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Breaking Down How Salary Arbitration Functions in MLB PDF Print E-mail
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Written by Maury Brown   
Friday, 30 January 2009 17:09

A Biz of Baseball Original ArticleEach year, hundreds of millions of dollars are doled out to players that are part of the salary arbitration process in Major League Baseball. This year, 111 eligible players filed for salary arbitration, and by mid-February all of them will have reached new contracts either through negotiations with their respective clubs, or through rulings by an arbitration panel.

While many have heard of the process, the details aren’t widely published. With arbitration season in MLB in full swing, here’s a breakdown of the process.

History

Many have said that the breaking of the Reserve Clause is the greatest advancement for the players, but Marvin Miller, the former executive director for the MLB Players Association, has said that salary arbitration did more for advancing the salaries and rights of the players.

Before 1973, players were offered a contract by the clubs they played for, and it was a matter of “take it, or leave it.” In an attempt to challenge the Reserve Clause, as well as leverage higher salaries in this system, players began conducting holdouts on contract renewals. The owners, and then commissioner Bowie Kuhn, realizing the wolves were at the door, opted to allow salary arbitration as a way of stopping the holdouts, and rationalized that in the long run, stop free agency. Only Charlie Finley of the A’s and Dick Meyers of the Cardinals voted in opposition of salary arbitration.

“We’ll be the nation’s biggest assholes if we do this,” Finley said at the time. “You can’t win. You’ll have guys with no baseball background setting salaries. You’ll have a system that drives up the average salary every year. Give them anything they want, but don’t give them [salary] arbitration.”

Meyers, who had experience in arbitration, said it more darkly, “This will be baseball’s ruin.” 1

In this new system, players with over 2 years of major league system could file for salary arbitration, if they were not under long-term contract. If the sides could not come to a contract agreement within a period of time, the club would submit a salary figure for the coming season that they felt the player was worth, while the player would do like wise. If the sides could not reach agreement with the figures submitted, the parties could go before arbitors from the National Labor Relations Board and present their case. The arbitors would then rule on one figure or the other. There would be no middle ground.

The system remains much the same, with a panel of three arbitrators ruling on salary cases.

How the Sides Have Fared

As was often the case, Charlie Finley was right. It was not the doom that Meyers predicted, but players almost exclusively come out ahead.

To date, of the 485 cases that have gone to arbitration hearing, the owners have won 280, while the players have won 208. But, the owners haven’t truly won. Of the 110 players that filed for salary arbitration last season, their average salary increased 120 percent from $1.38 million to $3.04 million. Ryan Howard saw his pay jump 1,011 percent from the year prior when he won his case before the arbitration panel going from $900,000 to $10 million.

Understandably, players and their clubs work to reach agreements in advance of hearings. This year (as it has often been in the past) the deals reached have mostly been 1-year agreements with the base salary for the player being below the mid-point between the club offering and player asking figure (to date, only John Maine’s contract is exactly between the Mets’ offering salary and his asking figure while Justin Duchscherer sees a salary $100,000 higher than the mid-point between the A’s and his figures). Still, with 46 players exchanging figures, 13 contracts that have been reached by players and clubs after salary figures were exchanged (Nick Markakis, Zack Greinke, Maicer Izturis, Jason Kubel, Melkey Cabrera, Justin Duchscherer, Geoff Geary, Wandy Rodriguez, Prince Fielder, Chad Durbin, Jayson Werth, John Maine, and Brian Bruney) sees average salary increase from 2008 to 2009 is 257 percent. In total (single year, and multi-year contracts) these 13 alone account for $151,910,000 in salaries.

As the stakes have grown ever higher, the number of cases that have gone all the way to hearing have dropped. In 1973, the first year of salary arbitration in MLB, 29 cases were heard with the owners winning 16 cases, and players winning 13. Since then, the highwater mark has been 1986 when 35 cases were heard (owners won 20 cases to the players 15). As recently as 2005, only 3 cases were heard (all pitchers): Kyle Lohse and the Twins, Jeremy Affeldt and the Royals, Juan Cruz and the Athletics.

A Peek Inside How Salary Hearings Function

The criteria by which salary arbitration cases are presented are part of the CBA, although from talking to a baseball man that has made a living a salary arbitration for nearly every club, while it is outlined in the CBA, most anything is permissible at hearing, it’s just that what is presented can be easily challenged and undermine your case, should the information presented fall far outside the CBA’s criteria.

