December 13, 2001

The Daily Prospectus

To Offer, or Not to Offer

by Joe Sheehan

The decision to offer arbitration to a player eligible for free agency is one of the few bright-line tests of a baseball team's front-office acumen. The elements of the decision are fairly simple, yet nearly every year a handful of teams do things that border on the bizarre, that reflect a lack of preparation for the problem or a misunderstanding of the issues involved.

Unlike many baseball decisions, offering arbitration to a free agent is a fairly simple process, with a clear outcome:

• Offer arbitration, and you can continue negotiating with that player, while assuring yourself compensatory draft picks if the players signs with another team.

• Decline to offer arbitration, and effectively end your relationship with him (the player cannot rejoin your team until May 1), while forfeiting the right to compensation.

If a team offers arbitration, the player has a couple of weeks to decide whether to accept it. If he does, he is considered to be that team's property again, returns to their 40-man roster, and the two parties can negotiate or have a hearing in February to determine compensation. If he declines, then he only has until early January to reach an agreement with his old team, or he cannot return to them until May 15.

Let's take a look at the first possibility, the one in which the team elects to offer arbitration. There are three potential outcomes:

• The player accepts. The team is committed to a one-year deal at, in a worst-case scenario, the player's salary request in arbitration.

• The player declines. The team has a few weeks to sign the player, but will receive compensatory draft picks if unable to do so, assuming the player signs elsewhere.

• The player signs elsewhere before the deadline. The team will receive compensatory draft picks from the signing team.

That's it. The last two are essentially the same, so for the team, the worst thing that can happen is they go to arbitration with the player is a one-year commitment, and they're guaranteed to get something back if the player goes elsewhere. Of course, all free agents good enough to require compensation are looking for the security of a multi-year contract, so the risk of going to arbitration is minimal.

Let's look at one particular case, the one that really stands out for me right now. The Astros, a team that is generally run well, declined to offer arbitration to Moises Alou. Alou is a Type A free agent, so by declining to offer arbitration the Astros essentially forfeited the signing team's #1 pick and an additional selection between the first two rounds of the draft, gaining only the certainty that they would not have to pay Alou in 2002 (as opposed to the 95% chance that already existed).

This decision shows a lack of understanding of the actual problem with most free-agent contracts: length, not money. Alou is a decent risk for one season, even at the high salary he might earn in arbitration. It's unlikely that he, or any free agent of his standing, will accept a one-year deal, but if he does, that's a good thing for the Astros. Think about it this way: offering arbitration is the equivalent of offering him a one-year, $12-million deal; free agents simply don't sign that type of contracts, with the glaring exception of Juan Gonzalez last year.

Even if a team really doesn't want to pay that salary, a player of Alou's caliber in the last year of a contract has a lot of trade value, and can usually be dealt for a good price. The example that comes to mind is that of the Blue Jays, who offered arbitration to David Segui solely to get the draft picks, and were surprised to have him accept the offer. The Jays then traded Segui before the season began in a three-way deal that brought in Brad Fullmer.

The Astros weren't the only team to make a questionable call. The Braves declined to offer arbitration to John Burkett, a Type A free agent. Again, the risk involved--a one-year commitment at an arbitration salary--is minuscule and the cost--a #1 draft pick and a sandwich pick--is high. The Red Sox passed on Hideo Nomo; granted their negotiations had been contentious, but again, Nomo would be a good risk for one year, a poor one over multiple years--and now leaves without compensation. The Dodgers cut Terry Adams loose; the Diamondbacks parted ways with Reggie Sanders.

(Because having to give up draft picks to sign a player increases the cost of doing so, it reduces a player's market value (this is the whole point of the now-20-year-old system). On occasion, a player will work out a deal with his team in which the team agrees to not offer arbitration to the player, so the added cost can be removed for teams wanting to sign him. The only notable case of this is the Angels and Chuck Finley after the 1999 season, although there is talk that the Mariners had a similar arrangement with Aaron Sele this year. It's just something to keep in mind.)

These seem like fairly minor points, but to me, they are a gauge of whether an organization is actually thinking through its decisions, or merely making them at random. A careful analysis of Alou's case, or Burkett's case, reveals that the teams involved had the opportunity to get valuable draft picks while exposing themselves to a downside that was 1) not really much of a downside and 2) an unlikely outcome even at that. It is hard for me to come up with a rationale for not offering the top free agents in any class arbitration that doesn't just come down to extreme risk aversion, and if your money is that scared, maybe it should be in something safer, like Treasury bills. Or a pillowcase.

It should come as no surprise that the A's get it, having offered arbitration to all three of their big free agents (Jason Giambi, Jason Isringhausen, and Johnny Damon). Getting any of these players back for the 2002 season alone would have been an acceptable outcome, although only Damon remains a free agent. The A's will reap the draft picks, and given their recent success in the draft, will no doubt use those picks to continue the longest-running aberration in baseball.

The flip side of this is teams that offer arbitration to players who have very little value. With each passing year, it seems more teams are choosing to cut loose this type of replaceable commodity and take their chances with the free talent widely available. Still, there are a few doozies each winter. The Cubs offered Ron Coomer arbitration; Coomer isn't worth a roster spot, much less a seven-figure salary. The Yankees offered arbitration to Mark Wohlers, who really deserves little more than a non-roster invitation and a make-good contract.

With all of the trades, free-agent signings, and other major baseball news, it's easy to let this stuff slip by. It's these little things, though, that can make a difference in an organization's long-term outlook. The A's will get draft picks; the Astros won't. The Cubs will probably get stuck with a lousy bench player in Coomer; the Marlins won't be saddled with John Mabry.

Good organizations take the right risks and make themselves better. Bad organizations only see the costs and decline the opportunity to do help themselves.

Joe Sheehan is an author of Baseball Prospectus. You can contact him by clicking here.

Joe Sheehan is an author of Baseball Prospectus. 
Click here to see Joe's other articles. You can contact Joe by clicking here