Baseball Arbitration: What it is and How it Works

The following article was written by Spencer Wingate.

Baseball headlines have most recently been dominated by news involving salary arbitration. ESPN and other sports news sources report players and teams avoiding or being unable to avoid arbitration while failing to provide any information with how the process works. The common fan is left confused and wondering what exactly salary arbitration is and how it works. The process is essentially not very complex and can fairly easily be broken down when one sees who is eligible, how the process develops, and how the hearings work.

[supertagline]Who is Eligible?[/supertagline]

Major League Baseball free agency is different than other sport in that a player cannot become a free agent until he has accumulated six full years of Major League service time. Salary arbitration comes into play when a player and club cannot agree on a contract prior to the player accumulating the six years of service, but after racking up three years of service. Two other classes of players are eligible for arbitration as well.  Players who have filed for free agency can be offered salary arbitration from their teams. They can chose to accept rather than becoming free agents. Then they go through the arbitration process like the other eligible players. The other group of players are commonly referred to as Super 2 players. This group of players is comprised of players who have played for two years but less than three. Additionally, they must have accumulated 86 days of service in the previous season and rank in the top 17 percent of total service time in their class.

[supertagline]How does the arbitration process work?[/supertagline]

Now that we have determined who is eligible for arbitration, it is time to divulge into how the process works. By January 17, 2012 players and teams must exchange yearly contract figures. The club’s offer cannot be less than the player’s total compensation from the prior year and may not be less than 70% of his compensation from two years earlier. These rules do not apply when clubs offer free agents arbitration. If the player and team can come to an agreement on a yearly contract, they avoid arbitration. Alternatively the player and team can agree on a multi-year contract extension to avoid arbitration.  Arbitration hearings begin February 1 and last through February 21. Just because a hearing is scheduled does not mean the player and team will actually have an arbitration hearing. After the deadline, the player and team can still come to an agreement, often meeting in the middle. For example, if the player asked for 10 million and the team offered 9 million, they can settle at 9.5 million. Essentially, they are just meeting in the middle. If the player and team cannot agree on a yearly contract or extension before the hearing date, they have an actual salary arbitration hearing in front of a panel of three arbitrators. Actually having a hearing is rare, as the vast majority of players are able to effectively negotiate with their team prior to the hearing date.

[supertagline]How do salary arbitration hearings work?[/supertagline]

If the team and player are unable to negotiate a new contract, the hearing is held. The hearings work as a means to fairly allow both the player and team to state their cases for their proposed salary figures. Each party is given an hour to present its case to a three person panel, and then they are allotted thirty minutes for a rebuttal. The player must attend the hearing, but typically has an agent or attorney there to represent him. A team executive or attorney is most commonly there to represent the team. At the hearing, each case presents why the player should be awarded the salary they have requested for the upcoming season. The panel decides to award the higher or lower yearly salary. There is no middle ground; either the team or player wins. The case is made according to the player’s contribution to the team; pertaining to their performance and leadership. Special accomplishments such as an All-Star game appearance, awarsd won, and/or postseason performance are often emphasized. The club’s record and attendance can also be brought into play. Commonly, salaries of comparable players in the same service class of the player are presented to leverage why the player deserves a similar amount. Comments from the press or references to salaries in other sports or occupations cannot be presented. Neither can team finances or previous offers presented in negotiations. The player and team are bound to the number they presented by the deadline of January 17, 2012.  The panel awards the player a one year non-guaranteed contract that adheres to the team or player’s request.

[supertagline]So, what is the Whole Point?[/supertagline]

Typically players are paid the bare minimum their first three years of service, as they have little to no negotiating power. Complaining or demanding a new contract is incredibly rare, as the player has no leverage. The salary arbitration process presents a means for the player to be more properly compensated.  Instead of complaining to the team or demanding their agent restructure their contract, they are presented with a legal forum to prove their worth.  The system is not perfect, but it does present a means for the team and player to come to a compromise.