www.baseballprimer.com/to/">The Transaction Oracle"
- The Batter's Box discussion named "<"http://www.battersbox.ca/archives/00000788.shtml">Trade Central" is both interesting and intelligent as well.
Comments
i think you should explain the concept more
i need more precise explanation about sunk cost for writting short note in paper