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:
- Players still have the right to enter free agency after six years.
- Players also still enter an arbitration-type process after having accrued three years of service. But!
- 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.
- Players with more than four years of service time, but less than five years receive 60% of the qualifying offer if tendered a contract.
- Players with more than five years of service time receive 80% of the qualifying offer if tendered a contract.
- Players in the current Super-2 category receive 20% of the qualifying offer if tendered a contract.
- 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.
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.
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.
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.
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.
Begs the question – should a player be able to retire on two years of league minimum salary?
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.
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.
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.
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.
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)
Nailed it.
No.
@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.
This is correct. No relation.
Assuming you’d hope that any rule or process make sense, why would’t you hope that all rules and processes make sense?
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.
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
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.
You’re going to be popular. I can tell.
You’re being downvoted due to your arrogant tone.
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.
Not in the least.
“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.
Nailed it. Why pay Yu Darvish when a team can trade future draft picks for a superior, low-paid player?
Arbitration has no immediate relatable effect on a player’s movement.
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.
I enjoy watching the millionaires, I have no love for or enjoyment from the billionaires.
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.
Will never, ever happen, Pete, but I certainly wouldn’t complain if it did.
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?
We could give cards that say “co-op member” you mean?
As long as you get paid enough to survive where you live, why should you go for a raise?
Not byzantine in the least. Awkward, yes.
Any change to the compensation system like the one suggested is mostly going to adjust which players get the money, not increase the amount of money the players get in total. In other words, the veteran players who get the most money now would get less in this proposed system – pretty much an amount less that equals the incremental amount more that the younger would get under this recommendation. That is why the union likely would not support a proposal such as this. The current system is set up the way it is not to be “fair”, but to funnel the players’ piece of the pie to the veterans who have the most influence on the player’s association. Maybe the article addresses this and I missed it.
So what the MLBPA should fight for is (1) an increase in the luxury tax cap, as well as (2) a modification for arbitration.
(1) will funnel more money to high end free agents
(2) will funnel more money to middle class players.
(1) is not the easiest battle to fight in public, when you’re talking about athletes making $25M a year. The public is not terribly sympathetic.
(2) is a PR slam dunk.
Honestly, I am not so sure about (2) being a slam dunk.
Would normal fans be really in favor of taking money from Harper and spreading it to Conor Gillaspie, Ruben Tejada, Dioner Navarro and Andrew Romine?
I don’t know that this idea would really do that for group (2), depending on who exactly we’re defining as “middle-class” players.
Relievers are a big part of the middle-class in MLB, and they seem to be doing pretty well if they make it to free agency. Decent or better starting pitchers also seem to do well in free agency. That makes sense because every team needs 7 or 8 relievers plus 5 starting pitchers, and injuries mean that there’s a generally active trade market for them and that team ideally like to keep some prospects in the upper minors as back-ups.
If we’re going back to the Travis Sawchik article that cited David Freese signing for 1/$3 million after 2015 as the poster boy of the “MLB middle-class”, I’ll first note that Freese was an outlier among early 30’s position players coming off 2-ish WAR years that off-season rather than a typical example of what happens to those players. These players do sometimes face weak demand, but I think that the real issue for many of these players is modern roster construction. If a team sees a player as a 1 to 1.5 WAR player, but lacking in positional versatility, then he’s not quite good enough for teams really to want him as a starter but also doesn’t fit great on a modern MLB bench.
I would expect there to be a lot of these sorts of players available in Craig’s proposed arb system, either in trades or as players not tendered arb contracts. As I’ve explained in more detail in a comment below, these less than 1.7 WAR players (the median of Craig’s arb group) are just going to be traded for little return or non-tendered in a lot of cases at his proposed arb2 (~$10 million) or arb3 (~$14 million) salaries. That will particularly be the case for lower-revenue teams that aren’t in a zone of contention. So, in one way or another, the market will be awash with plenty of these players available, which should be expected to lower average free agent prices (where the marginal cost per WAR is much higher than the average cost per WAR being sought by any team due to scarcity).
The player’s piece of the pie is not a fixed size. The owners’ piece of the pie has gotten much bigger. If there are more teams not attempting to win, increasing their payrolls by a little is going to increase the player’s share between them and the owners. Same for the teams trying to contend. Teams won’t stop spending on free agents as they become available. Making some below-average players free agents isn’t going to affect things at the top, which is what the players want and it is going to pay players ahead of free agency more.
