Offseason Series Part Two: Arbitration
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.