A Look at How the Salary Arbitration Process Functions in Major League Baseball
At this rate, the owners/clubs are on pace to set a record for their ability to win salary arbitration cases against the players, by way of hearing, than any point in history.
In five arbitration hearings, the clubs are still batting 1.000. Score? Owners 5, Players 0.
Yesterday saw SS Mark Loretta losing to the Astros, thereby guaranteeing a 12th consecutive year that management has won the salary arbitration battle. The last time the players won was 1996 when 10 cases were heard, with the players winning 7 to 3. The following is a breakdown of those that won that year:
- Steve Avery (Braves) – Requested: $4.2M, Offered: $3.6M
- Jeff Fassero (Expos) – Requested: $2.8M, Offered: $2M
- Chuck Knoblauch (Twins) – Requested: $4.67M, Offered: $3.75M
- Mark Lewis (Tigers) – Requested: $670K, Offered: $450K
- Mike Stanton (Red Sox) – Requested: $1.75M, Offered: $1.2M
- Rick Wilkins (Astros) – Requested: $1.55M, Offered: $1.25M
- Bernie Williams (Yankees) – Requested: $3M, Offered: $2.555M
To date, management has won 279 cases to the players 203
(See the complete historical scorecard for MLB salary arbitration)
Today sees Ryan Howard go to hearing with the Phillies. The gap between club figure and player figure in this case ($3 million) represents the largest gap between figures for the salary arbitration class of 2008.
This past Saturday, Scott Lauber, who covers the Phillies, ran the first of three installments on the arbitration process for the Delaware News Journal, and asked me to comment about it.
Select Read More to see the rest of this analysis on salary arbitration
As reported on 2/16:
There are no indications that the Phillies are nearing an accord with Casey Close, Howard's Beverly Hills-based agent. So, barring an 11th-hour settlement next week, Howard's salary will be decided after a three-person panel of arbitrators listens to arguments from each side. And an army of Phillies fans, disguised as amateur psychologists, are wary of the effect a hearing may have on Howard's psyche.
"I don't care who you are, if your employer says that you aren't good at something, it's not going to be an enjoyable experience," said Maury Brown, a sports business analyst and founder of the Business of Sports Network.
Brown, who studies and tracks arbitration cases, said hearings can become so unpleasant that many settlements occur literally at the last minute, as the player, agent and team officials are walking into the room for the hearing.
Howard and the Phillies still may work out a one-year or multiyear contract. But it's believed that Howard and his family have asked for a richer deal than the seven-year, $85 million extension the Phillies gave to All-Star second baseman Chase Utley before last season. And the sides' $3 million difference of opinion over a 2008 salary is the largest of any player who filed for arbitration this year.
"That's not pocket change," Brown said. "Three million dollars is a decent middle reliever."
To clarify my statements, management isn’t really saying players “aren't good at something,” but rather saying they're not worth as much as the player is requesting. The player and his agent see the situation differently, of course, if matters have gotten to the stage of going all the way to hearing without reaching a contract agreement. Most often, agreements are reached beforehand due to the economics of the situation, rather than the unpleasant nature of the salary arbitration process. Like I said in the case of Howard, $3 million isn’t exactly chump change. Both sides have a lot to lose, depending on the outcome of the ruling by the arbitration panel.
Lauber then followed up with a blog posting on The News Journal, in which he adds:
Historically, owners have won 278 of 481 hearings (57.8 percent). But according to Maury Brown, a sports business analyst and founder of the Business of Sports Network, the owners never really win. Talked to Brown by phone yesterday, and he made the valid point that players get enormous raises even when they lose a hearing. For example, Wang made $489,500 last season. He will make $4 million in 2008.
This was, of course, posted before Loretta lost his case yesterday with the Astros, changing the overall scorecard to owners winning 279 of 482 cases (57.88 percent). In terms of the players winning even when losing, let’s look at the amounts that players that lost salary arbitration hearings this year were making last season, and what they will now make after “losing”. All of these players will gain significant amounts of cash compared to last season, with Mark Lorretta the exception. In his case, he’s going to make less than last season.
- Felipe Lopez: Last season $3,900,000 Club figure: $4,900,000 – Raise (’08 salary): $1,000,000
- Chien-Ming Wang: Last season $489,500 Club figure: $4,000,000 – Raise (’08 salary): $3,510,500
- Jose Valverde: Last season $489,500 Club figure: $2,000,000 – Raise (’08 salary): $1,510,500
- Brian Fuentes: Last season $3,525,000 Club figure: $5,050,000 – Raise (’08 salary): $1,525,000
- Mark Lorretta: Last season $3,500,000 Club figure: $2,750,000 – Decrease from last season (’08 salary): $ 750,000
To add yet another article by Lauber, he followed up with an article Monday regarding the arbitration process, citing veteran Tom Gordon, who is now a reliever for Phillies:
Gordon recalled the Royals brought a representative to make their argument, so the negatives didn't come directly from a front-office member. It is likely the Phillies will do the same, especially after enlisting arbitration guru Tal Smith to help prepare their case.
Smith, a longtime Astros executive, has worked on more than 150 cases (he beat Barry Bonds twice in the '90s), and is known for his soft touch at the arbitration table. He often is able to state a case without getting too personal.
"I can only recall two or three [cases] where I thought there was any animosity," Smith said in a 2005 interview with Business of Sports Network. "To me, it's nothing more than an ongoing discussion or debate, the same as you would have in negotiations, except for the fact that it's being presented to a third party. It's not like you have to be derisive or castigate the player. I mean, the numbers are the numbers."
Maury Brown, a sports business analyst, said the arguments typically aren't bogged down by advanced baseball statistics. The Phillies won't dazzle the panel with Howard's "range factor." The arbitrators are selected by Major League Baseball and the players' association, and although Brown said they understand baseball, they hardly qualify as sabermetricians.
On the latter of my comments, it is this factor which brings in matters such as comparing salary figures and a player’s service time. For example, the Yankees made their case with Chien-Ming Wang based, in part, on the fact that their offering figure was the highest arbitration figure ever for a pitcher with the amount of service time that Wang has (2.159 years). So, it is not all about player statistics, but rather a comparative process in which the amount of the salary figures can play a large part in which figure (player, or owner) is selected.
The psychology of the process is debatable. I would suggest that most players understand that salary arbitration is all part of the business, yet at the same time, feel a twinge of negativity when their employer (management) makes a case that they aren’t worth what the player is asking. After all, athletes at this level have been coddled and told that they are star material, many times, since they took up sports. The process goes straight to their egos. Somehow, I imagine, that with the majority of these players getting ready to enjoy substantial salary increases in their “loses”, the extra green will somehow lessen the blow to their egos.