Sunk Costs in Baseball

A sunk cost is an unavoidable sacrifice: no matter what a person does, the sacrifice will be made and it’s best to ignore them. JC points us to a great example of a baseball team making a rational decision by ignoring sunk costs.

The Arizona Diamondbacks decided Tuesday they would rather eat the remaining $22 million of Russ Ortiz’s contract than keep him on their roster.

Ortiz is believed to be the most expensive player to be cut loose in baseball history.

The club designated the struggling right-hander for assignment, which means it has 10 days to trade, waive or release him. The team is on the hook for the balance of the $33-million, four-year contract Ortiz signed in December 2004, a figure general manager Josh Byrnes said was close to $22 million.

The 32-year-old Ortiz was 0-5 with a 7.54 ERA in six starts for Arizona this season, and he was 1-14 in his last 19 starts dating to last May.

“We’re like most clubs: every dollar counts. You want to spend them as effectively as possible,” Byrnes said at a Chase Field news conference. “That affected the decision, but we also were true to ourselves, and we want to put our best 25 on the field and try to win games. That led us to our decision.

Some may regard this as a waste of money, but regardless of Ortiz’s position with the ball club, Diamondbacks officials can’t avoid paying his salary. Playing him would be a waste of a roster space, something the officials have control over.

(cross posted at Market Power)

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Author: Phil Miller

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