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July 2017



Team Control and Arbitration: A Growing Problem

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Each and every offseason, those interested in what their team might look at the following year at least keep an eye on the happenings with arbitration: who is eligible, who is getting how much, who actually gets to a hearing, and who signs a contract that gives up a portion of their arbitration years to get some financial security (but still have a chance at the big-money free agent deal a bit later on).  The whole system is designed in a way to give teams and players security early in a player’s career–teams ensure that the time and money they’ve put into developing a player doesn’t end up benefitting another team before they can make good use of them, and players are assured of some sort of pay increase through their first 6 (or 7) years in the big leagues, the period where a team essentially has complete control of that player.  However, the design of this system seemingly creates (or exacerbates) a salary escalation problem, particularly the length of time that teams control a player’s rights.

Admittedly, for the most part this will only be an issue when looking at the top-tier players–the Mike Trouts and Bryce Harpers of MLB.  Lesser players probably benefit, but on a much lower magnitude; those guys are never going to be the primary cause of a team running headlong into the luxury tax year over year.

For most players, their MLB career is going to start completely under team control, and the ability of the team to ship them back and forth between the big league team and AAA (mostly) whenever they like.  During that time, they’ll be making the league minimum salary, or something near it (though, if a team wants to be nice–like the Cubs did with Kris Bryant in tendering him a $1.05 million contract this year–they can pick whatever they want), and it’s take it or leave it (and get the league minimum).  Given that the league average age for rookies (according to a 2012 Fangraphs post–the most recent data I could find) is 24, and that superstar talent more often comes up a little early–let’s say, 1 year age-wise–this would cover the Age 23, 24, and 25 seasons.

After that season, for their Age 26 season, comes the arbitration process, where big increases are going to start coming about.  Take Jacob deGrom out in New York, eligible for arbitration for the first time coming in to 2017 (albeit, as a Super Two), who saw his salary increase from $607,000 to $4.05 Million–a significant increase, and for a player who repeats solid performance, big increases can continue to happen, and wind up with salary figures upwards of $13-15 million during players’ final arbitration years (for example, the aforementioned Bryce Harper got $13.625M for 2017–he’s also already agreed to a $21.625M deal for 2018, so he will not be back to arbitration).  Using our assumptions above, this takes us to the end of the Age 28 season for a given player as they enter free agency.

Hitting free agency–free to talk to all 30 teams, and let their agents do their thing (especially $cott Boras’ clients), and ideally get the best combination of time and money that they can.  Keeping in mind that everyone–fans, players, front office wonks–knows that for ANY player, performance is going to decline at some point in a player’s 30s (which will be fairly early on in that first free agent contract in most cases), any contract of more than 2-3 years will probably the biggest deal they’ll ever sign, their only chance to really get into the well that a team’s pocketbook is–a direct result of the length of time their first team(s) had control in the first place.  At the top end, players will tend to want to get at least as much than those that came before–and certainly no less per year than they had been earning to start, with increases over time–meaning that quarter-billion contracts are likely to become more common possibly within the next couple of years.  Then $400 million.  Then $500M.  And on, and on, and on.

As new media rights deals get inked, and ticket prices go up, teams in larger markets will always be able to afford some of these contracts (though few would be impulsive enough to take on multiple of them at once), and the fact that the money is guaranteed to the players, nothing will ever knock those numbers down once they’re posted–in contrast to the NFL where renegotiating contracts takes place all the time–and players with little guaranteed money on their deals occasionally find themselves cut loose if they don’t play ball–there’s no reason to give it up.   Unfortunately, it’s unlikely there’s any easy way to remedy this contract arms race.  Reducing team control, or arbitration periods, or anything like that would more likely lead to younger players getting those contracts, and doubling down when they reach free agency the second time around, which would wind up compounding it all.

So, next offseason, when Kris Bryant and his arb-eligible cohorts on the Cubs start that journey with ‘Won World Series in 2016) on the resume, just keep in mind we’ll be seeing yet another step in along that spiral.


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