A Radical Proposal for Fixing Arbitration

Major League Baseball’s salary-arbitration process is a pretty ridiculous exercise. A player and team each submit a figure for how much that player should be paid the following season. At some point not long after that, each party argues in defense of their figure, employing an array of statistics that front offices don’t even use for the purposes of evaluation.

If a team’s representatives successfully make their case, then a panel of arbitrators chooses the number they’ve submitted. If the team fails to sufficiently badmouth their own player, then the panel of arbitrators chooses the player’s chosen figure. Even in the best-case scenario — i.e. when the player and team agree to terms before arbitration — they still arrive at that agreement based upon what would would transpire at a hypothetical arbitration hearing. There has to be a better way.

Travis Sawchik recently proposed the introduction of restricted free agency to baseball, an approach that would likely eliminate arbitration, allowing teams to match offers made by other franchises. Like Travis, I would like to see arbitration abolished. Also like Travis, I am concerned about the middle class of players who seem to be shorted in the current system.

I agree that something needs to be done and that restricted free agency represents a better approach than the one currently in place. That said, I do think there might be a better solution, one that doesn’t entirely dismantle the framework of the present system and yet allows players to receive compensation proportional to their talents.

I think the adoption of a new arbitration-type system might benefit from greater use of a mechanism that was first introduced during the 2012-13 offseason — namely, the qualifying offer.

Currently, teams can offer free-agents-to-be a one-year deal equivalent to the average of the 125 highest salaries in baseball. This year, for example, that figure was $17.4 million. I think that figure could serve as a basis for determining arbitration salaries, saving both players and their clubs from the indignity of arbitration itself.

Here is my proposal:

  1. Players still have the right to enter free agency after six years.
  2. Players also still enter an arbitration-type process after having accrued three years of service. But!
  3. Under these new rules, players with more than three years of service time, but less than four years of time receive 40% of the qualifying offer if tendered a contract.
  4. Players with more than four years of service time, but less than five years receive 60% of the qualifying offer if tendered a contract.
  5. Players with more than five years of service time receive 80% of the qualifying offer if tendered a contract.
  6. Players in the current Super-2 category receive 20% of the qualifying offer if tendered a contract.
  7. Players not tendered a contract become free agents.

Under the current arbitration system, players are rewarded for their accomplishments, but not necessarily accomplishments that align closely with on-field value. Relievers who’ve compiled a number of saves, for example, are awarded considerably higher salaries than relievers who’ve been just as effective but have pitched mostly in the eighth inning. Hitters who’ve compiled a lot of home runs and RBI, meanwhile, are more richly compensated than those whose value is concentrated largely in their defensive contributions. With the institution of this modified arbitration system, players would be more accurately compensated for their on-field contributions.

To better understand the implications of this proposal, let’s look at some actual numbers. As they do each offseason, MLB Trade Rumors has compiled projected arbitration estimates for 204 players this winter. The current crop of arbitration-eligible players totaled just over $800 million entering the offseason, or around $4 million per player. In exchange for that $800 million, arb-eligible players are projected for 271 WAR in our Depth Chart projections. Teams, in other words, will pay around $2.97 million per win for players in arbitration, roughly one-third of what a win costs even in this potentially depressed free-agent market. We can increase that figure a little bit without making drastic changes to the current salary structure.

The big winners in this modified system would be baseball’s middle class of player. They would either (a) get paid more during arbitration years or (b) earn the right to become free agents, able to sign with any team for market value. The losers, relatively speaking, would be baseball’s best team-controlled players, who would be compensated a little less under the terms of this system. The other likely losers would be the owners, who shift about half a billion dollars to the players in this scenario.

Instituting such a change all at once would naturally create a fairly drastic shift — although not as drastic as I initially supposed when I began my calculations. Naturally, the changes would become less dramatic as the years move on. To see how things would play out this winter, I went through, player by player, to see what a everyone’s new salary would be under my proposed system, or if they would be granted free agency.

Of the 204 players included in MLB Trade Rumors’ arbitration-eligible sample, I identified 65 who’d likely become free agents under the new system. Close to two-thirds of these would be relievers, by my reckoning. Some of them would likely re-sign with their own teams at a reduced rate (if probably also a slightly higher rate than they would have received in arbitration), while others would join the free-agent market and sign their own deals.

While flooding the market with a greater number of free agents seems like it might lead to the depression (and not increase) of salaries, keep in mind that relievers are the one commdodity for which teams have been paying over the past two offseasons. Introducing more relievers to the market might stabilize matters some and bring reliever prices closer in line with the salaries received by everyone else.

As for the non-relievers granted free agency in this experiment, most are utility types, either infield or outfield, and would hit free agency a bit earlier than their higher-priced colleagues, allowing them to maximize their role or salary, and increase lifetime earnings. A handful of players — namely Lonnie Chisenhall, Jordy Mercer, and Adeiny Hechavarria — are among those starters a year from free agency whose clubs might not award them an amount equivalent to 80% of the qualifying offer ($13.9 million by the current calculation) under the terms of the new system. That said, those players would still be well positioned to earn more than the $5 to $6 million they get under the present system. These players are scheduled to receive $150 million for about 16 WAR, which is close to free-agent pricing, anyway.

