Arbitration Made Simple
Or, at least, simple-r.
Now that the general managers’ and owners’ meetings have passed, the next big event on the baseball calendar is the December 1st deadline for clubs to offer arbitration to their former players who have now become free agents during the offseason.
The salary arbitration process sounds complicated, but in order to help simplify it, I’ve put together this primer to help answer any questions about what arbitration is and how it works in the MLB context. I’m no expert, but I’m hoping this can be helpful.
Basic Information
Salary arbitration is the method of using an independent third party to evaluate, and set, a player’s salary for the upcoming year. As with most legal arbitrations, the decision of the arbitrator is binding on both parties- so both the ballclub and the player in question must abide by whatever the arbitrator’s decision is.
Unlike most other arbitrations in the labor context, baseball salary arbitration is “final offer” – which means there is not a lengthy hearing and negotiation process between the two sides. The ballclub submits their single, final contract offer; the player submits his single, final contract request– and the arbitrator evaluates them both, and picks one. That’s it.
The almighty Collective Bargaining Agreement (or “CBA”, as its called by just about everyone) between the ballclubs and the Major League Baseball Players Association governs the entirety of the arbitration process– including which players are eligible for arbitration. Back in the olden days, a ballplayer had no freedom to move from team to team– once he signed with a club, he remained with that club until his career ended… or he was traded or sold to another club. As you might imagine, this left little wiggle room in contract negotiations for the players, because the clubs had the deck stacked in their favor: if the ballplayer didn’t like his contract offer, his only other option was not to play baseball. Now, players are required to put in just six years of major league service for their club before they can become free agents (if they so choose)… but players are eligible for arbitration under the CBA after just three years of major league service (and in some cases, even sooner!).
Three Types of Arbitration-Eligible Players
1. Third-Year Players: players who have completed three+ years of major league service.
2. “Super Two” Players: players with at least two (but less than three) years of major league service– provided that they (1) completed at least 86 days of service during the immediately preceding season, and (2) rank in the top 17% in total service out of those players who have at least two (but less than three) years of major league service. That’s a long, complicated way of saying: guys who played for at least two years in the bigs, played a lot of games last year and played a lot of games compared to other guys in their rookie class.
3. Free Agents: have not signed a contract with any team.
Two Types of Arbitration
1. For groups 1 & 2 above: These two groups are still within that protective six-year development window (called a “reserve clause”), and therefore can only negotiate with one team — the one they play for. Teams must offer contracts to all unsigned players in this group on or before the third Friday in December, or they become free agents. Once the contracts have been offered, players and teams can negotiate the terms until mid-January. Eligible players in this group can then file for salary arbitration from January 5-15 if negotiations break down, or are unsatisfactory to the players, or for any other reason.
2. For group 3 above: The eligible free agents within this group are outside that protective “reserve clause” around the first six year period, and so are free to negotiate with as many ballclubs as they choose. A player’s home team, the team for which he played the previous season, can offer salary arbitration to free agents from their team, no later than midnight December 1st- and if this happens, only two results are possible: (a) the player accepts arbitration (by December 7th_, and is considered “signed”, or (b) the player declines arbitration, and that home team can still negotiate with the free agent on a contract.
Ballclubs receive a form of compensation for taking the risk and offering arbitration to their free agents: if the player chooses to sign with another team rather than accept arbitration, the player’s home team can receive draft picks from the new signing team. Type A free agents signed by other clubs give their old clubs two draft picks; Type B free agents give their clubs one draft pick. The decision whether or not to offer arbitration to a player in this category is a chess match: what is the likelihood the player accepts? what is the likelihood the player signs somewhere else instead?
Previously, if a club failed to offer arbitration to its eligible free agents, the club lost the right to negotiate with that free agent and couldn’t resign him for 5 months (until May 1st of the following year). However, under the current CBA arrangement, clubs can continue to negotiate with their free agents– whether they offer arbitration or not. Essentially, the incentive to offer arbitration is now purely for the compensatory draft picks– it makes little sense to offer arbitration to any free agents who do not rate a Type A or Type B classification, outside specific contractual advantages.
How It Works
All three categories of players’ cases are treated the same once they reach arbitration. Players and clubs exchange figures on January 18th, and then arbitration hearings are conducted in the month of February, from the 1st through the 21st. The contract offer submitted by the club must be at least 80% of what the player made the previous year, unless the player won an arbitration the previous year that increased his salary by 50%. So, basically: you can’t take a player to arbitration and offer him peanuts — unless his contract was greatly increased the previous year as a result of winning at arbitration.
The hearings can take place anywhere the parties want- but “preference” is given in the CBA to Los Angeles, Tampa/Orlando or Phoenix. What, no one wants to go to Duluth or Buffalo in the dead of winter?
The arbitration panel is made up of three members- one representative from three different clubs. The panel considers a wide range of factors in evaluating the two competing contract terms from the club and player, including: the player’s past compensation, physical/mental health, contributions to his club during the past season and over his career, and the recent performance of the club itself (standings and attendance, etc. – factors denoting the club’s acceptance and support in the community). However, the panel cannot consider the relative financials of the player and club, or any kind of testimonials or media reports, etc.
How neutral are the arbitrators? According to the Players’ Association, “since 1974, and including 2006, arbitrators have ruled on behalf of the players 199 times and clubs 269 times. Although the number of players filing for salary arbitration varies per year, the majority of cases are settled before the arbitration hearing date. For example, since 1990, 1,764 cases were filed and 198 were heard, which means approximately 88 percent of the players filing for arbitration reach new agreements before a hearing.”
Sox Arbitration-Eligibles
In addition to the free agents (who fall under group 3), here’s a list of the Sox players who fall into group 1, along with their relevant years of major league services in parentheses:
Brendan Donnelly (5.097)
Javier Lopez (3.065)
Kyle Snyder (4.026)
Kevin Youkilis (3.093)
As far as I know, there are no Super Two players on the Sox this year eligible for arbitration under group 2. (Some notable Super Twos on other teams are Mark Teahen, RIchie Weeks, Matt Diaz, Ryan Howard, Chien-Ming Wang and Robinson Cano.)
Big thanks to MLB, the Players Association, Cot’s Baseball Contracts and the Baseball Think Factory – all required reading that was utilized to prepare this primer.