Player Comparison – The sides are allowed to use other players with like ML service time as a comparison to make their case. The CBA expresses this as “Major League service not exceeding one annual service group above the Player’s annual service group.”

Player Comparison (Look Backs) – While using a player with more ML service time as a comparison in terms of 2009 salary to 2009 salary, the sides can do a “look back”. So, for example, using Albert Pujols’ numbers and salary for 2009 would not be acceptable in Ryan Howard’s case, but using Pujols’ figures when he had the same ML service time that Howard now has is permissible.

Contract Comparison – In nearly every instance, one-year contracts are used in hearing. Multi-year contracts are not used as they have different structures – frontloaded, backloaded, etc. So, using a 2009 salary figure in a mult-year contract creates issues as the single year salary could be influenced by the overall contract structure.

Position Comparison – For practicality purposes, comparing players at like positions are used. Clearly, attempting to compare a middle infielder to a catcher would not hold much weight with the panel. However, instances of comparing corner outfielders has been used.

Does Advanced Sabermetrics Come Into Play? – As Finley crudely noted, the arbitration panels are not “baseball people”. Therefore, advanced metrics are normally not employed in the hearing process. OBP, OPS, and even OPS+ are making their way into cases being presented, but for the most part, the stats that have filled the boxscores for years are the bread and butter in salary cases.

Intangibles – Clearly, the player’s performance on the field is the largest factor in determining whether the club or player figure is selected in a salary arbitration hearing, but it is not the only one, special qualities of leadership and “public appeal” can be used. A good example is last year when Ryan Howard's team was able to use a "special accomplishments" provision that allowed them to compare players outside of Howard's service time window. This, however, is rarely done. The exception appears to be pitchers, where agents have been able to make a case that on the day their player pitched, attendance and television ratings were higher. The most notable case was when Dick Moss represented Fernando Valenzuela citing “Fernandomania”.

Injuries – The sides can use injuries (or the lack of them) at hearing. A player that has been on the DL more often than a comparative player can be used by management to make their case for the lower offering figure by a club.

What is Not Admissible in Hearing? – The following outlines what is not allowed at salary arbitration hearing, as defined by the current CBA:

(i) The financial position of the Player and the Club;

(ii) Press comments, testimonials or similar material bearing on the performance of either the Player or the Club, except that recognized annual Player awards for playing excellence shall not be excluded;

(iii) Offers made by either Player or Club prior to arbitration;

(iv) The cost to the parties of their representatives, attorneys, etc.;

(v) Salaries in other sports or occupations.

Salary Arbitration and How it Influences MLB

As mentioned at the outset, salary arbitration almost exclusively benefits the players. Contract agreements have been reached outside the door of the hearing room just before a case is going to be presented to the arbitration panel. Hundreds of millions of dollars will be doled out to these players, with nearly all of them seeing massive pay increases. As one team executive said when asked what he liked about salary arbitration, “What’s there to like about it?” Ask the players.

1 – Finley and Meyer quotes from Lords of the Realm by John Helyar

UPDATED SALARY ARBITRATION NEWS

As of publication today, two more salary arbitration eligible players reached deals with their clubs.

Starting pitcher John Maine reached a 1-year, $2.6 million deal with the New York Mets. The right-hander can earn an additional $25,000 if he pitches 200 or more innings. Maine pulled in $450,000 last season so his raise from 2008 to his 2009 figure as a first year salary arbitration eligible player is 478 percent. He had been seeking $3 million while the Mets were offering $2.2 million in salary arbitration. His $2.6 million salary for 2009 is at exactly the mid-point between the two figures.

Reliever Brian Bruney and the New York Yankees reached a 1-year, $1.25 million agreement today, thus avoiding arbitration. Bruney had been seeking $1.55 million while the Yankees were offering $1.1 million. His $1.25 million for 2009 is $75,000 below the mid-point for the two figures. This is Bruney’s first year of salary arbitration eligibility. Last season he made $725,000. His raise to $1.25 million is a 72 percent increase from last season.

FOR MORE ON SALARY ARBITRATION:

Salary Arbitration Filings Tracker

Salary Arbitration Figures Tracker

Arbitration Scorecard


Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is contributor to Baseball Prospectus, and is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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