This week in LWIB, in defense of salary arbitration and the real possibility that Portland will soon be without Triple-A baseball.
SALARY ARB, IT’S A GOOD THING
LWIB the salary arbitration season was in full swing. As is typical this time of year, many baseball pundits expressed their shock and dismay over the enormous wage increases being awarded newly “arb eligible” players. The focus of the reporting and opinion was naturally Giants pitcher Tim Lincecum. Lincecum won his second consecutive Cy Young award in 09, the first pitcher to do so since future Hall of Famer Randy Johnson won four consecutive from 99-02. Maury Brown wrote for Yahoo! Sports that thanks to salary arbitration, Lincecum is certain to receive a staggering pay increase for the 10 season, perhaps as much as 1900%. (Lincecum’s 09 base salary was $650,000, he has “filed” for a salary of $13 million for 10) More from Maury;
How much will Lincecum land? He filed for $13 million on Tuesday, while the Giants countered with an offer of $8 million. Even a pre-hearing compromise at the mid-point would cost San Francisco $10.5 million. The choking you hear is from Giants GM Brian Sabean. Welcome to the salary arbitration game.
There is uniform agreement that the introduction of salary arbitration in 73 has had a more inflationary impact on player compensation than the introduction of free agency. But not all agree that salary arbitration is unfair to the owners and that, in fact, the newly “arb eligible” players are deserving of the whopping pay increases that the process brings. (The vast majority of cases never go to arbitration but the process nonetheless is responsible for enormous pay increases) Keith Law commented on the Lincecum “filing” for ESPN, “If anything, Lincecum's agents underfiled; his case was unprecedented and a number of $15-18 million would have been defensible.” Lincecum has received slightly more than $1 million in base salary from the Giants over his past two consecutive Cy Young Award seasons. LWIB, Paul Daugherty wrote a piece for Ohio based Enquirer Media lamenting the unfairness to small market clubs of the salary arbitration system. Mr. Daugherty’s piece includes this comment from player agent Joe Bick, “Once you get a guy to the point he’s arbitration eligible, that means he has made a pretty valuable contribution to your club for three years, and you have paid him very little. It’s about time the guy made some money.’’
In order to avoid the adversarial exchanges inherent in a salary arbitration hearing, many players and their clubs agree (pre hearing) to a salary at the mid-point between the filings of each side. As Maury Brown noted in his aforementioned report, that mid-point in Lincecum’s case is $10.5 million. But does that figure represent Lincecum’s value in an open market? Consider that recently signed pitcher Joel Piniero received a two year deal for $16 million in the FA market. In 2003, the late Doug Pappas wrote about the salary arbitration process;
In recent years, the owners have come to resent the near-automatic raises earned by players who file for salary arbitration. They occasionally propose eliminating arbitration in return for making players eligible for free agency a year or two sooner. That they never offer to allow all arbitration-eligible players to file for free agency instead is strong evidence that the owners' real objective is to reduce player salaries, not to eliminate any perceived unfairness in the arbitration process.
In fact, arbitration still gives the owner ultimate control of the player's destiny. If he thinks an arbitrator would be too generous, he can release the player outright. If the player develops into a superstar, the owner reaps a windfall. For example, Albert Pujols of the Cardinals is in his third major league season. The 2001 Rookie of the Year, 2002 MVP runner-up and likely 2003 MVP has earned a total of $1.7 million, while rendering performance worth at least $30 million on the open market. Pujols will be eligible for salary arbitration after the 2003 season, but even if he's awarded a $9 million salary (a 1,000% raise), he'll still be underpaid.
The 2003 CBA is the first to make no significant changes in the arbitration process. It won't be the last. For owners and players alike, salary arbitration has proved a happy medium between the reserve clause and free agency.
In 2008, economist Phil Miller defended MLB salary arbitration in a post for The Sports Economist blog;
…….another reason for why the average player sees a nice raise just for becoming eligible: reserved players are in a monopsonistic labor market and, thus, earn salaries below their marginal values to their respective teams.
