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What is Baseball Arbitration? Explaining the Game's Contract Conundrum


Former Red Sox 1B David Ortiz; Photo via Albert Yau

After the free agent frenzy of November and December, baseball’s January headlines are filled with arbitration news. From a legal perspective, arbitration refers to a method of alternative dispute resolution where two parties use a neutral party to settle a dispute rather than going to court. In baseball, arbitration is the process used to determine a player's salary under team control but does not have a contract for the coming season. When a player has between three and six years of Major League service time and is not under contract for the following year but remains under team control, the player becomes eligible for salary arbitration to determine his salary for the coming year. The club and player often reach an agreement before the arbitration deadline by signing an extension. However, if an agreement is not reached, the two parties each submit a desired salary, and an arbitration hearing is scheduled.


Between the arbitration deadline and the hearing date, both parties may continue to work towards a one- or multi-year contract. If no deal is struck, then a panel of three professional arbitrators hears arguments from each side and then must choose to enforce the salary number sought by either party; a number in the middle cannot be chosen. Allowing the process to go to a hearing is risky for both sides, as all control goes out the window. For clubs, they could exit a hearing paying a player far more money than he is worth. For players, their salaries can be cut by the arbitrators by up to 20%.


When ruling on an arbitration case, arbitrators consider four primary criteria:

  1. The player’s contribution to the team

  2. The club’s record and attendance

  3. A player’s “special accomplishments” I.e. All-Star appearances, awards, postseason performance

  4. Salaries of comparable players in experience and performance

Because of the loss of control, most arbitration cases are resolved before a hearing. The player may sign a one-year deal that avoids a hearing for the upcoming season or a multi-year contract that avoids arbitration for the length of the pact.


While it is a general rule that players become arbitration eligible when reaching three years of service time, that is not always the case. The most experienced 22% of players with more than two and less than three years of service time are also arbitration eligible under the “Super Two” clause. Normally, Super Two eligibility begins around two years and 135 days of service time, but it can vary widely by year. In 2022, Super Two eligibility began at 2.128 years of service time and included major players like Tony Gonsolin and Randy Arozerana. Additionally, a player with more than six years of service time may engage in arbitration with a consenting club. While free-agency-eligible players rarely exercise this right, it is not unheard of. In 2012, David Ortiz entered arbitration with the Boston Red Sox instead of exploring the free market.

The arbitration process has been a remarkable positive for the Major League Baseball Players Association, as young players, which constitute the backbone of many rosters, can increase their salaries to more closely match what they deserve. However, some players remain critical of arbitration as detrimental to a winning culture. During a hearing, the club denigrates the performance and production of a player in front of said player while telling him he is worth less than he believes. Immediately after the hearing, the player is back to being an integral part of the roster. For many players, this adversarial relationship is difficult to grapple with.


Ultimately, arbitration is perhaps the most unique and nuanced element of baseball’s complicated labor structure. Arbitration allows players to come closer to reaching their deserved salaries while still allowing clubs to build teams around young, relatively inexpensive players. Furthermore, arbitration allows young stars to ink long-term deals with greater security for both the player and the team. While arbitration is far from a perfect system or a win for labor, it is a step in the right direction for players. On the team side, the clubs that properly and effectively manage arbitration situations often find greater success. All in all, arbitration is the name of the game during the hot stove days.



Sources:


BleacherReport.com

Foley.com

Forbes.com

Marquette.edu

MLB.com

MLBTradeRumors.com

Pepperdine.edu

SABR.org

SportingNews.com


"David Ortiz" via Albert Yau is licensed under CC BY 2.0

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