A sunk cost generally refers to money that has already been committed that should not factor into the decision-making process moving forward. The monetary commitment can’t be undone and therefore should not represent any type of deterrent to other decisions that could positively impact the organization. In certain terms, however, a sunk cost can refer to an unmovable commitment, even if future cash outflows are required, if there is virtually no way of recovering the costs.
Ryan Howard’s five-year, $125 million contract is a sunk cost.
Regardless of his health or performance issues, the Phillies simply won’t be able to remove the contract from the books in a manner that actually benefits them. It’s unlikely that the severity of his injury could result in an insurance settlement down the road and it’s hard to fathom any team taking him in a trade unless the Phillies covered 95%-100% of the cost. Even at that point, Howard’s relative struggles and injury risk will prevent the Phillies from acquiring a worthwhile player or prospect in a trade. The contract is signed, the money is guaranteed, and the player isn’t going anywhere.
One idea that has been floated around recently is a restructuring of the deal that defers a chunk of the contract beyond its current expiration date. Some fans have suggested this as a mutually beneficial outcome that helps the Phillies in the short-term while honoring their commitment to a franchise face. But I’m struggling to grasp why Howard would agree to such a buyout and why the Phillies would want to commit to a relatively astronomical interest rate on deferral to make it worth Howard’s while.
The Mets famously did something similar with Bobby Bonilla over a decade ago. Bonilla had one year and $5.9 million left on his contract in 2001 and, in knowing the Mets financial difficulties, agreed to a restructuring that that resulted in a 25-yr, $29.8 million deferral. There was supposedly another part of the deal that brings the total deferred amount Bonilla will receive to $42 million long after the days that even current Mets players have retired. These cases are rare, and assuming the Phillies would have to use a high interest rate to entice Howard into this type of buyout, it would mean committing even more money on a bad contract when the team isn’t really in a bind.
Ryan Howard isn’t going anywhere. The time has come to accept this as fact and discuss ways to make the best of the situation instead of conjuring up hypothetical means of jettisoning an albatross.
One reason it doesn’t make sense to try and defer Howard’s contract is that his most logical replacement is Darin Ruf, who makes under $500,000. It’s not as if the Phillies would restructure the deal to pay Howard $12 million from 2014-16 and reinvest those savings into an Adam LaRoche-type. They would install Ruf and see what he can do over a full season, even if it meant platooning him or using him in a non-traditional timeshare at the position. What’s the difference between paying Howard $25 million to play the position or paying Howard and Ruf $25.5 million?
In the latter scenario the team could work to rehab Howard into some type of role, whether it’s full- or part-time, instead of paying the majority of his salary to play for someone else.
Another reason is that we simply don’t know what a healthy Ryan Howard could provide at this point. Granted, his age and weight could prevent him from ever really being 100% healthy again, but if you have to pay him whether he’s on the Phillies or not, why not at least try to get him healthy? A major problem the Phillies have encountered throughout his contract is his health and their handling of it. They needed to do more than merely sit him every so often and a DL-stint should have been in the cards much earlier.
He suffered the Achilles injury and hasn’t been the same since. Last year’s struggles were chalked up as part of his rehab process. This year he should have returned healthy, but his knees are now failing him, preventing him from performing at even the replacement level. Some have speculated that Howard has been playing very hurt most of the season, which is ludicrous, if true. There was no reason to keep putting him in the lineup if he wasn’t healthy, because unhealthy Ryan Howard is about as valuable as Chad Tracy.
Howard only provides value to the Phillies if he is healthy and productive and those two attributes are often intertwined. Just because he is signed to a big contract doesn’t mean the team needs to force ways to eke out as much value as it can. That rings especially true in this case when said ekeing involves putting him on the field while hurting, which in turn puts the team in a bad position because him playing hurt represents a liability. The Phillies did this a bit last year with Josh Lindblom as well. Their continued usage of him in high leverage situations was built on seeing what he could do, but at least part of it was attributable to the fact that he was the major league return on Shane Victorino.
The Phillies may never use Ryan Howard in a straight platoon but they need to avoid bringing him back too early from an injury. They also need to stop treating him like a franchise-savior and someone that must be in the lineup at all times.
Having him 90%+ healthy for two of the five years on this deal is better than having sporadic health for five seasons, even if the former means he misses significant time in the other three seasons. The money is committed and it seems silly to defer his deal at a high interest rate or pay him to play somewhere else. In the meantime, the Phillies can stand to improve their handling of Howard to eke value out of him the right way – by playing him only when healthy, and predominantly against right-handed pitching.