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December 2013

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COMMENTS

Offseason Series Part Two: Arbitration

Written by , Posted in General

After about a month away from the offseason series, we are moving into the hot and heavy part of the offseason, and will be doing a few of these offseason series pieces in a row. Today, we look at arbitration, which is particularly relevant right now since the deadline to tender arbitration to eligible players passed yesterday.

From a 40,000 foot view, arbitration is the ultimate compromise between the players and ownership. Players want to hit free agency, where they can offer their skills to the highest bidder, as quickly as possible. The owners want to keep the remnants of the reserve clause as much as humanly possible, controlling their players for as long as possible at as low of a cost as possible.

Ignoring Super 2 status, which I will discuss below, players with three to six years of service time in Major League Baseball are arbitration eligible. Prior to arbitration eligibility, teams have complete control of their players subject to minimum contract requirements set by the collective bargaining agreement. All the team must do is pay the mandated league minimum, which was $490,000 in 2013.

When a player enters arbitration, the control starts to swing his way. The team maintains control of the player, but the player has a say in what his salary will be. Most players are in arbitration for three seasons. The amount a player would make in each year of arbitration, if he made it to the arbitrator, is based upon confidential salary charts, but it is well known that the idea is to slowly increase the player’s salary in each year of arbitration. By the final year of arbitration, a player will often have a salary very similar to what his average annual value would be on the free agent market. The amount a player will make in arbitration is heavily affected by how good of a player he is, with star players making well over $10 million in their final years of arbitration.

The system is put in motion by the team tendering arbitration to an arbitration eligible player. If the team does not tender arbitration, the player becomes a free agent. This is how Nate Schierholtz came to the Cubs last season. A team that has tendered arbitration, however, offers a contract that is what it argues the player should be paid. The player responds with the number he believes he should be paid. Unsurprisingly, the player’s number is higher than the team’s.

Should the team and player not come to an agreement, they go to arbitration, where an independent arbitrator decides what the team pays the player in the upcoming year. Teams and players heavily disfavor actually going to arbitration, in large part because it forces a team to go in front of its player (or his representatives) as well as the arbitrator and point out the player’s flaws to show why the player should not get the amount he requested. This can poison the well and harm later attempts to re-sign or extend the player. Last season, not a single player in baseball actually went to the arbitrator, instead coming to agreements with their teams prior to reaching that point.

The other complicating issue is the Super 2 player. The actual cut off for arbitration eligibility is not three years of Major League service time, but instead players with at least two years of service time who are also among the top 22 percent of players in cumulative playing time for players with at least two but less than three years of MLB service time, if the player spent at least 86 days of the prior season on a MLB active roster. These players are known as Super 2 players, and they have four years of arbitration instead of three. Each of the last two years are paid at the third year arbitration rate, which attaches to the highest salary. Under the current CBA, a team must typically wait until late June or early July to call up a prospect if they wish to avoid Super 2 status. Had Starlin Castro and Anthony Rizzo not signed long term extensions and instead gone into the arbitration system, they both would be on the Super 2 track.

As a final note, we return to the Nate Schierholtz situation. When a team signs an otherwise arbitration eligible player who was not tendered arbitration by his prior team as a free agent, the signing team also accrues any additional arbitration seasons the player has left. As such, the Cubs had the ability to, and in fact did, tender arbitration to Schierholtz for his third and final year of arbitration.

Last night, the Cubs tendered arbitration to the following players:

Darwin Barney – 2B (first year)
James Russell – LHP (second year)
Jeff Samardzija – RHP(second year)
Nate Schierholtz – OF (third year)
Pedro Strop – RHP (first year)
Luis Valbuena – IF (second year)
Travis Wood – LHP (first year)

Prior to the tender deadline, the Cubs agreed to contracts with backup catcher George Kottaras and infielder Donnie Murphy. Kottaras’s contract is a one year, $1.075 million deal. 2014 will be Kottaras’s final year of arbitration eligibility before hitting free agency. Murphy’s contract is a one year, $825,000 deal. There are rumors that the Cubs are talking with some NPB teams about sending Murphy’s rights to Japan in exchange for cash, similar to the deal the Cubs made regarding Bryan LaHair a year ago. Murphy has arbitration years remaining after 2014.

The Cubs did not tender arbitration to right handed relief pitcher Daniel Bard or infielder Mat Gamel. They may be looking to bring both players, who are looking to come back off injuries, back on minor league contracts.

