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NFL's worst teams have one thing in common: Sunk costs

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by

Sharon Huitrón

on 27 October 2015

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Transcript of NFL's worst teams have one thing in common: Sunk costs

Long-run: flexibility
Some figures and examples
3. Chicago Bears

Dead Money: $23.866 million
Adjusted Salary Cap: $145,168,434
Dead Money Percentage: 16.44%

Chicago's dead money results from a regime change where the existing personnel was not a good fit under general manager Ryan Pace and head coach John Fox.








Figures and examples
San Francisco 49ers
Dead Money: $22.523 million
Adjusted Salary Cap: $149,855,980
Dead Money Percentage: 15.03%

The 49ers are primarily the victim of unexpected retirements.

Chris Borland gave up the game after a stellar rookie year playing in place of the
injured
NaVorro Bowman,
saying the risk of playing football outweighed the reward
.

Willis, a perennial All-Pro, also left the game prematurely because of
medical concerns.



Dead money ?
Sunk cost for the team
¨Dead money is a salary-cap charge for a player who is no longer on a team's roster.¨ (CBS Sports)

Why is it a sunk cost?
¨Roster bonuses are
spread out
over the life of a contract for a maximum of
five years.

When a player is
released, traded or retires,
the remaining proration of these salary components goes onto his team's current salary cap.¨ (CBS Sports)
You cannot recover the money

Example:
Greg Jennings signed a
five-year, $45 million
deal with the Vikings in 2013.

"But after playing two years, Jennings caught just 127 passes.¨ (CBS Sports)
Bad performance= release

Was it a good decision?
yes
why?
sunk cost and bad performance
(otherwise sunk cost fallacy)


Short run: Fix costs
Short run
Long run
CONCLUSION
Dead money
is a
sunk cost
for NFL teams
In the short run (this season):
a)
Contracts
fixed costs
b)
salary cap
versus
opportunity costs
for better players
In the long run:
a)you can
modify

salary cap
b) you can modify input
(
invest in other players)
to improve output
(
performance)

Some of the NFL's worst teams have one thing in common:
THANK YOU!
Sunk costs
Given a long enough time span, all inputs are variable costs: There are no long-run fixed costs.








"...Unused salary cap from the previous year
can be carried over to the next year. The carryover ability can help
offset the effect of present sunk costs."
(CBS Sports)

Fixed cost:
The NFL cannot change how much of an input (
players
) it buys as output varies (
performance
).

So...

Are you stuck with fix costs (contracts) and sunk costs (bad players) ? yes, but...

Salary cap are
only
on a
year basis !!!!!

You cannot improve the results for
this season,
however ...





¨Excessive dead money can inhibit a team's ability to improve its roster, limiting salary-cap room to scale back activity in
free agency
or
give contract extensions
to important players on the team." (CBS Sports)

Opportunity cost
Full transcript