But in actuality, it is much more than “some” that would be affected – look at the list and see how many last year and penultimate players would become free agents under this proposal – it is a ton: https://www.mlb.com/news/mlb-players-who-have-avoided-arbitration/c-264609430
“The owners’ piece of the pie has gotten much bigger.”
That’s quoted all the time as undeniable fact when it seems to be a debated point at best, at least as of two years ago – http://www.chroniclet.com/national-news/2016/03/21/AP-study-players-share-of-Major-League-Baseball-revenues-remain-stable-over-past-decade.html
And, FWIW, Tony Clark is quoted at that linked article agreeing with the view that it’s not really the case that the players’ share of revenue has declined.
Boras’ opposing argument expressed in that article isn’t intellectually coherent. It’s absolutely fair to deduct operating expenses of the MLB Network and MLBAM in thinking about teams’ total revenue, as well as profits from those that are attributable to outside, non-MLB owners. I’d also consider it pretty debatable to argue that the non-MLB-related BAMTech profits (HBO Now, NHL, PGA tour) should be included in a view of “MLB’s revenue”.
It’s also fair, though, to cast a skeptical eye to make sure that the expenses being deducted to arrive at income of those entities are truly legitimate third-party expenses. That said, Clark claimed that the MLBPA sees the numbers, and there should be pretty legitimate net income figures for those entities between BAMTech now being 75% owned by Disney and outside investors owning 1/3 of MLB Network.
I do think that player share of revenue could be more of an issue going forward under this CBA between the luxury tax looking like it will eventually hit more teams, $40 million over the luxury tax looking like it’s close to a hard cap, and the closure of some avenues of spending big on amateur IFA bonuses and Cuban players.
Sounds reasonable enough.
But one point to consider: the current collective bargaining agreement is mostly a seniority-based system.
This proposal casts seniority in concrete.
It this desirable?
Just asking.
The current arbitration system is at least nominally performance -based. (Except for the fact that paycuts after sub-par seasons have been replaced by non-tenders.) There is room for some performance variation. With a pay scale all the way through…
I’m not sure the game needs more seniority rules.
I love this hypothetical but what might the players have to concede to get the owners to agree something that drastically helps the players financially?
But it doesn’t drastically help the players. The point is simply to replace the ludicrous arbitration system with something better. Craig’s proposed system can easily be calibrated to keep the player’s total revenue share the same.
I like this idea a lot. I had a similar idea which would give teams 4 years of league minimum controll, with the option to purchase 2 additional years if, starting with year 4, they agree to pay players a certain percentage of the QO each year.
Either system would operate a little bit like the Rule 5 draft, in that teams would have to decide if it’s worth paying the escalated rate or lose young talent to FA. Players who are on the line and don’t get offered a contract will have a chance to hit the market at a relatively young age, and you might see a bunch one year deals where players try to establish value and then try to enter FA again in a stronger position but still at least a year earlier than under the current system.
I would have like to have seen more on the collateral impact of making this change. It will create more mid-range younger free agents, and as a result is probably likely to have a dampening effect on the prospects of mid-range older free-agents because you would relieve any possible scarcity. And, it might also seriously change the way early-career extensions are bargained for.
Maybe I missed it, but how is this different than a six-year union salary scale that involves a dramatic jump in year 4? It does not seem like anything is subject to an arbiter.
As Craig notes (I think, I had some trouble following the proposal) this would mean a lot of players would get non-tendered when salaries start rising dramatically, and be subject to the free agent market where they could negotiate lower salaries. Meanwhile, Manny Machado and his ilk would get really screwed.
This would definitely reward two types of teams: Teams that drafted and developed superstars well, and teams that are very shrewd at finding free agent bargains. Teams that are good at churning out role players like the Giants and Cardinals would be really hurt by this–the 1-2 WAR players (like the one Kiley was talking about in his article) would be bad deals and frequently be turned loose by their team…unless they were able to turn out new ones every 1-2 years.
I don’t really mind this as a proposal, but it doesn’t seem like arbitration, it would make the system even more “unfair” relative to on-field performance.
The problem is that it’s really hard to come up with a system that rewards teams that draft and develop well and pays players fairly. I don’t know how well this would move this towards or away either of those goals since there are so many unintended consequences.
