Navigating Sunk Costs in Sports: Knowing When to Cut Your Losses
Sunk Costs In Sports
Sunk costs are hard. Admitting a cost is sunk is like fighting human instinct. Happens in life… and sports (duh). A sunk cost is, essentially, a cost that you can’t recover. Take, for instance, my dance classes. I pay for those in advance and I attend class for one hour each week for eight weeks. After I pay that fee, that money is gone. Even if I don’t go to any classes, there is no way I’m getting that money back. Where the issue with sunk costs comes in is in decision-making. For instance, if before class one day someone invites me out to dinner I’ll say no because I paid for the class so I feel like I should go, even though that money is already gone and I can’t get it back so I shouldn’t be making decisions with about it any longer.
But it’s not that simple, is it?
The reason it’s hard to forget about these costs when you make decisions is because you want the value that you were supposed to get. The only way that we can ignore these costs is if the decision we are making is more valuable than what we’ve already spent. That dinner I may be invited to? Is it just with a friend I saw yesterday? I can probably pass because my class gives me more value. But if that dinner is going to be fully paid for and I get to meet Gillon McLachlan? Yea. I’m going to that dinner. Screw the class. In short, these things can be a bit more difficult. Let’s talk about Gary Ablett, for instance (for the record, it pains me to write this).
Gary spent half of the 2014 season injured. And he’s spent most of the 2015 season injured. It’s terrible because who doesn’t love Gary? (Geelong fans excluded) He’s such a great player and, it seems like, a decent human being. But you can’t keep betting on someone who can’t physically deliver. So what do you do? If I put it to you this way: you bought a microwave for $500 (that’s a pretty expensive microwave in my opinion, but if you don’t think so, then substitute your ‘expensive microwave’ equivalent). It worked well for a year. Now, it doesn’t. Your food never gets warm, the buttons are falling off and you have to jiggle the cord so that it turns on. Sometimes, not even that works. The repairman says he can’t fix it and even if he does, it’ll break again in a couple of months. What do you do?
Get a new microwave
It’s an easy decision when it’s something simple like a microwave. So why is it so hard to do in sport? Because you’re dealing with people and it’s hard to tell a person that you don’t view them as valuable. And injuries are not like broken cords – they may or may not be able to be fixed. But facts are facts (yes, I know that’s not proper English, but I like the expression) and you need to cut your losses.
It applies to everything – players, coaches, rebrandings… everything. It’s cutting off the arm to save the body: hard to do, but better in the long run. They hold you back because you still want to see the value in your player (or contract, or whatever it is) but the longer you hold out, the less time you have to improve. By getting rid of sunk costs, you allow yourself to move forward – replace the player. Get a better one. Move on. It’s time to rebuild.
What’s a better idea? One-year contracts
If it was me, every new player I got would be signed to a one-year contract. That way if, after a season, I can’t see value in them, I can cut them loose. If they do perform, sure, extend the contract (although I don’t think I’d ever go past a three-year contract) but ensure there are clauses in there that can get you out if you’re not getting enough value. If the player wants a longer contract… move on. There are plenty of great options that would be happy with a one-year deal. (Of course, there is something to be said for job security, but that’s a topic for another post, methinks).
