Just because a player is overpaid does not mean he is or has become a sunk cost overall. Even vastly overpaid players can provide something positive to their team. Perhaps we should look at how we view payroll efficiency and determine what really matters.
It’s always interesting looking through the contracts and financial matters of teams each winter and then of course at the beginning of every new season. There are old contracts, new contracts, dead contracts, and plenty of other aspects to the financial side of the game to consider. One aspect that Jeff Euston from Baseball Prospectus takes a look at in his piece "Contractual Matters" is spending efficiency.
For all of their accomplishments, the Yankees don’t generally fare well with spending efficiency. Using Marginal Dollars per Marginal Win—Doug Pappas’ yardstick to measure the bang for a buck a club gets out of its payroll—we find the Yanks spent $4.28 million per win in 2012, ranking 23rd among the 30 clubs in spending efficiency. That actually was an improvement from their rank of 25th in 2011 ($4.02 million per win) and 28th in 2010 ($4.23).
Spending efficiency is an interesting matter to tackle, especially considering the numbers can often be skewed by the fact that teams with payrolls in the hundreds of millions tend to overpay the most for players -- thus causing their spending efficiency to be some of the worst overall.
There are several different ways to look at this matter of course with one of them being looking at the amount of money a player was paid last season and compare it to his actual production. For example, Alex Rodriguez was paid $29M last season and based on the value of one win (around $4.1M according to FanGraphs) his expected contribution was roughly 7.1 WAR. He instead produced an inefficient 2.2 WAR season but he still produced positive value for his team.
While that could easily be viewed as a sunk or sinking cost the truth of the matter is that a team such as the Yankees can absorb those high costs fairly handily so they don’t necessarily have to spend efficiently, or as efficiently as lower revenue clubs, to field a good team each year as long as they can cover their bills.
Another way to view the idea of sunk or sinking costs is by looking at those players who actually produced negative value overall for their team. It stands to reason that any player who performed below what a replacement level player typically would or could then that’s more of a sunk cost then a player who is simply overpaid but still produced something of value.
For example, Michael Young was widely considered one of the worst regulars in all of baseball last season and his -1.4 fWAR helps to solidify that case against him. For the $16M he was paid last year he was expected to provide the Texas Rangers with roughly 3.9 WAR. Even though it was apparent that he couldn’t contribute at the level he was being paid to do so, by a wide margin might I add, last year he was still given regular playing time even though it was to the detriment of his team.
Is it time that we start to look past the total value of contracts to determine payroll efficiency and instead move beyond that by looking at players who produced (or didn’t rather) negative value for their respective teams?