February 4, 2013

Arbitration Showdown

The Insider's Intro

by John Coppolella

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It's salary arbitration season in Major League Baseball, and here at Baseball Prospectus we're holding mock hearings with BP authors arguing for or against the actual team/player filing figures before a three-person panel of certified arbitrators. We've selected 10 of this winter's most intriguing, highest-dollar cases, and we'll be covering them in depth over the first two weeks of February (regardless of whether the players' real-life cases remain unsettled). Below you'll find the series introduction, written by a high-level front-office executive with extensive salary arbitration experience. The first mock hearing (on Chase Headley) is here.

John Coppolella is the Assistant General Manager and Director of Pro Scouting for the Atlanta Braves. At age 34, he’s entering his seventh season in the Braves’ front office following seven seasons in the New York Yankees’ front office. A longtime fan of and friend to Baseball Prospectus, the University of Notre Dame alumnus is recognized as one of the brightest young minds in baseball. For more from Coppolella, listen to his appearance on Episode 35 of Up and In.
 

In the movie White Men Can't Jump, Rosie Perez’s character becomes incensed at Woody Harrelson’s character for being hustled in basketball by Wesley Snipes’ character. She forces Harrelson’s character to go to Snipes’ character’s apartment to get his money back and provides him with some sage advice: “Sometimes when you win, you really lose. And sometimes when you lose, you really win. And sometimes when you win or lose, you actually tie and sometimes when you tie, you actually win or lose. Winning or losing is all one organic globule, from which one extracts what one needs.”

Welcome to the salary arbitration process. Front office executives don’t like it. Agents don’t like it. Players don’t like it. It’s a flawed process that engenders disdain and discord for all who are a party to it. It is so archaic that the best way to describe it may well be the aforementioned quote from the 16th-highest-grossing movie of 1992. And yet arbitration remains a necessary evil.

I’ve been involved in researching, preparing for, and negotiating arbitration cases for the past decade. The basic rules haven’t changed: try to find the best comparable for your player based on service time, position, role, and performance. Service time is broken down into four categories: Super 2, 3+, 4+, and 5+ years Major League Service (MLS). Under the new CBA, the Super 2 cutoff changes from the top 17 percent of all two-year players in service time to the top 22 percent, while everything else is standard for players with between 3-5 years of MLS. All eligible players must have accumulated at least 86 days of service in the previous year.

Trying to find the best comparable for a player is more art than science. First-time-eligible players get paid for their performance in both their platform year and their career. Second-, third-, and fourth-time eligibles are paid primarily for performance in their platform year. The differences here are referred to as “career” vs. “raise” arguments. Negotiation in arbitration is about compromise and often involves reaching a settlement that makes both sides uncomfortable. Different front office executives and agents bring different negotiation styles, but everyone shares the same goal of trying to avoid a hearing.

Avoiding a hearing is a lot of work. On the team side, front office executives work with arbitration practitioners and Major League Baseball’s Labor Relations Department (LRD), while on the player side agents work with arbitration practitioners and the Major League Baseball Players Association (MLBPA). Research begins in the middle of the summer and intensifies once the season ends and comparables become more obvious. There is a tremendous amount of mutual respect and exceptionally hard work put in by both sides to formulate the strongest arguments and fairest offers possible once negotiations formally begin. Most front office executives and agents have worked together for years and built strong relationships, so each side wants to be prepared.

Avoiding a hearing is not always possible. The Atlanta Braves haven’t been to an arbitration hearing since 2001 with John Rocker, but we were planning to go this year with Martin Prado before he was traded last week in a deal for Justin Upton. We employ a “file to go” strategy, meaning that if we don’t reach a settlement by the filing date we shut down negotiations and prepare to go to a hearing. It’s a strategy employed by a handful of teams, with the goal being to speed up negotiations before the file date and foster a quicker path toward a settlement.

Hearings are held in front of three arbitrators, lawyers who usually have little baseball experience or background. Accordingly, many of the arguments put forth by both sides are predicated on counting statistics like home runs, runs batted in, and runs scored. Ratio statistics like OPS or wOBA are used, but tend to carry less weight. However, fresh analytics like Wins Above Replacement and Win Shares have gained traction recently in hearings—a sign of progress.

Arbitration hearings are focused on the concept of “midpoint” as it relates to a player in terms of career vs. raise arguments. It’s less about “Player X looks like Player Y” and more about, “Is Player Y on the club’s or player’s side of the midpoint?” The more relevant comparables on one side of the midpoint, the better case that side has to win the hearing. However, there is nothing certain in an arbitration hearing, and either side can present a terrific case with overwhelming arguments and every player on its side of the midpoint and still lose. Such is the nature of arbitration, which is ultimately a crapshoot.

The crapshoot plays out in Arizona in odd years like 2013 and in Florida in even years. It’s rare for a general manager to attend a hearing, but top executives like an assistant general manager and/or legal counsel will represent the club. On the player side the agent attends the hearing and, in most cases, so does the player. To put this into perspective—a club in Florida that goes to a hearing this year will likely have to pull that player out of spring training and fly top executives to a hearing where both sides argue over money. Hearings rarely get personal, but they aren’t exactly friendly, and a high percentage of players who go to hearings end up on different teams within three years.

Sometimes when you win, you really lose. And sometimes when you lose, you really win. I won’t get into organic globules, but arbitration is a flawed process similar in some ways to the pickup games played by Harrelson and Snipes. Three years later those same two actors came together to make another unforgettable movie, this time with Jennifer Lopez, where three police officers conspire to hijack a subway car. The name of the movie is all too fitting for salary arbitration: Money Train.