You can argue that part of the difference between salaries and marginal value can be considered a return on investment in minor league training. You can also argue that part of the difference goes to pure monopsony rent. The point is that reserved players are paid less than their marginal value and arbitrated players are paid closer to their marginal value because arbitration mimics, albeit imperfectly, a competitive labor market. Thus the jump in salaries by becoming eligible.
Fans of MLB should remember player holdouts were a staple of the pre salary arb era of the late 60’s and early 70’s. This era included the now seemingly bizarre practice of players playing without a contract. There were many instances, but amongst the most notable were St. Louis Cardinals star C Ted Simmons playing without a contract in 72 up until his appearance in that season’s All Star Game and, of course, P Andy Messersmith playing the 75 season for the Dodgers sans contract. Again from Maury Brown’s aforementioned report, “The owners and commissioner Bowie Kuhn, realizing the wolves were at the door, voted 22-2 to allow salary arbitration as a way of stopping the holdouts, and rationalized that, in the long run, it might prevent free agency.” While obviously the introduction of salary arbitration did not forestall the introduction of free agency, fans have long been spared the disheartening player holdouts of the pre salary arb era.
Going forward, possibly more worrisome to management than the huge pay increases that newly “arb eligible” players receive is the growing concern that “arb eligible” veteran players are able to command greater compensation by accepting salary arbitration instead of opting for free agency. This situation is the opposite of the likes of Lincecum (and in the recent past Ryan Howard and Albert Pujols) receiving huge pay increases as a result of being newly “arb eligible” but still significantly less than what they would command as free agents. This trend is a result of the diminished demand for free agents and complicates clubs’ decisions on whether to forego draft pick compensation (if they decline to offer arbitration) when losing a player via free agency.
Select Read More to see details of the Triple-A Beavers, and the possibility of them leaving Portland:
TRIPLE-A TO DEPART PORTLAND?
LWIB brought the news that 2010 is likely the final season for the Triple-A Portland Beavers of the PCL. Triple-A baseball returned to Portland for the 2001 season following several years of the city being home to Class A. Speculation that Triple-A will be leaving Portland stems from the announcement last week that the city of Portland has reached an agreement with Merritt Paulson to convert the baseball stadium (PGE Park) to a facility suitable for their expansion MLS franchise which begins play in 2011. The renovated stadium will also be home to Portland State University’s football team but there are no plans for it to accommodate a baseball franchise. Portland City Council is expected to approve the agreement next week. Mr. Paulson owns both the MLS and TRIPLE-A franchises but his plans beyond this season for his baseball club are unknown. Ballpark Digest reported:
From what we're told, Paulson and the city will continue to work on a potential ballpark site and funding plan; at this time there are no plans to move the team. But building a new home for the Beavers will take a year or so, and we're already bumping against any 2011 ballpark opening being done on a very tight schedule. Plus, it's not as though there are any ballparks in the greater Portland area that could be pressed into service as a temporary Beavers home. Given all of this, it's pretty clear there's the very real chance the Beavers will be playing somewhere else in 2011.
The Portland Business Journal reported:
The agreement includes a clause calling for Peregrine (LWIB note; Peregrine being Mr. Paulson’s LLC) to indemnify the city from any claim from the Pacific Coast League related to the Triple-A Portland Beavers not being able to use the stadium following the 2010 season. The clause could leave the door open for the Beavers to leave town.
It essentially puts any legal onus on Paulson, as opposed to the city, should the league object to the Beavers' relocation, said Ty Kovatch, Commissioner Randy Leonard's chief of staff.
With 2010 being an even numbered year, many PDC’s (Player Development Contracts) between MLB franchises and their independently owned minor league affiliates are up for renewal. The fate of the “Beavos” will be a key part of this bi-annual game of minor league affiliate “musical chairs”.
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Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.
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