Yeah I got the impression like a fourth OF type would be released the moment he hits arbitration to avoid paying nearly 7M (or 40% of the QO price). Same with non-elite RPs.
He would be. The theory is that this sort of player is getting screwed in arbitration anyway, and by letting him be a FA he’ll end up landing somewhere that will pay him more.
Curtis Granderson, a platoon OF just got 5M. In a FA class like this, is a fourth OF going to get more than 1M? I honestly don’t know.
Especially since now the bulk of your arbitration players are more expensive, that means less money for FA. So I think it helps some players, but hurts a lot as well.
if you look at those guys who just settled. Marisnick and Grossmans got about $2 million. Grichuk got $2.6 M. Grichuk probably gets tendered in this scenario while Marisnick and Grossman at least have the opportunity to look for a guaranteed role if they want one or take something similar to what they are getting now.
Or you end up with a lot more “market rate” extensions signed in year 3 to avoid the risk of having one bad year and hitting the free agent market when they non-tender you
I think the reasonable changes to arbitration are pushing towards a system where (1) the relative awards are based on WAR, or something close to it, and (2) the arb awards follow the same general increasing pattern but with a narrower gap versus free agent salaries.
As sadtrombone points out, however, the latter is a legitimate issue for a low-revenue team that hits upon a few good young players at the same time. I think that it would also tend to push non-contending low revenue teams to making a “fish or cut bait” decision a bit earlier if they have one or two really good players reaching arb years, because it decreases the trade value of each arb year. While I don’t subscribe to the absolutist view that teams would decrease free agent spending on a dollar-for-dollar basis for higher arb spending, I do think that part of the decreased gap would come from lower $/WAR paid for free agents. So there are reasons that both teams and veterans in the MLBPA might not like this idea.
So here’s one complementary idea I’ll throw out, which is a “salary rebate” idea for teams that receive revenue sharing. There’s currently a somewhat convoluted formula of how teams receive revenue sharing that’s based on average revenue over the three prior years. That calculation got more complicated in the 2016 CBA. So the idea is that an additional factor weighted into that calculation for each team otherwise eligible to receive revenue sharing would be something like the amount by which its total 40-man payroll spending exceeds some number such as the average payroll for all revenue sharing recipients. To be clear, it wouldn’t target anything like a dollar-for-dollar offset, but maybe the expectation would be that a team gets 10 or 20 cents more from the revenue sharing pool for each incremental dollar of spending. (The exact number wouldn’t be definitive because it’s part of a weighted formula.) And maybe the threshold for that transfer to begin could be set some amount ($5 million? $10 million) above the average payroll for all revenue sharing recipients.
To be clear, the total amount that’s transferred via revenue sharing would stay the same, so this money would implicitly come from other, low-spending teams that get revenue sharing. Or, as a complement, perhaps any revenue sharing payers who are below the average salary of the recipients would kick in more revenue sharing money under some similar weighted formula if they spend less on payroll than the average of revenue sharing recipients. I think that the 2016 and 2017 Phillies might have hit that mark, or at least been close. And a weighted formula should mean it’s proportional to the amount by which those teams are below the average payroll of all revenue sharing recipients.
The overall idea is a “very soft salary floor” idea that encourages revenue sharing recipients to spend money. It’s not so beneficial that they should want to throw money around just for the sake of spending it, but it would provide some help during a period when such a team wants to spend more for a contention window. It’s also some disincentive to completely gutting MLB payroll down to 2013 Astros levels. Maybe it should have some market adjustment factor in the formula so it doesn’t simply penalize the Rays and Marline each year, who are at a revenue level tier below even most the other recipients of revenue sharing. It could admittedly have a perverse effect some years of helping one or more low-revenue teams that have made unwise spending commitments in free agency, but I think that’s simply a necessary risk.
It’s a bit off-topic, but I started with a similar idea tied to specific players with high later year arb salaries for homegrown players. That level of specificity seems unworkable, though: early career contract extensions would complicate it, as could trades depending on the definition of “homegrown”. The MLBPA would also far prefer a system that incentivizes all spending by these teams, including on veteran free agents.
So, to summarize this really long comment, I’d propose arbitration changes complemented by two other ideas that the MLBPA should very much want:
(1) WAR-based arb salaries (or at least closer to that) with a narrower gap versus free agent prices
(2) a “salary rebate” idea weighted into revenue sharing to encourage spending by low-revenue teams (per above)
(3) pushing for a higher luxury tax line that perhaps explicitly rises in line with some definition of “total baseball revenue”.
