Reality Checks and Sunk Costs

Anyone who has invested money in a mutual fund or a 401(K) has heard the phrase "past performance is no guarantee of future results."

Anyone who's taken some business courses has been taught about "sunk costs," more colloquially expressed as "don't throw good money after bad." More formally, sunk costs are money that has already been spent and cannot be recovered, and business students are taught that sunk costs are irrelevant to and should not be factored in business decisions.

Every gambler, and everyone who knows a gambler, understands the folly of chasing losses.

Anyone who has taken a course in statistics knows that past instances do not affect future occurrences, that your previous dice rolls have no influence on your next one.

All of these are factual and empirically proven, yet they routinely fall prey to the greatest of trump cards: human emotion. It's hard to let go of money you've already invested in a venture that hasn't panned out. It's tempting to imagine that your run of bad luck at the blackjack table is due to be offset by some sort of cosmic scale balancing. It's tempting to look at the previous numbers list at the roulette wheel and base your betting on that.

So, I was not in the least surprised by the collective caterwauling at the "fire sale" that the New York Mets just undertook.

For those not eyebrows deep in baseball, the New York Mets, a team that has inflicted decades of misery and "might-have-been" on its fans, was purchased a couple years ago by baseballs new Big Daddy Warbucks, aka Steve Cohen, aka the inspiration for Damien Lewis's character Bobby Axelrod in the series Billions. With a current net worth of $17.5B and a life-long Mets fandom driving him, Cohen went balls-deep this past winter in the hopes of buying a championship. The other baseball owners, fearing just such an effort, wrote a progressive tax on payroll that had Cohen paying 90% “taxes” on his last few acquisitions. Steve didn't care, and ran his current-year payroll to nearly half a billion dollars, tax included.

On paper, the team looked like a solid contender. Two Hall of Fame pitchers at the top of the rotation, several position players with stellar offensive numbers, and the knowledge that deficiencies would be filled if they arose.

But, sure as the sun rises, past performance yada yada yada, and the team played poorly. At the August 1 trading deadline, with two-thirds of the season in the rear view mirror, the Mets found themselves staring at a very hard climb to the playoffs, with many teams ahead of them. On top of that, the team was not playing any better, and offered no rational reason to think that adding a piece or two would suddenly turn them into can-do winners.

Cohen took action. Realizing (and openly saying) that the players' contracts were money already spent, he extracted what value he could from them by trading several players (and eating chunks of those contracts) for prospects.

Queue up the sturm und drang, the wailing, the whining, the scolding, and the accusations of betrayal. Including from some of the players themselves, which is ironic because this outcome was of their own making. Baseball is both a business and a competition, and if you don't perform, you've no standing to complain that the boss decides to make lemonade.

A friend whose business involves selling advertising once pointed out to me that it's a lot harder to get people to spend their own money. By now, you've heard me write of Other People's Money ad nauseam, and there it was again. Even a record payroll didn’t sate the whiners.

By any rational measure, Cohen did as much as he could to build a winning team. And, by any rational measure, he did as much as he could to salvage residual value. He "bought" ten quality prospects to fill out a mediocre farm system, and thus positioned the team for greater opportunity for success down stream. He acted like a businessman making business decisions, and not like a starry-eyed fantasist, playing against odds and logic.

Fans are disappointed, and sports writers cluck their disapproval, but such are products of the aforementioned trump card, not rational thought. When your first six horse picks lost you a pile of money, do you honestly think that putting the rest of your day's stake on a 100-1 long shot is the product of clear thinking? The fans' ire should be at the players, not at Daddy Warbucks' actions.

Today's article isn't about the Mets, however. It's about the emotion-over-logic aspect of government and government spending. Everything we find in this trading-deadline saga is found throughout our country's public functioning. It has been quipped that the hardest creature to kill in all the universe is an on-going government program. Underperforming initiatives - and efforts that are outright failures - continue to get funded, and oftentimes get more money. One of my favorite poster children for this illogical behavior is Head Start, which has by the government's own assessments produced no measurable improvements, is going into its fifty-ninth year, and keeps getting more money pumped into it.

