This past week has been filled with news of teams signing their arbitration-eligible players to new deals for the upcoming season or for the long-term in the case of Felix Hernandez of the Seattle Mariners. You might read about all these deals about players avoiding arbitration with their respective teams and wonder what exactly is the arbitration process about. Maury Brown, the founder of the Business of Sports Network, wrote for Yahoo! Sports recently on the evolution of salary arbitration in the MLB and provided some excellent insight into the process as a whole. The interesting part about the creation of salary arbitration was that it was voted by the owners and commissioner back in 1973 as a way to prevent free agency from coming into the MLB. Now it is an integral part of the free agent market and is something that many GM’s hope to avoid with their players every year.
A players eligibility for arbitration can get quite confusing at times with the implementation of Super Two’s, which is when a player has between 2 years, 128 days and 2 years, 140 days of MLB service time. However, it is basically assumed that a player receives eligibility after 3 to 5 years of MLB service time. Ryan Howard (1B) of the Philadelphia Phillies set a first-time salary arbitration eligible player record when he was awarded $10 million in 2008 as a Super Two. Tim Lincecum (RHP) of the San Francisco Giants is currently listed as a Super Two, who is asking for a whopping $13 million for 2010 as opposed to the Giants offer of $8 million. If Lincecum successfully gets $13 million he would see a pay increase from $650,000 (1,900 % increase) in 2009. It’s instances like these that leave GM’s cringing at the arbitration process.
In short, salary arbitration can get quite interesting as both the team and player try to come to an agreement before each party has to exchange salary figures before a judge who then determines the players salary fate for the season. For example, Justin Verlander and the Detroit Tigers currently have a $2.6 million gap on his salary for 2010 as he has asked for $9.5 million, while the Tigers have only offered $6.9 million. If Verlander and the Tigers fail to reach an agreement on his salary for 2010 before next month, they will be forced to go to an arbitrator who will then determine Verlander’s salary for 2010, which could create a deal unappealing to both parties.
Is arbitration good for baseball? On the positive side, teams can go to year to year if they want with their young talent and stay away from committing big money long-term, which allows them to focus on other team needs. From a players standpoint, such as Verlander’s, he can continue to create value on a yearly basis and set himself up for a more lucrative long-term deal in the future, which could be more than he would get if he signed a long-term deal now. However, in cases like Howard and Lincecum, you can see where teams are caught in a predicament and can get stuck in a situation where the player can be overvaluing their worth and might be paying that player more than they would like to. It’s interesting to see to how salary arbitration has evolved over the years as the salary gaps are getting increasingly higher every off season.
So to answer the question, “Is arbitration good for baseball?” My answer is that the negatives outweigh the positives. It’s another case of contracts getting out of hand and players overvaluing their worth. I am encouraged to see the free agent market start to change its ways the past few off seasons and become almost like a take-it-or-leave-it stance. I hope that the arbitration process can get back to how it was when it was first implemented or done away with altogether.
Ok then Mr. Ryan Oleniczak, what would you suggest then as an alternative? You can’t tell me that you think Tim Lincecum should continue to make $650,000.00 after the years that he has had. If the Giants would not want to cave into his demands, then i am sure the judge would do just fine to find his fair market salary. It is only fair to players that have break out years when they are young. I do not believe that there income should be bound by the terms of their minor league agreement.
If you get hired on at MacDonalds and commit to work for a year flipping burgers for 8 bucks an hour and 2 months in you are balancing the stores budget and filing month end reports creating the schedule and closing up shop do you think you should continue to make 8 dollars? I mean you are performing above and beyond the 8 dollars you hired on at. The manager at Arby’s across the road is making 45,000 and your store is out performing him since you took over. Is it unreasonable to ask for or even demand a raise?
The problem here is that Major League baseball is different than any other sport because of the development aspect. Ndamukong Suh wont be drafted this year and sent to the XFL to develop, he makes his money right away. John Wall wont be put on the “Fast Track” and spend 3 years in the NBDL. It is near impossible to determine when a prospect will reach his potential and land a spot on a big league squad and minor leaguers dont make big league clubs money so they shouldnt be paid because of their “potential”, bottom line. Anyone wanna bet that stephen strasberg will pan out? Blow out an Elbow? Be Average? Be a bust? Be an All Star? Hall of Famer? Contract structures have to be different in baseball they just do.
I agree that the free agent system is not in the best working order, but i would then ask what is the alternative?
Here’s an idea…have a base salary with incentives in it. For instance, you draft lincecum. He will continue to get base salary (the market will tell what it is) and then if he makes it to the show he gets a bump salary and then if he starts atleast 10 games he gets a bump in salary etc.
This goes both ways though. If lincecum doesn’t start 10 games it bumps down or if he has an era over 5 it bumps down etc.
This gives the players a monetary reason to continue to work and gives the owners protection as well.
Now after the player is down with their “minor” league contract than they can go to a “big league” contract that does not allow for arbitration.
I think incentive based pay is a great idea for minor league players that have the possibility to make it to the majors and earn big league money. In alot of ways thats what arbitration is, the Judge determines what the fair market value is based on the salaries of others around the league with like numbers.
If baseball implemented something like TCP is suggesting, do you think that owners on underachieving teams would sit players or potentially not bring up prospects for the fear of having to pay them more and increase the team’s payroll?
good point…the biggest problem is there is a loop hole in any system you implement and when money is involved owners will find the loophole.
Underachieving teams would sit players until they found a team they could trade them to. In a way teams trying to win would police themselves. A team trying to win would almost be forced to play the guy because they know he would leave after the contract was up knowing the player knows they “black balled” him.
Maybe the incentives should be based on performance in games played. Almost like a pro-rated rent.
great point TCP and ALEX nothing more to add then i agree with both of you in my eyes its a win win for both sides.
You guys bring up some great points. I like the incentive based system according to games played, however, I do agree that teams, like they do now with keeping a player in Triple A to delay their free agency, would find a way to come up with some mystery “DL” stint or something to make a player cheaper on the payroll. While I do agree that Tim Lincecum is worth way more than the peanuts he is making now, it just seems crazy to me that a guy is able to increase his salary by 13 million dollars. Maybe they can cap how much a player can increase their salary from year-to-year? I think you would see a lot more players busting their butts if their contracts were largely based on incentives. The arbitration process is flawed, but does give teams plenty of opportunities to reach a deal before seeing a judge. No matter how you look at it, there is no truly perfect system that could be implemented.