I think this idea has a lot of merit.
And I wouldn’t worry at all about “flooding the market.” The idea that a player’s price depends on the number of similar free agents is almost certainly wrong. For every player that attains free agency, there is now a hole on a team’s roster that needs to be filled. Supply and demand move together.
This is a repost from the MLBPA comment section:
At a minimum, the MLBPA should replace arbitration w/ incentive-based compensation. For the 2-3 years of arbitration eligibility, have players paid at $8mn/WAR. In addition, if I were the MLBPA, I would try to reduce league minimum years from 3-4 years to 2-3 years. The other long-term goal for the MLBPA should be to reduce Team control from 6 years to 5 years.
I have been thinking along the same lines but thinking about an option that (1) also solved the service time problem and (2) helped players even earlier in their career.
What about if we do away with service time/ counting days and have the following rules: the first season that you put a player on the 25-man roster the minimum salary is 500k (prorated of course), the second $1 million, then $2 million, $4 million, $8 million, $12 million, and $15 million in year seven?
Players becom free agents under three circumstances: (1) when teams won’t meet that price; (2) the first offseason in which they are 30 by October 1; or (3) the seventh offseason after they debut in the majors.
Teams can get a 7th season before free agency rather than 6 and two thirds from star players who debut at an early age and the very best players end up making a little less before free agency. But most players reach free agency more quickly and players get financial security earlier and more predictability.
That method might encourage teams to choose younger players moreso than we see now where players at 1-3 are at an equal level. It is also harsher on smaller-market teams who rely on the 1-3 year players.
One problem is that teams that would normally call up players in August/September will keep than in the minors so they can delay starting their clock (in much the same way that teams keep players in the minors now early on to avoid super-2 status).
The service time problem is best solved by making it more granular and avoiding the big “cutoffs”. For example, a player’s salary could be based (at least partially) on the number of games he played in the previous season.
Jon’s idea makes some sense to me, as arbitration could be more granular with a concept like weighted averages of a 1st year arb salary (whatever process we hypothetically have to determine that) and
I think it’s a problem for free agency, though, because that’s a fairly bright-line cutoff of either “free agent” or “not a free agent”. I’m not sure that some sort of “restricted free agent” idea really changes that calculation much, or fits well with MLB. MLB draft picks just don’t have the value of high-round picks in the NFL or NHL. The NBA is a convoluted system that wouldn’t translate well without a complete overhaul of the MLB CBA, like much of the NBA system that’s based on max offers on individual contracts and then how those interact with a soft salary cap. So I think that letting a Kris Bryant-type reach even restricted free agency a year earlier is pretty unattractive for a team, especially a low revenue team that has that type of talent.
So I think that arbitration service time could be modified, but teams will always have a pretty big incentive to hold back the true superstar talents (e.g., Kris Bryant) to just below the service time for free agency, whether restricted or unrestricted.
I’m sure I could just Google this, but I don’t understand why the arbitrators can’t simply be instructed to award players something that makes a bit of freakin’ sense. The current system spits out numbers that are so egregiously low, it just seems rigged. Can’t you just have the same system and… de-rig it?
The NHL arbitration system allows the arbitrator to pick any number in the middle that they want. Of course, that leads to teams and players submitting crazy ranges, although they very rarely actually end up going through with it (most settle before the hearing). To have 5 or 6 years of salary tied entirely through playing-time seems like a weird way to handle things – like, it would totally eliminate any desire to sign young players to extensions, since you know that even if he’s Mike Trout, his early earnings are completely capped.
My preferred solution is similar to this. A more rational set of arbitration criteria is theoretically neutral for players and owners, but would more closely align pay with on field performance.
Then, within that framework you could gradually move arbitration sooner and sooner over CBAs, which would make more money for controlled players…and is something you might be able to bargain for gradually.
In theory you could bargain for Craig’s proposal gradually, but the endgame might be too obvious and might cause sticker shock for the owner’s side.
The salaries are low by design. There’s a salary progression and nobody is claiming (for better or worse) that Aaron Judge should be making $25 million in 2018, though of course he’d make that (or much more) as a free agent on a one year deal.
In other words, it doesn’t seem rigged – it *is* rigged (and nobody is hiding the fact that it’s rigged).
