Lorenzo Cain and A.J. Pollock Sign Atypical Contracts

In yet another sign that baseball season is coming ever closer, the arbitration process this year is coming to a close. Many players signed one-year deals before the teams and players exchanged numbers last month, while others exchanged numbers and struck one-year deals. A few players have actually gone to arbitration. Four players — Lorenzo Cain, Josh Donaldson, J.D. Martinez, and A.J. Pollock — agreed to two-year deals with their teams, buying out no free-agent seasons, but ensuring both parties that arbitration would not be necessary next year. These two-year deals are common and typically come with a discount for the team. For the four players who signed this season, however, there was no discount.

The arbitration process is set up to provide a discount to teams in the years just before free agency. The players get their first taste of actual millions while the team retains control of the player at a price much less than what the market would yield — all without having to mark a multi-year commitment. Some players sign extensions which takie them through free agency while others are non-tendered and set free by clubs who think that even the small, arbitration-produced salaries are too much compared to the expected production.

Occasionally, players sign contracts covering some arbitration years, but no free -gent years. These contracts rarely make big news because the risk and reward for both the player and the team is relatively small. The type of player who is offered this type of deal is almost a guarantee to be tendered a contract the following season. Of deals of this nature over the past few seasons, only the Cardinals’ signing of Jason Motte to a two-year, $12 million contract actually provided significant money to a player who would have been non-tendered.

In these deals, both the team and player receive the benefit of avoiding the arbitration process. While that benefit might be more intangible in nature, teams do devote a decent amount of time and resources to arbitration that could be used elsewhere, and players have one less thing to worry about during the season. In addition, players receive slightly more security than they would have otherwise, protecting themselves somewhat from catastrophic injury or decline. Teams, for their part, tend to receive a small discount on future years’ salaries.

Per a review of the database and available salaries at MLB Trade Rumors, I foundĀ 313 players since 2012 who received contracts in consecutive seasons by way of the arbitration process. These players form the base of the analysis regarding a discounted two-year deal. This group does not include players who signed an extension during the two-year time frame or players who went through arbitration one year and were non-tendered the next season. For the small handful of players who have yet to receive a contract this season, the midpoint was used. The chart below shows how those players fared in arbitration with the prior year salary, the current year salary, and the dollar and percentage difference from the previous season.

Average Arbitration Increases, 2012-2016
Prev Year Present Year Increase % Increase
2013 $2.54 M $4.10 M $1.55 M 61.10%
2014 $2.58 M $4.13 M $1.55 M 59.94%
2015 $3.04 M $4.59 M $1.54 M 50.69%
2016 $2.91 M $4.43 M $1.52 M 52.20%
Overall (313) $2.80 M $4.34 M $1.54 M 55.00%
Individual player data from mlbtraderumors.com

There is some shifting from year, but the numbers are fairly uniform of late. It does appear that raises are rather static, perhaps failing to increase at the rate they should given the economics of the game. The previous year contracts have gone up roughly 16% from 2013-2014 to 2015-2016, but the corresponding increase the following year is under 10% over the same two-year periods. As a result, we see in the final column that the percentage increase from year to year has gone down a bit the past few seasons.

We have considerably fewer players to compare the above group to when it comes to two-year contracts. Using the same data from MLB Trade Rumors, I found 24 players since 2012 (and prior to this year) who avoided arbitration by signing two-year deals that bought out only arbitration years and also contained no options. I looked at their total contract amount, and subtracted the midpoint to determine the salary for the following season, then repeated the exercise from above. Since teams and players structure their contracts differently, with some providing equal money both years or heavily defer money to year two, using the midpoint seemed like a more equitable way to determine the player’s raise in the second year of the contract. Where the midpoint was unavailable, the arbitration estimation from MLB Trade Rumors was used.

Two-Year Contracts in Arbitration
Prev Year Present Year Increase % Increase
2013 $6.45 M $7.94 M $1.54 M 23.86%
2014 $3.69 M $5.57 M $1.88 M 50.88%
2015 $5.01 M $7.08 M $2.07 M 41.30%
2016 $3.78 M $5.29 M $1.51 M 39.95%
Overall (24) $4.80 M $6.50 M $1.70 M 35.42%
Individual player data from mlbtraderumors.com

The dollar figures are higher, but the final column shows the discount the team generally receives. Where the year-to-year arbitration cases received raises of around 55%, these players’ raises amounted to 20% less, very close to the same dollar-figure raise despite the high starting point. There could be an issue with that starting point if players with higher salaries receive a lower percentage increase. Higher-salaried players did receive lower raises by percentage. However, limiting the first group to higher-salaried players still placed the increase at a higher level. The chart below shows the arbitration increases with salary floors for previous year.

Arbitration Increase with Minimum Previous Year Salary, 2013-2016
Prev Year Present Year Increase % Increase
Min. $2 M (180) $3.93 M $5.97 M $2.04 M 51.91%
Min. $3 M (112) $4.81 M $7.14 M $2.33 M 48.40%
Min. $4 M (66) $5.79 M $8.35 M $2.56 M 44.21%
Min. $5 M (36) $6.99 M $9.88 M $2.89 M 41.34%
Individual player data from mlbtraderumors.com

So even with salary levels higher than those in the two-year contract group, there is still a discount, albeit a smaller one, when a player takes a two-year deal. Now look at this year’s group of four players:

Two-Year Arbitration Contracts in 2016
Contract $ Arb. Midpoint Difference Increase on Midpoint % Increase
J.D. Martinez $18.50 M $7.00 M $11.50 M $4.50 M 64.29%
Josh Donaldson $28.65 M $11.58 M $17.08 M $5.50 M 47.52%
A.J. Pollock $10.25 M $3.78 M $6.48 M $2.70 M 71.52%
Lorenzo Cain $17.50 M $6.43 M $11.08 M $4.65 M 72.37%
AVERAGE $18.73 M $7.19 M $11.53 M $4.34 M 60.36%
Individual player data from mlbtraderumors.com

Not only is there no discount, but teams paid a premium to get this year’s group of players locked into two-year deals. Before this season, the only players in the last four years to receive a percentage increase greater than 60% were a couple middle relievers in Kelvin Herrera and Sam LeCure, along with Jhoulys Chacin. Three out of four players this year received a figure above that level, with only Donaldson below, but given his high midpoint, that is not a surprise. Donaldson’s $5.5 million increase is greater than any other in the past four years. Even opening up to all arbitration cases, the only player with a bigger increase than Donaldson with a starting salary above $7 million was David Price when he moved from $14 million to $19.75 million a few years ago. The only player to receive more than a $3 million increase above the midpoint was Ian Desmond — and, again, three out of four players above beat that mark.

For Donaldson, the Toronto Blue Jays are paying for an expected increase due to his MVP season this season, but in the case of the other three players, the teams are paying more in case of an even further breakout for these players. The teams did not receive the typical discount given for two-year contracts, and the only way the team ends up ahead is with an MVP-like season. Given the caliber of these players and the salaries they’re receiving, the team is unlikely to end up behind with these contracts, but they are a departure from the deals that have been made over the past few years.

Craig Edwards can be found on twitter @craigjedwards.

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6 years ago

Or, it means that the teams judged that they were likely to lose the arbitration case (and pay the higher price that the player requested for Year 1). This would explain why the team is giving up a larger raise in year 2, in relation to the midpoint, than this analysis shows; the midpoint was not the true expected year 1 salary.

You could even derive that expectation/probability from the data, using the 55% increase (or another value), if you were so inclined.