Josh Hamilton and Texas Avoid Arbitration with Deal

About three weeks after the exchange of arbitration figures where Josh Hamilton requested $12 million and the Rangers countered with $8.7 million, the two sides have reached a contract agreement that will cover this and next season. It is being reported as a two-year, $24 million deal. In essence, this deal can be summarized as Hamilton “wins” his 2011 arbitration case and cedes any possible raise for 2012.

At worst, projections are likely to place Hamilton in the 4-5 WAR bucket. That level of production would demand about $20 million a year in free agency, or about $12 million in second year arbitration. Hamilton’s offer then was fair while the Rangers were low balling him quite a bit. Working against Hamilton however was his poor 2009 and the resistance to offer a gigantic raise, but his newly awarded MVP trophy might have been enough to mitigate that.

While this can be looked at as Hamilton winning his 2011 case, how much does the locked in 2012 salary cost him? $24 million spread out over a player’s final two arbitration seasons translates to about $17 million a year on the open market, a price that is being paid for about 3.5 to 4 wins, which Hamilton should clear. Josh Hamilton probably deserved something closer to $27 million. However, the advanced stage of his arbitration hearing means that Hamilton and the Rangers were not operating in a very fluid environment. Given the constructs already involved, how did Hamilton do?

To answer that, we have to investigate the alternative that he had, which was to go through with arbitration. If you assume Hamilton had a 50/50 chance of winning his arbitration case then his expected salary in 2011 was $10.4 million. That means he has locked in $1.6 million of surplus salary this season.

Predicting his 2012 hearing is more difficult, but if we assume that he meets his 2011 playing projection of 4-5 wins, then Hamilton would have been justified in seeking around $16 million for his final year in arbitration. He’s actually getting $13.6 million if you count the surplus salary from 2011. That’s a discount for Texas, but not a huge one. Personally, I doubt that the two sides would have submitted offers that bracketed a fair number for Hamilton so the gap is even smaller.

In summary, the Rangers do well here, but Hamilton had little leverage in which to extract a perfectly fair deal since the two sides had already exchanged arbitration numbers.