What I think could be changed is to instruct the arbitrators to consider meaningful stats instead of what they currently do.
And personally I prefer the “pick one number or the other” as it encourages teams and players to make their offers as realistic as possible.
Way back when free agency was first started, Charley Finley proposed setting all players free at the end of the season, making everybody play on one year deals. He hated the very idea of multiyear deals.
I doubt that the MLBPA would negotiate away the ability to get multi-year guaranteed contracts.
I think it would also inflict pretty significant damage on baseball as an overall business.
So much annual roster turnover would be a huge turn-off to casual fans who would barely even know who is on their team. Who would want to buy the jersey of players on their team?
Beyond that, how would low-revenue teams see hope if the big market teams simply retooled each year with the best players on 1-year contracts? And how would minor league development work if all teams get at the end is 1-year of a player in the majors?
Why are we trying to change a compensation model to reach a point where players are paid more? While I’m completely in support of free market forces dictating prices of goods and services, this is sub-optimal in baseball. The reality is you have 30 teams with a wide range of payroll capacities and constraints. Thus raising the cost of players becomes a competitive disadvantage for small and mid-market teams. More teams will have to cut loose players before they reach six years of service time. Windows for teams like the Pirates and Royals become increasingly smaller. Major market teams have more payroll flexibility because dollars become less concentrated amongst high-earning players. You create a model where small and mid-market teams can’t build a sustainable winner and major market teams consistently reign atop the standings. I’m all for artificially depressing player salaries for this very reason. It’s good for competitive balance.
“The other likely losers would be the owners, who shift about half a billion dollars to the players in this scenario.”
Markets don’t work like this. If you change the rules to shift more of the pie to arb-eligible players, you will decrease the amount paid to current FAs.
This failure to understand basic market dynamics is a mistake that keeps getting repeated by authors here. In fact, under the author’s proposal, the likely “losers” are true FAs, who will be paid less by the amount that these arb-eligible players’ pay is increased.
I’ve seen you repeat this assertion a lot. The big picture you’re arguing for is true–overall, more money to arb-eligible players reduces the amount of money directed toward free agency.
What you seem to be arguing though is that there is a true fixed amount of money that will be spent, and this number will not go up if valuation of certain players changes. I would be wary of saying that the downward pressure on free agent salaries will be exactly equal to the increase in money spent in arbitration. This is only true if there is a de facto “salary cap” for each team that constrains them and that every team is already at that limit. That’s a pretty strong assertion…there are likely many teams that can and are willing to pay more, but see no reason to because of diminishing returns. Changing the valuation of players may change that calculus (for better or worse).
Agree with you, trombone, that theoretically the amount of money spent is not fixed. Owners can and will spend more than we expect due to various reasons already, let alone if a massive structure change is made to arb. The issue is that the owners would never agree to a proposal which on its surface would cause them to have to spend more $$$ on the same amount of talent.
This is actually an even larger misunderstanding of market dynamics and only works if budgets are fixed at the level that they are now across the sport.
If owners suddenly had to drop an extra $500 million on arb players, what would play out would be incredibly more nuanced than that. In reality we would expect owners to take a hit for some of the $500 million and true FAs to take the rest. The split would depend on the relative slopes of the supply and demand curves in the true FA market.
I agree that, for the most part, this just shifts the money from true free agents to arbitration eligible players. Certainly there’s some teams that would spend more under this system but I think that’s the minority and I don’t think you would see them spend at them same rate that they’re currently ‘saving’. Of the $500 million that will shift to the arbitration eligible players, I would guess that owners would spend $350 million less on free agents. Still a net gain of $150 million but a significant reduction to true free agents. Probably brings the cost per WAR down to $7.5-8.0M.
The current system is pretty fair and ensures that the players get paid eventually while keeping a competitive balance. This system would be a killer on small market teams and a boon for the large market teams. If anything, keep the system as is except for replace the statistics currently being used with meaningful ones. Hell just make it really easy and set a cost per WAR each season and pay players based on that scale. No arbitrators needed (aside from maybe setting the cost per WAR for the entire league each season).
Alternatively, and to allow for some performance basis, set the levels to something lower … say 10/20/40/60% of the QO (or whatever), and have that be the club’s minimum arbitration offer. The club could choose to non-tender, of course, or offer more. The player can file for a higher contract as well.
