Baseball Arbitration (the season is here!)

| Arbitration

In baseball, there are many seasons. The best known are spring training, the regular season and the post-season. There is also the off-season, sometimes referred to as the “silly season” which refers to the salary negotiations that take place between players and teams resulting in massive financial player contracts (A-Rod anyone?).

However, one season that doesn’t draw as much attention (sort of like fall) is arbitration season. This begins in early to mid-January each year and ends in mid to late February. While arbitration may not garner the attention of the other seasons, it has an immense impact on individual player salaries and the game itself.

The salary arbitration process followed by Major League Baseball is unique and complicated. It is borne out of the collective bargaining agreement that exists between Major League Baseball and its players’ union. Simply put, where a team and a salary arbitration eligible player disagree over the player’s salary for the upcoming season, the dispute can be submitted to an arbitrator who weighs evidence of a player’s performance relative to other players and then decides on an appropriate one-year salary.

Either a player or team can submit a salary dispute to binding arbitration after a certain number of years of player service have been accumulated and the player’s statistics are the primary evidence considered. Statistics that demonstrate a player’s productivity over the years and his worth as compared to like-situated players are used. The arbitration panel must use these statistics to decide the case.

The arbitrator has the authority to choose between two amounts: one submitted by the team, the other by the player. There is no room for compromise. There is no appeal.

So with this in mind, what are the impacts on player salaries? To put it simply, it is immense. Since the introduction of salary arbitration in 1973, player salaries have grown astronomically. In 1989, the average major league baseball player salary was just over $500,000. That figure rose to approximately $1.7 million ten years later. By 2010, the average salary was just under $3.3 million. While these dramatic increases aren’t due solely to the salary arbitration process, it is certainly a contributing factor.

Consider the case of the Philadelphia Phillies slugging first baseman Ryan Howard who became arbitration eligible following the 2007 season. Unable to agree to a new contract with the Phillies, Howard filed for arbitration and he brought with him a statistical war-chest. Over the first 410 games played in his career, Howard had accumulated 129 home runs and 353 RBI and he was voted the National League’s Most Valuable Player in 2006. In the baseball world, these were huge numbers and the figures presented in his arbitration mirrored them.

The figure presented by the Phillies to the arbitration panel as an appropriate 2008 salary for Howard? $7 million. A princely sum for one of the most feared up-and-coming power hitters in the game. But Howard wasn’t convinced that figure accurately compensated him for his major league accomplishments to date and he submitted a figure of $10 million for his 2008 salary. After considering the evidence, the 3-member arbitration panel sided with Howard and his salary for 2008 was set at $10 million.

While this victory no doubt satisfied Ryan Howard, it also served to please the players’ union. Howard’s salary (and those of every other player) was precedent setting. Any future player who put up comparable numbers to Howard would surely request a similar and perhaps greater salary and would be justified in so doing. Had the Phillies won at hearing, the salary level for a player comparable to Howard would have been set at $7 million thus keeping salaries of comparable players lower.

This ripple effect isn’t only felt with the $10 million victories. In many ways, the pressure for the teams to be successful in cases involving the relatively paltry salaries can be just as great. For example, following the 2004 season, Oakland A’s right-handed middle-relief pitcher Juan Cruz sought an increase to his 2004 salary of $370,000. Filing for arbitration, he claimed $860,000 for the 2005 season while the A’s countered with $600,000. It bears mentioning that Cruz based his claim on a career win/loss record of 14-21 and ERA of 3.99. Following a hearing the arbitration panel sided with the A’s and Cruz was forced to settle for $600,000.

While this example doesn’t match that of Ryan Howard’s in terms of salary awarded, it shares similarity in terms of overall league impact. In a case like Cruz’s, the Oakland A’s (and indeed every other team) would cringe at the idea of a middle-relief pitcher being able to demand and secure a salary creeping towards $1 million. There are many more average middle-relief pitchers than 50 home run 140 RBI per year league MVP’s seeking salary increases and the impact of a victory by Cruz against the A’s would arguably have a greater league-wide impact than that of Ryan Howard.

While it may not provide fans with the thrills of a late-season pennant run or a World Series, player salary arbitration has had and continues to have a major impact on players and teams alike.

Comments or questions?  Ask Solvit’s people:

Neil Hain, Pat Poyner, David Yule

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