  • PLCB3

    So when we signed Schierholtz last year, does that delay how many arbitration years? Like if his old team had offered him arbitration last winter would he be a FA right now? Or would last year have been his 2nd year of arbitration?

    • Noah_I

      It does not delay arbitration or free agency eligibility. So last year would have been Schierholtz’s second year of arbitration eligibility, and 2014 will be his third year. Once you have more than 6 years of MLB service time, you are not in the arbitration system anymore.

      • PLCB3

        So what about the players who are non-tendered? Are they unrestricted FAs like the players who have more than 6 years of service time? Like would they eligible to sign a 9-figure contract if someone so desired to offer one?

      • Noah_I

        Baseball doesn’t have a restricted/unrestricted free agent designation. Free agents are free agents. So, theoretically, yes a player could sign any contract a team was willing to offer if they are non-tendered. In practice, that never has and never will happen, because a player who would be able to obtain a 9 figure contract would always be worth the tender from the team, even if his one year contract through the arbitration system ended up being $20 million. If the team can’t afford the player at that cost, there would be teams who would be willing to trade a significant amount of talent in exchange for a player like that. This is precisely what the Rays always do. So, for example, it’s pretty widely known the Rays will attmpt to trade David Price this offseason due to salary concerns. The Rays could have decided not to tender arbitration to David Price, who MLBTR has projected for a $13.1 million salary next season. If Price was not tendered and became a free agent, he would immediately become the premier pitching free agent in baseball. But the Rays are clearly much better off tendering Price arbitration before trading him than not tendering him arbitration at all.

      • PLCB3

        Now let’s say Tampa traded Price before the tender deadline. Would his new team then have to tender arbitration to Price to get him under contract (absent agreeing to a deal)? I remember back in 2002-03 when we traded for Damian Miller, I then read something in the papers that he was on the list of arbitration tenders.

      • Noah_I

        Yes. For a current Cubs example: the Cubs acquired George Kottaras last week. The Cubs had to either tender Kottaras arbitration prior to the deadline last night, or otherwise agree with a deal to him prior to that deadline. The Cubs did the latter.

      • PLCB3

        Why would you trade for a player and then not tender him?

      • Noah_I

        Again, this is one of those theoretically possible but never, in actuality, going to happen. Maybe it could happen in the most extreme of salary dumps, but I’m not aware of it ever happening.

      • PLCB3

        So technically the team doesn’t have the asset. When they make the trade they’re technically trading something they don’t own.

      • Noah_I

        I wouldn’t say that’s quite true. The team has the sole rights to negotiate a contract through the arbitration with the player. In practice, that’s as valuable as having the player under contract.

      • PLCB3

        How so? What do you mean?

      • Noah_I

        The Royals traded Kottaras to the Cubs last week, before the tender deadline. So what they traded to Cubs were the exclusive rights to negotiate with Kottaras through the arbitration system. The only difference between trading him before the tender deadline or after tendering Kottaras a contract is really just a technicality, a slip of paper tendering him the contract. What is actually valuable is the exclusive right to enter into a contract with the player, not actually having the contract signed.

  • AC0000000

    So when we signed Schierholtz last year, does that delay how many arbitration years? Like if his old team had offered him arbitration last winter would he be a FA right now? Or would last year have been his 2nd year of arbitration?

    • Noah_I

      It does not delay arbitration or free agency eligibility. So last year would have been Schierholtz’s second year of arbitration eligibility, and 2014 will be his third year. Once you have more than 6 years of MLB service time, you are not in the arbitration system anymore.

      • AC0000000

        So what about the players who are non-tendered? Are they unrestricted FAs like the players who have more than 6 years of service time? Like would they eligible to sign a 9-figure contract if someone so desired to offer one?

      • Noah_I

        Baseball doesn’t have a restricted/unrestricted free agent designation. Free agents are free agents. So, theoretically, yes a player could sign any contract a team was willing to offer if they are non-tendered. In practice, that never has and never will happen, because a player who would be able to obtain a 9 figure contract would always be worth the tender from the team, even if his one year contract through the arbitration system ended up being $20 million. If the team can’t afford the player at that cost, there would be teams who would be willing to trade a significant amount of talent in exchange for a player like that. This is precisely what the Rays always do. So, for example, it’s pretty widely known the Rays will attmpt to trade David Price this offseason due to salary concerns. The Rays could have decided not to tender arbitration to David Price, who MLBTR has projected for a $13.1 million salary next season. If Price was not tendered and became a free agent, he would immediately become the premier pitching free agent in baseball. But the Rays are clearly much better off tendering Price arbitration before trading him than not tendering him arbitration at all.