That can provide for a higher floor for middle class players, and let the stars argue for a salary more commensurate with their production. It would also mean fewer of the lower end player would be cut loose, which would help to prevent the distortion of the FA market.
Players should just hold out more (either directly by refusing to play or through injury). Players in the pre free agency period are drasticallly underpaid.
Take Quintana last year. I would have held him out until the Cubs Agreed to restructure. No way they just let him sit on idle when the pennant is at risk and after the talent they let go.
Why not cut out the process all together? Increase league minimum to $750k or even $1M, you get 4 years at this rate then become a free agent.
This doesn’t fix another massive issue, which is the fact that players are absurdly paid a minimum salary for their first three years of service time.
But there’s no way I’ve thought of to fix that which doesn’t screw over all small market clubs.
Aggressive revenue sharing.
To me, the wrong group is bearing the burden when you treat highly skilled labour as indentured servants in the name of competitive balance.
I don’t feel too bad for the players because its union is the most selfish one out of the major sports. Comprised of mainly veterans, it decided to completely screw young and international players without contemplating the irony that they were further de-valuing themselves.
That, and they need a guaranteed percentage of revenues, like the NFL and NBA. It’s a massive failure on the union’s part to have its employees receive 38% of revenue, while the others receive at least 50%.
Tony Clark should have rammed it into the heads of the players that paying the young guys more would benefit everyone.
You would eliminate the middle class you seek to empower. When teams are faced with 40% QO value to bench and non elite relievers, instead of inflating their value in an open market as you suggested it will instead pit them against the next wave of prospects. Would you get in a bidding war or spend any millions if you could just take a shot on your own potential 1 WAR player in AAA with 4 years of league minimum control? Most of those free agents would end up having to sign for near league minimum to compete
Conversely, this would lock in the stars for an extra year of relatively cheap control and the money saved by the Arb-1/2 types being non tendered would likely go to the true stars in free agency. The Machado types that can put up 7 WAR in a season
I have to register my strong disagreement with this proposal. You say in the article that the top team-controlled players would make “a little less” under this system. Actually, they would make a lot less.
Take Kris Bryant for example. He just agreed to a $10.85 million deal for his first year as a Super Two player. That’s already much, much less than he’s worth. So it baffles me that you would propose cutting his pay to $3.5 million. And in his next 3 years before free agency, he would continue to receive much less than under arbitration.
Additionally, this creates a perverse incentive of sorts, in that worse players will get to experience free agency sooner.
Stop. A talented, dedicated agency can win arbitration every time – if the client deserves it.
Free agent contracts and arbitration case aren’t related. MLBPA should reinvestigate each lost arbitration case, then sanction the agent, if applicable.
The last line of the piece does nail it, though.
It’s shameful that the Blue Jays staff is paid so little. They should all beat arbitration simply because Miguel Montero was their catcher.
It’s an interesting idea from Craig, but I think that he’s greatly overestimating just how many of his identified arb players would receive tenders.
From Craig’s group of 139 arb year players with a median WAR of 1.7, I wonder just how low that cutoff goes and how many of those players below (or even near) the median would actually get paid their arb2 (~$10 million) or arb3 (~$14 million) salaries by teams in the bottom half of revenue/payroll. Maybe they would if they fill a particular need for one of those teams when it’s in a contention window, but we need to remember that surplus value compares to the absolute most expensive marginal cost of a win: free agency pricing.
In a vacuum, it’s great by surplus value math to build a 25 man Opening Day roster that projects for 40 WAR and costs $180 million in payroll. That’s a playoff contender (~88 win projection) with surplus value of $140 million to $180 million at $8 to $9 million per WAR in free agency. That was also a Top 5 MLB opening day payroll in 2017 (per either BP Compensation or Steve the Ump). I question his view that teams would collectively increase payroll by $500 million in response to this change – there’d be some offset in lower dollars committed to free agents, albeit probably at less than 100% – but even if every team spends the extra ~$17 million that implies, it’s still roughly a top 10 payroll.
And that’s particularly relevant because Craig’s $4.5 million per WAR for his average arb year player isn’t in fact a “bargain” relative to the payroll that most teams would try to run even when contending (and especially when not contending). That math ($4.5 million times 40) gets right back to that $180 million payroll for a 40 WAR roster. A .500 team is ~33 WAR, and so similar math implies an ~$150 million payroll for a league-average team.
