Spaceport "Sunk Costs." Knowing When To Fold.


A member of the Spaceport Camden Steering Committee who once commanded Patrick Air Force Base at Cape Canaveral recently wrote,


"Whether the investment in Spaceport Camden over the past years was spent wisely is not relevant to whether the spaceport should go forward. As any business investor knows, the decision to proceed with a project should depend on the potential return on investment going forward. Sunk costs are 'sunk.' If the Spaceport were canceled now, the return on investment would be zero. Going forward brings potential benefits to our business and industrial base, employment, tourism and tax revenue. Will all the gains be realized? Probably not. But some will, and that's better than walking away and getting nothing."


As is typical of Spaceport Camden's promotion, the general's statement is accurate only up to a point. Poker players also think the same way, and the Camden County government is neither a business nor a poker player. In both business and poker, bad decision-makers are quickly punished by stockholders (investors) or better (or richer) poker players.


Spaceport leadership failed the primary test of investment planning when County Commissioners explained that they could not develop a spaceport business plan because they had no idea who would use the spaceport, where the investment funds would come from, or what rockets might be built that could launch from it. They had a dream, and their "plan" was to copy what SpaceX had already submitted to the FAA for its Texas private spaceport. They had no substantive prospects for small rockets. When elected officials are not good stewards of the public trust or our taxes and succumb to the Sunk Cost Fallacy, they are GAMBLING.


The general is correct that "sunk costs" are money and effort that has already been expended and cannot be recovered. Nobel laureate Daniel Kahneman, in his highly-respected exposition of human irrationality Thinking, Fast and Slow, defines Sunk Cost Fallacy is defined as "The decision to invest additional resources into a losing account." The general implies that "sunk cost" commits taxpayers to continue investing until an outcome is certain. That is like the poker player who keeps betting on a pair of threes.


When your losses mount, and there is no clear path to a "win," most gamblers call it quits. But Camden County spaceport supporters believe we should continue doubling-down by pouring more effort and treasure into "potential benefits." They apparently subscribe to the idea that risky behavior is acceptable if a reward is possible. The general understands that the investment is not an "all or nothing" gamble ("Will all the gains be realized? Probably not."), but rather that the "investment" is more like a "something or nothing" wager. Its like buying the $10 Mystery Grab Bag holding who-knows-what. For Spaceport Camden, that is most likely a contaminated property that no space company (or data-center, or satellite maker, or distribution warehouse) can use.


Spaceport Promoter's ASSUMPTIONS HAVE BEEN WRONG


Proper analysis of the spaceport's ever-morphing Assumptions, Actions, and outcomes show why Spaceport Camden's plan has dragged-on for more than 8 years and has cost more than nine million dollars:


Clearly, Spaceport Camden's original assumptions were wildly off-base.

  1. Medium-large rocket companies are not interested in Spaceport Camden.

  2. Most of the environmental and safety risks and impacts voiced by concerned opponents have been validated.

  3. "Hundreds, or thousands" of space industry jobs do not attach themselves to counties around spaceports.

  4. Small rockets already have more launchpads available than can be utilized even if every launch company develops a safe rocket and the speculative launch market fully develops.

When the general said, "If the Spaceport were canceled now, the return on investment would be zero," he was correct. He would be similarly correct if he said that he has no way to assure Camden's or Georgia's taxpayers that the next tax dollars spent on the spaceport will not be entirely wasted.


GOING FORWARD


The spaceport project has always been about framing. Marketers exploit this technique all the time. For instance, "90% fat-free" sounds better than "contains 10% fat." The spaceport marketing has turned from "medium-large rockets" and "space tourism" to "small rockets." Despite their outward expressions of caution, everything about the spaceport's potential benefits depend on unrealistically optimistic outcomes.


In 2019, Georgia Public Radio's Emma Hurt spoke with Camden Commissioner Gary Blount about Spaceport Camden's lack of a business plan:


"Other spaceports' records, he said, aren't relevant to Camden because they have a different, new vision.

"We're not modeling after any particular spaceport because if I brought one up, the first comment someone will say is, 'Well it's failing,' or, 'they dumped $400 million in and have never made a dime yet.'

"That's also why, he said, Camden doesn't have a written business plan."


Opponents have persisted because we have not been afraid to pursue the truth. Most of us have worked in companies that knew how to plan and get the most from their resources. The good businesses always wanted to know the facts about where we stood. We do not have political futures and political jobs to protect. We can follow the facts wherever they lead us. Camden's spaceport promoters continuously refer to secret deals and secret knowledge that assure them the spaceport will be a success. It would be wonderful if the County Commissioners discovered the secret to spaceport success that all non-NASA spaceports have failed to find after decades of trying. But there is no evidence they have found spaceport Nirvana. And if they found it, every other spaceport would be sure to imitate their success.


Taxpayers should hope the Commissioners woke up today with no knowledge of how they got to the current situation. They should honestly seek the answer to 'are the future rewards worth the future costs?' For a rationally-designed project that progresses as planned, the answer should always be 'yes' since the rewards of completing the project remain the same, but the remaining future costs are lower than they were at the beginning of the project. However, if the future costs have inflated to the extent they are no longer justified by the outcome, or the outcome has diminished such that it no longer justifies the costs, then the project should be aborted.


Without the guidance of an Acquisition Budget, Development Budget, Operations Budget, and Business Plan, coupled with independent, responsible review of their progress toward that goal, Camden Commissioners are flying by the seat of their pants. They may get a spaceport license and still lose 100% of taxpayers' investment as "sunk costs." Obviously, from their dependence on secrecy and ever-changing goals, they have not put forth the deliberate effort to reason through the complex spaceport issues. Instead, they have been grabbing at straws.


There are fewer checks and balances around political decision-making than in business. Politicians are often afraid to change their minds. Political U-turns are viewed as inherently weak, which incentivizes politicians to persist with bad decisions. The clear and honest path for projects like the spaceport is for politicians to reevaluate the project's assumptions each time they commit to additional sunk costs. Spaceport Camden conducted a single, 2-page Economic Summary that was entirely based on fabricated assumptions for medium-large rockets. It is very unlikely that any member of the County Commission can describe the economic model for a county-owned small rocket spaceport.


We've ended up with millions in sunk costs because Camden Commissioners chose to not develop a spaceport business in the same way a business investor would approach the investment and risk necessary for a startup. (It is very informative that many angel and venture round investors have risked money in startup space companies, but not a single one has invested in a spaceport?)


Does anyone really think they are capable of running a spaceport?


Archive