Major League Baseball Salary Arbitration An Examination of the System

The Decision That Changed the Game Curt Flood’s holdout and the reserve clause 1975: McNally – Messersmith – The birth of free agency and arbitration The 1975 Baseball Universe and today – NY Mets: Bordick vs. Ordonez example

Baseball is Unique Final-offer salary arbitration – Club and player submit offers – Arbitrator picks one closer to real marker value No opinion No precedents No appeals – The best final offer is the more reasonable one

A system designed to fail Arbitration fixed for settlement Best interest of both parties – Always one winner and one loser – Hypothetical player negotiation example

Eligibility requirements Players with: – At least 3 years, but fewer than 6 years of MLB service – At least 2 years, but fewer than 6 years of MLB service … Super-two’s – at least 86 days of service during previous season, ranks in top 17% of players in service group in terms of MLB service – Over 6 years service – Free Agency

Criteria Weight of consideration determined by arbitrator is … arbitrary What’s in? – Past season performance Overall performance, leadership and public appeal – Length and consistency of career contribution – Past compensation – Comparative Baseball salaries – Physical or mental defects – Recent performance of the club What’s out? – Financial position of the player and the club – Press comments, media stories, etc. Except annual awards – Offers made prior to arbitration – The cost of representatives, attorneys, etc. – Salaries in other sports or occupations

Pros and Cons Why arbitrate? – Mixed player profile – Financial resources are not a consideration – Arbitration sets no precedents Valuable for a club’s future negotiations Why settle? – Relationship strain – Cost of arbitration process – Restrictions on compensation package

The Scorecard Management has historically done well – Since 1974: Of 417 cases heard 236 settled in favor of the club (57% winning percentage) – Winning isn’t everything No player receives less than last year’s salary Most get significantly more $$$ –2001: 144% increase in salaries determined by arbitration

Presenting a Case The Major – League Scale – Statistical analysis is key Midpoint of two offers determines debate – Club explains why the player is worth less – Player’s agent explains why he is worth more 1 Hour presentation by each side ½ hour rebuttal

For instance … Player demands $2 million Owner offers $1 million – Midpoint of $1.5 million Player demands $1.7 million Owner offers $1.2 million – Arbitrator decides fair market value of $1.5 Player wins and receives $1.7 million for one-year contract

2001 Arbitration Roundup 102 players who filed for arbitration Owners won 8 of 14 cases decided by an arbitrator – Atlanta Braves Andruw Jones won his decision ($8.2 million, new record) – NY Yankees Derek Jeter avoided arbitration and signed for 10 years and $189 million, biggest contract of those who filed – LA Dodgers Chris Donnels got the lowest salary $300,000

Questions Please?