Sevco’s Financial Problems And The Sunk Cost Fallacy.

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At Ibrox, directors have spent the last couple of day seriously flapping.

choices they are being faced with are not those anyone would want to face.

Their biggest problem is that Champions League income was designed to give some of them a break; for years they have carried the debts of the club and they just don’t want to do it anymore.

There is a belief amongst some in media and elsewhere that these men have put so much into Ibrox that they can’t walk away now. They have to keep on funding the shit-show over there lest they lose everything they’ve put in so far.

I like a bet. Amongst gamblers, that’s a well know error in critical thinking.

It’s called the “sunk cost fallacy.” It’s reason many gamblers chase losses, which only wracks up more losses.

Recently, when I was talking to Phil and arguing that we should keep hold of Barkas rather than sacrifice him to appease media he reminded me that this is an example of that thinking.

I recognised immediately that he was correct.

That was point when I stopped arguing against the logic of signing Joe Hart.

Because there comes a point, when you are smart, that you accept that everything you’ve put into something is already lost, and beyond recovery. Once you wake up to fact that investing more time and effort in it will simply result in the same sort of results, you can see clearly what to do.

And what you do at that point, if you’re smart, is walk away.

Accept what is.

It’s to be presumed that you have only invested what you could afford to lose; if you’ve been pumping money into something which you personally just don’t have then that makes you a different kind of mug altogether.

Even then, you still have a chance to limit the damage.

The is absolutely wrong to think that because the directors at Ibrox have “invested” so much already that they would be mad to walk away.

In point of fact, unless that club radically alters the way it does things they would be mad to continue.

That club is like a drug addict, needing to fix constantly, and the only thing that will change that is cold turkey. To keep on feeding this beast is to piss your money against the wall.

There is no prospect of them ever seeing back much of what they’ve already put in; they all know that the “share price” they purchased at is preposterous.

Those shares aren’t worth the price of the paper the certificates are printed on.

If that club was valued, realistically, on the open market their valuation would be gutted.

They only get away with this because the club isn’t on one of the two main exchanges.

Unless there are “investors” we don’t know about, controlling that club by proxy – and Hell mend their fans if that’s the case because their future is dark indeed – the last 18 months has given every one of the current board a bloody nose they won’t soon recover from.

None of these people has the kind of wealth that will allow them to continue like this, and that was made clear at the last AGM.

There is no further appetite for these people eating the club’s debts.

To imagine that a car salesman from Hamilton can keep on “investing” £10 million year in year out in a football club with an insatiable appetite for Other People’s Money is sheer fantasy land stuff.

It was no surprise to see that the “football finance expert” said they don’t need to sell players.

The only person living in that dream world is Alex Rae on Clyde and perhaps the village idiot reject Adam, who is daft enough to think if you say something stupid over and over again it becomes less so with repetition. What a clown that man is.

Those who look closely know the truth.

Those who’ve studied the accounts know the facts. Those who’ve examined UEFA FFP, both the current model and the coming one, realise the peril they are in and what they have to do; sell, sell, sell.

But that depends on buyers … and people know desperation when they smell it.

There are no takers, not at the prices they are asking. And how many sales would it take to fill the hole, and how do you sell that to fans who would expect immediate replacement players?

Valid questions. With no media allowed into Ibrox to ask them.

Think that the strategy of pushing the out is a coincidence when they face tough choices? Of course not. The few mugs who paid the fees will look like shit when the whole policy is scrapped not too far in the future.

By then it might be too late for anything meaningful to be done.

It is possible that Ibrox’s directors are stupid enough to go again, with another series of gambles.

But I doubt it.

Because sunk cost fallacy is known to every businessman and they must already see the limits of this strategy, which depended on the Champions League.

Those who think they will surely gamble again based on what the league winners get are just as mad.

That’s a gamble and a half, and it’s an expensive one for all involved.

Better to start getting the club used to reality; living within its means is the only option open to it.

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