And that’s for arb players averaging 1.8 WAR (with a 1.7 WAR median), including Arb1 players at a lower salary of ~$7 million. This group logically must include a lot of Arb2 and Arb3 players who project for less than 1.7 WAR, meaning we’re now getting to a cost north of $4.5 million per WAR, probably well north of it for quite a few players.
Yes, teams can also lower the average cost of WAR for their roster as a whole with high-quality minimum salaries. But, if you’re a lower revenue/payroll team – let’s say bottom 10 – trying to chart a path to 35 or 40 WAR on a $125 million (or lower) budget, you’re trying to get an average cost per WAR of $3 to $3.5 million (or lower). It takes quite a lot from minimum salary players to get there if the team has any free agents – even with a free agent price drop below $8 to $9 million due to less scarcity. Let’s say only 5 WAR from free agents at $7 million per WAR for $35 million (assume that’s 2 players). The math with $4.5 million/WAR in arb and $0.5 million per minimum-salaried player is then 10 average arb players generating 17.5 WAR at a cost of about $79 million and filling out the roster with 13 minimum salary players who cumulatively need to generate another 17.5 WAR, for a contender with $120 million payroll. That’s with a whopping 23 cost-controlled players, and this cost escalates rapidly as players progress through or reach arbitration.
So this group of 139 players includes a lot who logically would be cut lose by low-revenue non-contenders, and possibly even low-revenue contenders, either traded (quite possibly for little return due to so many teams willing to dump these players) or non-tendered. That implies far less scarcity of free agents, many of them reasonable quality 2-ish WAR players who are simply too expensive for low-revenue teams at Arb3 prices or perhaps even Arb2 prices in some circumstances. So that, I think, would be the underlying force exerting downward pressure on free agent cost per WAR.
I could also see an unintended consequence of pushing teams more toward extreme rebuild (or “tanking”) strategies because cost-controlled, star quality players clearly become better bargains for teams under this replacement for the Arb system. Those are the players who low-revenue teams would now see value in keeping all the way through their arb years, and they’re the players who are also legitimate trade assets even if a team can’t build around them.
First, let’s identify some problems:
1. Players are dramatically underpaid in their first three years of service time.
2. Arbitration is based on outdated statistics and service time, and also usually ends up underpaying players during their prime years.
3. Free agency has typically led to players getting dramatically overpaid, as teams dump their excess cash onto aging, declining players. Teams are starting to realize this, and now free agent contracts are becoming less generous.
4. Players effectively have 7, not 6, years of service time before they become free agents, as teams game the system by calling rookies up in late April.
Here are some potential solutions that I think could work:
1. Raise minimum salary to $1 M, and index it to the qualifying offer for future years.
2. Change pre-arbitration from three years of minimum salary to a 1/2/3 system where players earn double and then triple the minimum salary in years two and three.
2. For year four, the team must classify the player based on their performance. Type A players receive 50% of the qualifying offer ($8.7 M). Type B players receive 35% of the qualifying offer ($6.1 M). “Type C” players – everyone else – get four times the minimum salary ($4 M). Additionally, if you offer a Type B or Type C contract, other teams are allowed to offer a higher classification. If the original team fails to match the other team’s offer, he goes to the other team. Similar to restricted free agency in the NBA. The catch here, however, is that once you classify a player as “Type A” or “Type B”, you lock in the higher salaries for the rest of his years of team control.
3. For year five, Type A players receive 75% of the qualifying offer ($13.1 M), Type B players receive 50% of the qualifying offer, and everyone else receives five times the minimum salary. Once again, other teams are allowed to offer a higher classification than the original team, and the original team has to match the other team’s offer in order to keep the player in question. So if the Mets have Wilmer Flores as a type B player, but the Reds decide he’s worth a Type A contract, the Mets would then have to give Flores a type A contract in order to keep him. If not, he goes to the Reds.
4. For year six, Type A players receive the qualifying offer, Type B players receive 65% of the qualifying offer, and Type C players receive 6 times the minimum salary.
5. Instead of having 6.95 years of control, make the cutoff 6.5 years. No more gaming the system by keeping Kris Bryant in AAA until April 20th.
Why would the owners do any of this? For one, you could get pace of play, salary cap, and potentially other concessions from players. Additionally, while pay would increase for younger players, teams probably would be in a better position because they no longer would be pressured to overpay for free agents.
Just some ideas.