Major League Baseball Salary Arbitration

1. Major League Baseball Salary Arbitration An Examination of the System

2. The Decision That Changed the Game • Curt Flood’s holdout and the reserve clause • 1975: McNally – Messersmith • The birth of free agency and arbitration • The 1975 Baseball Universe and today • NY Mets: Bordick vs. Ordonez example

3. Baseball is Unique • Final-offer salary arbitration • Club and player submit offers • Arbitrator picks one closer to real marker value • No opinion • No precedents • No appeals • The best final offer is the more reasonable one

4. A system designed to fail • Arbitration fixed for settlement • Best interest of both parties • Always one winner and one loser • Hypothetical player negotiation example

5. Eligibility requirements • Players with: • At least 3 years, but fewer than 6 years of MLB service • At least 2 years, but fewer than 6 years of MLB service … • Super-two’s – at least 86 days of service during previous season, ranks in top 17% of players in service group in terms of MLB service • Over 6 years service – Free Agency

6. What’s in? Past season performance Overall performance, leadership and public appeal Length and consistency of career contribution Past compensation Comparative Baseball salaries Physical or mental defects Recent performance of the club What’s out? Financial position of the player and the club Press comments, media stories, etc. Except annual awards Offers made prior to arbitration The cost of representatives, attorneys, etc. Salaries in other sports or occupations CriteriaWeight of consideration determined by arbitrator is … arbitrary

7. Why arbitrate? Mixed player profile Financial resources are not a consideration Arbitration sets no precedents Valuable for a club’s future negotiations Why settle? Relationship strain Cost of arbitration process Restrictions on compensation package Pros and Cons

8. The Scorecard • Management has historically done well • Since 1974: Of 417 cases heard 236 settled in favor of the club (57% winning percentage) • Winning isn’t everything • No player receives less than last year’s salary • Most get significantly more $$$ • 2001: 144% increase in salaries determined by arbitration

9. Presenting a Case • The Major – League Scale • Statistical analysis is key • Midpoint of two offers determines debate • Club explains why the player is worth less • Player’s agent explains why he is worth more • 1 Hour presentation by each side • ½ hour rebuttal

10. For instance … • Player demands $2 million • Owner offers $1 million • Midpoint of $1.5 million • Player demands $1.7 million • Owner offers $1.2 million • Arbitrator decides fair market value of $1.5 • Player wins and receives $1.7 million for one-year contract

11. 2001 Arbitration Roundup • 102 players who filed for arbitration • Owners won 8 of 14 cases decided by an arbitrator • Atlanta Braves Andruw Jones won his decision ($8.2 million, new record) • NY Yankees Derek Jeter avoided arbitration and signed for 10 years and $189 million, biggest contract of those who filed • LA Dodgers Chris Donnels got the lowest salary $300,000

12. Questions Please?