The Evils of Salary Arbitration

For several years, I've been wondering about the nebulous concept of "salary arbitration," wherein players and teams negotiate a salary and an arbitrator decides what the team must pay the player. Arbitration happens after a player's first three seasons and before his first six seasons.

My issues with arbitration have been:

Why is it necessary?
I actually don't have much of a problem with it. After those first three years in the majors, good players deserve to finally get paid. The arbitration process guarantees that. Without the arbitration process, the contract situation would probably be even more confusing and the teams would figure out ways to gain more control over the players.

How do they choose the price?
Well, it turns out that the team and the player each submit a salary offer for a new one year contract. The arbitrator then decides which of these numbers is "fair," based on what other players with "similar ability and service time" are getting paid.

I have a huge problem with this. The system seems to be clearly designed to pump up the dollar value of every player. The comparable clause is vague enough to put a below average player in the same class as a superstar. It doesn't take into account the team paying him; note that players on the Yankees and Red Sox probably have higher salaries than players on the Marlins and Rays. This does not mean the players are better, it means the team is willing to pay more money. The salary arbitration process ensures that every team must pay the price the richest teams would be willing to pay.

Why does everyone deserve a raise regardless of performance or injury?
Obviously, they don't. But they very often get it. The Twins are only allowed to offer Craig Monroe 20% less than last year's salary in arbitration, despite the fact that he had by far the worst season of his career. The only reason he'll make $3.5 million next season (at least) is because of the salary arbitration process, which defines a minimum that a player is allowed to be paid, based on what he used to be paid. When it's illegal for you to get a pay cut or be demoted -- regardless of performance or any other issue -- you know you've got a good union.

Does being on the 60 day DL for an entire year count toward your service time?
The reason I care is this: if you have a good, young (cheap) player who can contribute to the team significantly before he reaches arbitration, you have a significant competitive advantage. What if that player sits out a year during his pre-arbitration days? Does the team get an extra year of performance from that player to replace what was lost, or does the player get one year closer to the big paycheck without having to do anything? (Specifically, I care because of Francisco Liriano, who is in exactly this situation.)

Well, it turns out that sitting out a year on the 60 day DL does count toward your service time. So, in effect, the Twins will have to pay Liriano as if he'd never been injured, despite the fact that the team did not receive 3 years of actual service during his service time.

Ultimately, I think salary arbitration is a good idea and is probably a necessary evil, especially after the way players were treated by the owners before free agency. But the players' union is far too powerful, and the process has become corrupted in such a way that players are guaranteed too much money (more than what they've earned) and all teams in all markets are forced to pay their players the same as the rich teams in the huge markets would; this is simply impossible and foolish.

A quick way to fix the arbitration process would be to make a couple small changes for the better. The first thing that needs to be changed is the DL clause; if you're on the DL for an entire year, it doesn't count towards your service time. The second is the actual arbitration process, and the fact that the arbitrator simply chooses one salary over another (usually the player's submission); the arbitrator should be able to choose a salary somewhere in between the two submissions, based on a number of factors considering both the player and the team. It should at least be possible for the Marlins to hang onto Miguel Cabrera until he actually reaches free agency. Just because New York and Boston would pay him $13 million does not mean the Marlins should be forced to do the same.

I think that would make baseball a better game and would reign in some of the more absurd player salaries, along with restoring some semblance of parity to the game. However, given the power wielded by the players' union, if the system undergoes any changes they would undoubtedly lean toward benefiting the players over the teams, making player salaries higher and ensuring that only major market teams with hobbyist owners have any chance of competing for players or championships.

It really is too bad.

Posted by Sean Schulte at 2007-12-01 17:50:52

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