As for the 139 players I estimate would be offered contracts, the average increase in salary would $3.5 million, the median $4 million. Only four players, by my calculation — Jose Abreu, Kris Bryant, Josh Donaldson, and Manny Machado — would see their salaries decline by more than $2 million. Meanwhile, 104 players would benefit from an increase of more than $2 million.

It should be noted that the players who’d lose money in this hypothetical new system the same ones who benefit most from free agency as presently constructed. Under the old system, these players would have been paid $656.3 million for a projected 254.8 WAR, a bargain at just $2.6 million per win. These 139 players aren’t stars, averaging about 1.8 projected WAR (1.7 median WAR), but they are valuable. Changing the system gets these players $1.147 billion dollars, still a bargain at $4.5 million per win.

This system doesn’t touch the minimum salaries that small-market teams need desperately to survive. Most of the salary increases aren’t particularly large and wouldn’t factor heavily into team spending. Eliminating arbitration isn’t going to change the magical six years needed to get to free agency. It simply pays the majority of players with two to six years of service time a little bit more money and gives a few marginal players an earlier shot at free agency.

This is the type of change for which the union should be fighting. It would help the vast majority of its members without major harm to the best of the best. The owners would push back, but they would push back on any system that transfers more of their money to the players. Most of the concessions the players received in the last CBA were related to their standard of living, while MLB owners gained more financially with an increasingly stagnant and harsh competitive-balance tax. The salary arbitration system isn’t broken. It just doesn’t make a whole lot of sense when it comes to appropriately valuing baseball players. It is time for a change.





Craig Edwards can be found on twitter @craigjedwards.

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rp90
Member
rp90

The arbitration process is, for sure, byzantine. But, why should fans care? As long as the owners and players can keep agreeing to CBA’s (such that baseball is played), it’s a little hard to get worked up about the best way to distribute dollars between millionaires and billionaires.

carter
Member
Member
carter

I disagree a lot. If you make the major league minimum for a couple years, then get released you aren’t going to have enough money to retire, and often times those players have no other quantifiable skills and frequently no education/money management skills.

tuna411
Member
Member
tuna411

1,100,000 for two years when you are young. Say you end up with half after taxes and fees, that is still a head start on life compared to 98% of the real world.

Dave T
Member
Dave T

That’s also not all a player has after two years of MLB service time.

As of 2011, after 43 days of MLB service time players vested in a pension that (at the time) would be $34k. Granted, that will start years down the road, but that’s a significant benefit. The pension amount increases with service time (it was $100k after 10 years as of 2011), so two full years of service time should be a somewhat bigger pension.

Players also get lifetime health coverage with one day of MLB service time.
http://www.businessinsider.com/nfl-nhl-nba-mlb-retirement-pension-plans-lockout-2011-1

I don’t recall any reports of those player benefits taking hits in the 2012 and 2016 CBA’s, so I’m fairly certain they’re still at least that good.

Benefits, not minimum salaries, appear to be an area where the MLBPA has bargained for a favorable-looking deal for younger players. By way of comparison, as of 2011 it took 3 seasons for a player to vest in the pension plan for both NFL and NBA players, and NHL players needed 160 games.

White Jar
Member
White Jar

Begs the question – should a player be able to retire on two years of league minimum salary?

Sleepy
Member
Sleepy

Gotta factor in that those two years of the major league minimum were most likely preceeded by a handful of seasons making $12,000-ish per year in the minors.

tung_twista
Member
tung_twista

Also gotta factor in that while those players were making $12,000-ish per year in the minors, other people of similar age were racking up debt of $12,000-ish per year in college.

bananas
Member
bananas

I don’t have to factor that in at all. Other people’s life choices have exactly 0 impact on how much value an employee is bringing to an organization. MiLB players should be paid more commensurate with their value in the same way that unskilled labor should net a living wage.

tung_twista
Member
tung_twista

Going by your last sentence, players toiling in minor leagues aren’t bringing a whole lot of immediate value to the organization/society either so I don’t have to factor in the fact that they are only making $12,000-ish per year.

bananas
Member
bananas

Correct, I agree that you shouldn’t care about that in terms of valuing a player or yourself. My larger point is that this entire comment chain is conflating a few things:
(1) the economic value of an asset (ie a player)
(2) the value of art (ie should entertainment be valued as highly as it is)
(3) the moral question of wealth distribution (ie how should owners, players, staff, and consumers divide the value inherent to the system)

La Vie en Bleu
Member

Nailed it.

La Vie en Bleu
Member

No.

Dave T
Member
Dave T

@carter – whatever the merits of that view, I don’t see how it impacts a view of Craig’s arbitration idea one way or the other. Any player who plays a couple years and then gets released isn’t getting an arb salary now and won’t be getting one under this hypothetical proposal.

La Vie en Bleu
Member

This is correct. No relation.

tfox1127
Member
Member
tfox1127

Assuming you’d hope that any rule or process make sense, why would’t you hope that all rules and processes make sense?

