A Look Inside Salary Arbitration. Who Won. Who Lost. And, How Players Nearly Always Come Out Ahead
Most would say 1974 or 1975 was the most important for the players.
’74 represents the year that Jim “Catfish” Hunter was declared a free agent after Charlie Finley was found to be in breach of contract after not deferring part of Hunter’s salary and placing it in an annuity. The ensuing bidding war for Hunter showed just how much money owners were willing to throw at a free agent, if the shackles of the reserve system were thrown off.
’75 represents the year that Andy Messersmith and Dave McNally played their part in the historic Peter Seitz ruling in which the reserve clause was removed from baseball, and free agency became what is now, a permanent part of Major League Baseball.
Both are key points in history. Both are defined by Marvin Miller, Dick Moss and the Players’ Association. Both are watershed moments that redefined the rights of players, and by extension, the amount of money in salaries they would make. But, it is really 1973 that is Miller’s defining moment.
In 1973 salary arbitration was implemented in MLB, and since then has been a boon to the players, a thorn in the side of general managers, and a drain on owners’ wallets.
The system works thusly:
A player of over 2 years of service time (the CBA defines one full year as a total of 172 days of Major League credited service) can file for salary arbitration (see a listing of those that filed for salary arbitration this year), and at a given date on the calendar (this year it was January 18), if the parties have not yet reached a deal, the club and player exchange salary figures for what they wish to pay, or be paid, for the following year (see all the figures exchanged for 2008). If a deal is not reached by the club and player, then both sides present their case at a hearing before a panel of three arbitrators, which then rules whether the player figure or the club figure will be paid to the player over the next season. There is no in-between. It is either one, or the other.
Against that backdrop, more and more, deals are struck before hearings take place. In either case, the clubs almost always come out on the bad side of the deals.
Each year, I go through and examine all players that exchanged figures with the respective clubs and see who won, who lost, and when you think about it, who really lost while winning. Here are some details around the 2008 salary arbitration class:
Select Read More to see a Breakdown of this Year's Salary Arbitration Class
2008 Salary Arbitration Facts and Figures
Here’s some raw figures regarding the arbitration class of 2008. The figures are based on my analysis of the 48 players that exchanged figures with their clubs, with some additional data through The Associated Press.
(select the image to the left to see details for the 48 players that exchanged figures):
- Increase in Salaries for the 110 players that Filed for Arbitration from Last Season: 120 percent.
- Average Salary Increase for all 110 Players that Filed for Arbitration: An increase from $1.38 million to $3.04 million, was up from 106 percent last year and the highest since a 123 percent rise in 2005. The average rose from $3.01 million last year but was below the record $3.26 million set in 2004.
- Multi-year Contracts for the 110 players that Filed for Arbitration: Sixteen players received multiyear contracts, two more than last year and the most since 17 in 2002.
- Multi-year contracts for the 48 players the Exchanged Figures: Out of the sixteen total players that got multi-year contracts, ten of them were part of the pool that exchanged figures (Betancourt, Cano, Chavez, Cuddyer, Greene, Molina, Phillips, Rauch, Sanchez, Soriano)
- Increase in salaries for the 48 players that filed for arbitration from last season: 220 percent.
- Total salaries paid out to the 48 players that exchanged figures: $136,075,000
- Average salary of the 48 players that exchanged figures for 2008: $2,834,896 , down from $2,853,214 last season.
- Number of players that went hearing with their clubs: 8 (Clubs winning 6)
- Historical Scorecard (From 1974, current to 2008): 485 hearings with owners winning 280 compared to players winning 205 case, or 57.73 percent of hearings in favor of owners.
- Largest salary increases from last year (base salary):
Ryan Howard whose 2007 salary was $900,000, but sees it skyrocket to $10,000,000 by his winning salary arbitration hearing with the Phillies, an increase of 1,011 percent from last season. Howard is followed by Garrett Atkins (2007 salary: $400,000, 2008 salary $4,387,500, or an increase of 997 percent), and Brad Hawpe of the Rockies (2007 salary: $403,000, 2008 salary $3,925,000, or an increase of 874 percent) Chien-Ming Wang of the Yankees (2007 salary: $489,500, 2008 salary $4,000,000, or an increase of 717 percent by way of Yankees winning salary arbitration hearing), and Kevin Youkilis of the Red Sox (2007 salary: $424,500, 2008 salary $3,000,000, or an increase of 607 percent)
- Largest increase of a multi-year deal based on average salary:
Brandon Phillips, whose salary went up 1,556 percent, from $407,500 to an average of $6.75 million under his $27 million, four-year contract. Followed by Robinson Cano, whose salary rose 1,428 percent, from $490,800 to an average of $7.5 million in his $30 million, four-year deal.