      • AC0000000

        Now let’s say Tampa traded Price before the tender deadline. Would his new team then have to tender arbitration to Price to get him under contract (absent agreeing to a deal)? I remember back in 2002-03 when we traded for Damian Miller, I then read something in the papers that he was on the list of arbitration tenders.

      • Noah_I

        Yes. For a current Cubs example: the Cubs acquired George Kottaras last week. The Cubs had to either tender Kottaras arbitration prior to the deadline last night, or otherwise agree with a deal to him prior to that deadline. The Cubs did the latter.

      • AC0000000

        Why would you trade for a player and then not tender him?

      • Noah_I

        Again, this is one of those theoretically possible but never, in actuality, going to happen. Maybe it could happen in the most extreme of salary dumps, but I’m not aware of it ever happening.

      • AC0000000

        So technically the team doesn’t have the asset. When they make the trade they’re technically trading something they don’t own.

      • Noah_I

        I wouldn’t say that’s quite true. The team has the sole rights to negotiate a contract through the arbitration with the player. In practice, that’s as valuable as having the player under contract.

      • AC0000000

        How so? What do you mean?

      • Noah_I

        The Royals traded Kottaras to the Cubs last week, before the tender deadline. So what they traded to Cubs were the exclusive rights to negotiate with Kottaras through the arbitration system. The only difference between trading him before the tender deadline or after tendering Kottaras a contract is really just a technicality, a slip of paper tendering him the contract. What is actually valuable is the exclusive right to enter into a contract with the player, not actually having the contract signed.

  • Mat Gamel is looking both to come back off his injury and for the “T” his parents seemingly misplaced.

  • Mat Gamel is looking both to come back off his injury and for the “T” his parents seemingly misplaced.

  • Doc Raker

    I was impressed by Pedro Strop this past season, also known as Pete Stroppopolis, another favorite in Chicago’s Greek Town. OPA!

  • Doc Raker

    I was impressed by Pedro Strop this past season, also known as Pete Stroppopolis, another favorite in Chicago’s Greek Town. OPA!

  • Doug S.

    Thanks Noah. I appreciate the effort and now understand more than I did.

    • Noah_I

      Thanks. Writing these things are a good education for me on these issues as well. Something I did not know before writing this: the salary charts are confidential.

      • Doc Raker

        Are the salary charts based on merit, service time or both?

      • Noah_I

        No one really knows the exact formula, but both. Every year of arbitration is supposed to be a bump up, and the better you are, the more your are supposed to make.

      • Doc Raker

        I remember a year when Mark Prior didn’t play due to an injury and he got a raise, the MLBPA is on powerful union.

      • PLCB3

        He had the surgery done after the contract was signed.

      • Doc Raker

        Was that the ‘exploratory’ surgery to see if they could find anything wrong?

      • PLCB3

        I think so. They found a tear in his shoulder capsule

      • Doc Raker

        And needle marks on his azz.

      • PLCB3

        And then 2007 was his last year with the Cubs. He wasn’t tendered for 2008, which would have been his final arbitration year.

  • Doug S.

    Thanks Noah. I appreciate the effort and now understand more than I did.

    • Noah_I

      Thanks. Writing these things are a good education for me on these issues as well. Something I did not know before writing this: the salary charts are confidential.

      • Doc Raker

        Are the salary charts based on merit, service time or both?

      • Noah_I

        No one really knows the exact formula, but both. Every year of arbitration is supposed to be a bump up, and the better you are, the more your are supposed to make.

      • Doc Raker

        I remember a year when Mark Prior didn’t play due to an injury and he got a raise, the MLBPA is on powerful union.

      • AC0000000

        He had the surgery done after the contract was signed.

      • Doc Raker

        Was that the ‘exploratory’ surgery to see if they could find anything wrong?

      • AC0000000

        I think so. They found a tear in his shoulder capsule

      • Doc Raker

        And needle marks on his azz.

      • AC0000000

        And then 2007 was his last year with the Cubs. He wasn’t tendered for 2008, which would have been his final arbitration year.