CaseysPartner
Member
CaseysPartner

The fans care because this process directly affects player movement or lack there of. Increasingly the majority of fans do not understand the free agent compensation system at all. Fans do not understand why players are traded when they are or why so little was returned in the trade.

Here’s a newsflash for you: The majority of baseball fans are not graduates of ivy league business schools or majors in statistical analysis. The game is evolving away from the people who fund it.

Here’s a simple solution that is fair and brings the game back to the fans: Increase the MLB minimum salary to $4 million. The CBA’s are five years so $2 million in year one, then $2.5, $3, $3.5 and $4 million.

Service time gets cut from the current effective seven years to four years. Now you have everyone getting paid something and a vibrant free agent market with players who are not on the wrong side of 30 available.

Is this a detailed perfect solution? No, it’s a base to work from.

How can it be achieved? With a S T R I K E

The players have all the power. They just have to use it, something no current player in MLB has ever done.

HappyFunBall
Member
Member
HappyFunBall

I suspect the set of fans overly concerned about “simple” contract negotiations, and the set of fans who would be upset by what earlier free agency would to their hometown team, is going to have considerable overlap

CaseysPartner
Member
CaseysPartner

You know, for folks who present themselves as the top of the brain chain I find ya-all severely wanting in the intelligence department.

Absolutely zero imagination.

backward galaxy
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backward galaxy

You’re going to be popular. I can tell.

Psychic... Powerless...
Member
Psychic... Powerless...

You’re being downvoted due to your arrogant tone.

sadtrombone
Member
Member
sadtrombone

Good lord. Did someone really create a dozen different accounts to downvote HappyFunBall, backward galaxy and psychic…powerless? Because that’s what it looks like to me.

FWIW, I also think CaseysPartner needs a chill pill.

La Vie en Bleu
Member

Not in the least.

Dave T
Member
Dave T

“Fans do not understand why players are traded when they are or why so little was returned in the trade.”

I don’t know why I should necessarily care about this situation. The NBA trade system has been even more byzantine and difficult to understand for years. Cap considerations of how players can fit on a team under soft salary cap rules are huge, and we’ve seen that players valued solely for their expiring contracts have sometimes been great trade assets. It doesn’t seem to have hurt the NBA’s popularity, however.

(What I could see hurting the NBA’s popularity over time is if it reaches a perpetual state of only a handful of title contenders, mostly the same, because the cap rules incentivize multiple stars to join up as big-market super teams. That hasn’t yet come to pass, however, and the massive value of finding one superstar in the NBA draft means that it might not ever come to pass.)

The MLB valuation of players seems far easier to understand conceptually. Players who are low-paid relative to the free agency salary cost of their expected production are highly valuable trade assets. That’s particularly the case when such a player has more years left on his contract in that situation.

La Vie en Bleu
Member

Nailed it. Why pay Yu Darvish when a team can trade future draft picks for a superior, low-paid player?

La Vie en Bleu
Member

Arbitration has no immediate relatable effect on a player’s movement.

abgb123
Member
abgb123

CaseysPartner If it takes you longer to write out your solution then it does to think it up its unlikely to work.
Baseball is broken but its from a labor perspective, all of the money is funneled to the top, the top of the player mountain and the top of the ownership mountain and its achieved on the backs of the younger players that the older players are forced to take advantage of.
It has to start with the minor leagues, there is no more exploited worker then the MLB minor league player, some kind of minimum needs to be set. I understand why teams get 7 years of control over a player due to how long it takes to bring them into the majors and the money that goes into there development but 3 years where they are making league minimum? That’s atrocious. Making matters worse in the last CBA they tied the luxury tax directly to the draft and international spending which are both also restricted which has shown to bring down the value of the middle class. This is to say nothing of the fact that MLB and MLBPA may be looking at a whole new problem when the cable money drys up.
All I’m saying is the problems are vast and complicated and its going to require more then just one solution and I’m guessing its going to take a few CBA negotiations and yes probably at least 1 strike to swing the pendulum back the other way.

Travis L
Member
Member
Travis L

I enjoy watching the millionaires, I have no love for or enjoyment from the billionaires.

Alex Trebek
Member
Alex Trebek

Even more radical proposal (half? joking)… eliminate owners! What real purpose do they serve? The league becomes a collective, with ALL revenue evenly divided among teams. Cities own their parks, and share that revenue with players and staff.

Free Clay Zavada
Member
Free Clay Zavada

Will never, ever happen, Pete, but I certainly wouldn’t complain if it did.

bananas
Member
bananas

Yes! We could even come up with a catchy name for this community ownership, so we can market it and spread the Good News. We’ll even have a name for the people in our little commune so people can feel like they belong! What do you say, comrade?

Jetsy Extrano
Member
Jetsy Extrano

We could give cards that say “co-op member” you mean?

tb.25
Member
tb.25

As long as you get paid enough to survive where you live, why should you go for a raise?

La Vie en Bleu
Member

Not byzantine in the least. Awkward, yes.