For the 48 players that exchanged figures, total amount of salary by position (base salary), along with player that had highest salary for that position:
- SP (8 players): $26,780,000 (Highest: Erik Bedard at $7,000,000)
- RP (19 players): $40,272,500 (Highest: Francisco Rodriguez at $10,000,000)
- 1B (2 players): $13,000,000 (Highest: Ryan Howard at $10,000,000)
- 2B (5 players): $13,500,000 (Highest: Robinson Cano at $3,000,000)
- 3B (2 players): $10,487,500 (Highest: Casey Blake at $6,100,000)
- C (2 players): $3,987,500 (Highest: Josh Bard at $2,237,500)
- OF (6 players): $16,397,500 (Highest: Michael Cuddyer at $5,000,000)
- SS (4 players): $11,850,000 (Highest: Felipe Lopez at $4,900,000)
For the 48 players that exchanged figures, total amount of salary by service time (base salary):
- Under 3 years (6 players): $22,062,500 (Highest: Ryan Howard at $10,000,000)
- 3-4 years (22 players): $37,815,000 (Highest: Garrett Atkins at $4,387,500)
- 4-5 years (9 players): $31,322,500 (Highest: Erik Bedard at $7,000,000)
- 5-6 years (9 players): $40,675,000 (Highest: Francisco Rodriguez at $10,000,000)
- Above 6 years (1 player): $2,750,000 (Mark Loretta, 12.011 of service time)
The 48 players that exchanged figures, by club:
- Atlanta (1): Soriano
- Baltimore (1): Cabrera
- Boston (2): Snyder, Youkilis
- Chicago Cubs (1): Wuertz
- Cincinnati (2): Belisle, Phillips
- Cleveland (2): Betancourt, Blake
- Colorado (3): Atkins, Fuentes, Hawpe
- Houston (4): Borkowski, Geary, Loretta, Valverde
- Kansas City (3): German, Greinke, Teahen
- Los Angeles Dodgers (2): Beimel, Proctor
- Los Angeles Angels (1): Rodriguez
- Milwaukee (2): Bush, Hardy
- Minnesota (2): Cuddyer, Guerrier
- New York Mets (5): Chavez, Church, Feliciano, Perez, Sosa
- New York Yankees (3): Bruney, Cano, Wang
- Oakland (1): Gaudin
- Philadelphia (2): Bruntlett, Howard
- Pittsburgh (1): Sanchez
- San Diego (2): Bard, Greene
- San Francisco (2): Chulk, Correia
- Seattle (1): Bedard
- St. Louis (2): Molina, Wellemeyer
- Toronto (1): Rios
- Washington (2): Lopez, Rauch
“What’s to like about it?”
To place the arbitration process in perspective, there is a reason that so few clubs and players go all the way to hearing. The stakes are too high. That and the clubs really lose even when they win. Whether a deal is struck before hearing, or if a club wins at hearing, the player nearly always gets a hefty raise.
Case in point, of the 48 players that exchanged figures, all of them but two sees raises this coming season when looking at just base salary. The exceptions are SS Mark Loretta, who lost his salary arbitration hearing with the Astros, and Alex Rios, who signed a one year deal with the Blue Jays. In Loretta’s case, there are no other figures that go with. He lost the case, and gets the salary. In Rios’ case, his base salary might be lower than he made last season, but he gets a $3.5 million signing bonus to go along with his salary of $1,335,000, and he would make an additional $15,000 if he is selected for the All-Star game. So, Rios is guaranteed $4,835,000 this year, an increase of $2,300,000 from last season.
So, it’s understandable that general managers aren’t exactly keen on the process. Asked to comment off the record, here’s what some had to say.
“It’s a way of life, but that doesn’t mean I have to like it,” said one “The player wins, even if we win. And even then, the process of hearings can build tension between us and the player.” Maybe, this reply said it all: “Honestly? What’s to like about it?”
So, is it any wonder that the parties work to get a deal done in advance of going to hearing? At least then they might be able to save a smidgen of the owner’s money.
Comparing the offer figure by the club and the requested figure by the player, we can derive the mid-point in-between what the club thinks the player is worth, and what the player and agent think he is worth. Of the 48 players that exchanged figures with their clubs, five of them reached base-salary deals for 2008 at this mid-point:
- Garrett Atkins (Rockies): $4,387,500
- Erik Bedard (Mariners after trade from Orioles): $7,000,000
- Joe Beimel (Dodgers): $1,925,000
- Kevin Correia (Giants): $1,075,000
- Matt Guerrier (Twins): $950,000
As mentioned, the vast majority of players will receive a salary below the mid-point in-between the offered and requested salaries. Some, however, will receive salaries above the mid-point. Those seven players are:
- Josh Bard (Padres): $2,237,500, or $62,500 (2.79 percent) above the mid-point ($2,175,000)
- Eric Bruntlett (Phillies): $800,000, or $125,000 (15.63 percent) above the mid-point ($675,000)
- Geoff Geary (Astros): $1,125,000 or $25,000 (2.22 percent) above the mid-point ($1,100,000)
- Khalil Green (Padres): $4,500,000 or $50,000 (1.11 percent) above the mid-point ($4,450,000)
- Ryan Howard (Phillies): $10,000,000 or $1,500,000 (15 percent) above the mid-point ($8,500,000). Note: Howard won his salary arbitration hearing with the Phillies.