A list of failed or underperforming government programs that continue to get "good money after bad" would run to thousands of entries. Barring the occasional waste report from Rand Paul and some other 'whistleblower' observations, we hear nothing about them. Always, the calls are for more spending, for more money to "do good" with, for adding budget to underperforming initiatives to “get them right,” and never about mis-spent funds, useless contracts, waste, duplication, money that simply vanishes into thin air, or failure itself.

Once in a while, we do hear about an "oops." An "accounting error" sent $6.2B in unauthorized equipment to Ukraine. Fraudsters sucked $200B (and I bet a lot more) out of the COVID relief firehose of spending. Medicare fraud tallies $100B annually. "Improper payments" cost Social Security $3B a year.

Yet these are all frauds or mistakes or misdeeds, and don't even fall into the "underperforming" category which we have ample reason to conclude is so widespread as to be considered systemic. The government ignores no avenue in wasting your tax dollars.

The Best-and-Brightest's fixation on systemic racism and bigotry would serve the nation far better if it was turned on the systemic underperformance of government, from A to Z, top to bottom, and soup to nuts.

But, since it's Other People's Money that's being spent, and because rent-seekers don't care about taxpayers, it gets ignored day after day and year after year.

It's no wonder the nation is $32,674,897,333,914 and growing in debt. It's no wonder that our leaders don't even pretend to have a plan to ever balance the federal budget. The rationality of such as Steve Cohen doesn't interest us enough to demand they do better.

This brings us to the final “reality check” of the day. As in the contest for the GOP nomination for the Presidential election. Here’s that reality check: The political landscape is very clear in telling us that Trump is the least likely of all the significant GOP candidates to win the general election.

Why, then, is he leading in the polls? It’s the same sort of wishful thinking that impels people to bet long-shots in the hope of the vindicating victory, to demand that a team’s owner add pieces to an underperforming set of players, or to double down on bad investments. The advice, here, there, and elsewhere: Think with your head, not with your heart. Bet with your head, not over it.

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Finally, two cents for fellow Mets fans. What, in truth, did Cohen give up apart from (his own) money? Canha has been average at best, and will be 35 going into the last year left on his contract. Pham and Robertson are free agents at the end of the year. Scherzer is obviously in decline, performing at middle-of-the-rotation status rather than at his expected ace level. Verlander was only now getting to his expected level of performance, and while he’s the one player of the passel that was traded that one might argue would have been good to keep next year, his age and his starting the season hurt are red flags.

Cohen bought ten quality prospects. No one expects them all to become impact players in the majors, but it’s a numbers game, and restocking the farm creates many possibilities and many options going forward.

The chattering classes are all figuring the Mets to be rebuilding next year, but the core that is Lindor, Alonzo, McNeil, and Nimmo remains; Alvarez has proven he can play in the majors; Baty and Vientos can get regular playing time; Mauricio will likely be called up soon. In terms of position players, the team looks already set, and that’s before considering the higher-level prospects that were acquired.

They’ll need pitching, but the 2024 free agent class is pitcher-rich, and some have speculated that there’s nothing stopping Cohen from buying a bushelful of one and two year arms. Or, of spending crazy money on Ohtani.

In other words, a competitive team is not out of reach.

As long as the existing players perform to their potential. Which is always the great big question mark.

Mets GM Billy Eppler reportedly told Scherzer that the team isn’t planning to go win-or-bust next year: “We’re not going to be signing the upper-echelon guys.  We’re going to be on the smaller deals within free agency… 24 is now looking to be more of a kind of transitory year,” but a poker player shouldn’t tip his hand, such words might have been helpful in getting Scherzer to waive his no-trade clause, and Daddy Cohenbucks could easily change his mind.

Interesting times.