Photo credit: Amy Irvin (38Photography)
In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered.
Andrew MacDonald is a sunk cost. The Flyers lost the chance to recover the cost when he went unclaimed on waivers before heading down to the AHL. Sunk cost have a bad habit of negatively affecting the decision making ability of business managers, in this case, Flyers general manager, Ron Hextall. They do this because it’s human nature to make slightly irrational decisions in order to overcome the sunk cost.
Since MacDonald’s contract is stuck here, and stuck against the cap, and there is no way to get out of it, barring some sort of CBA miracle where all teams are allowed to amnesty another contract, Ron Hextall has some tough decisions to make.
At this point, a 50% retained salary trade of MacDonald for a 7th round pick might be the Flyers best option. The Cap Hit is not extended past 2020, and they’d at least recoup 2.5M in space while carrying a 2.5M dead weight.
Luckily, we have a very good reason to trust Ron Hextall’s ability to avoid the negative pitfalls of sunk cost. This happened the moment Andrew MacDonald was placed on waivers. When faced with a sunk cost, the human reaction is to escalate commitment. The prime example of a commitment escalation in the face of flaws can be described the Summer 2013 Maple Leaf spending spree where they bought out Mikhail Grabovski and signed David Clarkson, escalating commitment to flawed systems due to lucky results. The end result, the 2013-14 Maple Leafs fell apart and all those who made those decisions lost their jobs.
People tend to make irrational decisions to escalate commitment at the very beginning or very end of the project. This past off-season, it would have been very easy for Ron Hextall to buy out MacDonald, thereby putting a 1.58M dead weight cost on the Flyers cap til 2025. To make matters worse, buying MacDonald out in 2016 is a 1.77M cost on the cap until 2024.
Paul Holmgren’s escalation is what caused the Flyers to go off on an irrational search for a Pronger replacement in 2012, leading to Pavel Kubina, Nick Grossmann being brought in for a ton of draft picks. So far, Hextall hasn’t sold off other assets solely to make MacDonald go away.
So far, despite the poor play of MacDonald and poor team results, Hextall hasn’t gone all in to change the team to fit MacDonald, but rather, has focused on improving the team and sending out the best roster possible, despite the embarrassment and bury penalty of waiving MacDonald.
Bringing this back to the current situation, MacDonald’s 5M cap hit is here to stay til 2020. Sure some relief might be had from waiving him or a retained salary trade, but the reality is the Flyers need to weather the storm. The worst thing that Hextall can do is trade MacDonald for a contract that’s equally bad or worse, the best he can pray for is that he is able to do a Clarkson for Horton type trade and instead of having the sunk cost of MacDonald, he has the mitigated cost of LTIR.
In a future column, I’ll tackle why Vinny Lecavalier isn’t a sunk cost, but rather an asset who hasn’t entirely matured yet.