- Oliver Perez (Mets): $6,500,000 or $887,500 (13.65 percent) above the mid-point ($5,612,500). Note: Perez won his salary arbitration hearing with the Mets.
- Scott Proctor (Dodgers): $1,150,000 or $35,000 (3.04 percent) above the mid-point ($1,115,000).
The rest of the players that exchanged figures (35), reached deals that were below the mid-point, which explains why clubs work to reach the deals in advance of hearing, knowing that they could lose their case.
The following is a listing of players that had the largest decrease in salary when compared to the mid-point (base salary, no bonuses included):
- Alex Rios (Blue Jays): $3,757,500 below the mid-point ($5,092,500) or -73.78 percent.
- J.J. Hardy (Brewers): $1,075,000 below the mid-point ($2,725,000) or -39.45 percent.
- Mark Loretta (Astros): $1,075,000 below the mid-point ($3,825,000) or -28.10 percent.
- Yadier Molina (Cardinals): $550,000 below the mid-point ($2,300,000) or -23.91 percent.
Remember, Molina reached a 4-year deal that will see him earning an average salary of $3,625,000 over the life of his contract with the Cardinals, so the decline in salary this year will be made up in subsequent years ($3.25M in 2009, $4.24M in 2010, and $5.25M in 2010).
As for Loretta, his decrease is based in losing in salary arbitration.
What Can We Learn From the Hearings?
This year will most likely be remembered for the Ryan Howard ruling. Howard beat the Phillies in arbitration, which was a feat unto itself. Consider, the following:
- The Phillies had been 7-0 in salary arbitration up to the Howard case (Jerry Koosman, Alan Knicely, Kevin Gross, Dickie Thon, Dale Sveum, Willie Banks and Travis Lee). The last case the Phillies won was 2001 with Travis Lee.
- Tal Smith, who has represented nearly every club in his long tenure as a representative for management, was representing the Phillies.
- The gap between offering figure ($7,000,000) and requesting figure ($10,000,000) was the largest gap between the sides for the 2008 class that exchanged figures.
- Howard’s requesting figure was the highest ever for a player with his level of service time, under 3 years (2.145).
With Howard’s win, he becomes the player with the highest winning award figure since Andruw Jones won his case with the Braves in 2001 ($8,200,000) and ties for the all-time award with Alfonso Soriano who lost his case with the Nationals in 2006 (he had requested $12,000,000). In winning, he sets the bar exceptionally high for young players (under 3 years of ST), or Super Twos.
- There were 8 hearings this year, with the owners winning 6-2. The last time there was that many players that went to hearing was 2001 when 14 players had their cases heard.
- While Howard’s gap between offering and requesting figures seems high ($3 million), it isn’t the largest. The $4,475,000 gap between the Cubs offering figure ($11,025,000) and Carlos Zambrano requested figure ($15,500,000) last year is the largest gap ever.
The owners have beaten the players in salary arbitration for 12 consecutive years, but players still enjoy incredible salary increases through the arbitration process. The last time the players won was in 1996 when Steve Avery (Braves), Jeff Fassero (Expos), Chuck Knoblauch (Twins), Mark Lewis (Tigers), Mike Stanton (Red Sox), Rick Wilkins (Astros), and Bernie Williams (Yankees) took 7 of the 10 cases heard. With Ryan Howard winning his hearing this year, he sets the table for other young players that enter salary arbitration, raising the bar exceptionally high.
Clubs are wrapping up players earlier and earlier, in many instances through the some of their free agency years. The best example of this was the unprecedented deal the Rockies gave to shortstop Troy Tulowitzki, a six-year, $31 million contract. It was the largest contract awarded to a player with under 2 years of service time (1.033). Dan O’Dowd and the Monforts clearly see the investment in the players that got them into the World Series last season as cornerstones to build off of. But, the question is, did his deal set a bad precedent? As one high-ranking executive said, “Tulowitzki appears to be special and his signing to a multi-year contract at this stage may very well work out to be of benefit to the Rockies. But, frankly I would have waited. He wasn't even arbitration eligible until 2010.”
The landscape with free agency and arbitration has altered the face of Major League Baseball forever since they were instituted in the early ‘70s. But, as I have outlined, it is clearly salary arbitration that increases the size of the players’ wallets more than free agency. In that, salary arbitration should be seen as Marvin Miller’s pride and joy.
Select the image above to see details of the 48 players that exchanged figures with their clubs, agents (where they could be found) along with contract information. Please contact Maury Brown to fill in gaps in the agent register
Media and clubs can contact Maury Brown for an even further detailed accounting of these players, as well.
Sources: The Biz of Baseball's historical arbitration research, The AP, Jayson Stark