February 26, 2007

The Ledger Domain

The 2007 Salary Arbitration Results

by Maury Brown

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Salary arbitration has been in place since 1974, the year after the 1973 Collective Bargaining Agreement was brokered. The number of cases filed in any one winter over that time as been as few as none (in '76 and '77 there was no arbitration, as the introduction of free agency eliminated the process those years) and as many as 157, in 1991.

It was the foresight of Marvin Miller, just after Curt Flood lost his challenge of MLB's antitrust exemption in the Supreme Court, that set the stage for the creation of salary arbitration. Miller understood that trying to achieve free agency for players immediately after the Flood ruling was not going to be fruitful, so salary arbitration was offered as an alternative. With the exception of Gussie Busch and Charlie Finley, the owners accepted the process as part of the new deal. Miller saw this as one of the greatest achievements of his early career as executive director of the MLBPA. He correctly anticipated that even though some players would lose their arbitration cases, they would still see a boost to their salaries as compared to not having the process.

Thirty-four years of salary arbitration later, the system is still going strong. With another year's results out of the way, it's time to take a look at the winners and the losers. Who got the whammy two years in a row, and why is Chase Utley is doing heel-clicks down in Florida?

Breaking Down 2007's Arbitration Class

A total of 106 players filed for arbitration (the largest class since 1993, when 119 players filed) with 50 of those players coming to contract agreements before salary figures were exchanged on January 16^th. That left 56 players (23 from the American League and 33 National Leaguers) exchanging figures with 23 clubs. With six players willing to go to the mat, the Twins had the most players in salary arbitration after figures were exchanged, followed by the Pirates, Nationals and Brewers with five players each.

Of those 56 players that exchanged figures, all but seven cases were settled in advance of hearings. The following is a breakdown of the seven survivors:

Date   Player, Team                     Asked     Offered    Winner
2/10   Josh Paul, Devil Rays         $940,000    $625,000      Club
2/10   Joe Beimel, Dodgers         $1,250,000    $912,500      Club
2/13   John Patterson, Nationals   $1,850,000    $850,000      Club
2/13   Kevin Gregg, Marlins          $700,000    $575,000      Club
2/17   Miguel Cabrera, Marlins     $7,400,000  $6,700,000    Player
2/21   Chad Cordero, Nationals     $4,150,000  $3,650,000    Player
2/21   Todd Walker, Padres         $3,950,000  $2,750,000    Player

Looking into the numbers for salary arbitration shows the following:

• Players saw an average salary increase of 106%, from $1.46 million to $3.01 million.
• The average salary set in arbitration rose from $2.66 million in 2006, but remained below the record $3.26 million set in 2004
• The rate of increase dropped for the second consecutive year, from 123% in 2005 and 109% in 2006.

Of the 49 who settled before hearings, but after figures were exchanged:

• Ten players signed multi-year contracts: Jason Michaels, two years; Joe Mauer, three years; Nick Punto, two years; J.J. Putz, three years; Doug Davis, three years; Aaron Harang, four years, Bill Hall, four years; Brett Myers, three years; Chase Utley, seven years; and Austin Kearns, three years.
• Four players signed one-year contracts for a figure above the midpoint of the two figures exchanged: Erik Bedard by $50,000; Wily Mo Pena by $87,500; Emil Brown by $50,000; and Josh Fogg by $25,000.
• Twelve players signed at the midpoint
• Twenty-three players signed below the midpoint.

Other tidbits:

• The largest gap between offering and asking salaries was between Carlos Zambrano and the Chicago Cubs. He asked for $15,500,000, and was offered $11,025,000, a difference of $4,475,000. Zambrano signed below the midpoint of $13,262,500 for $12,400,000.
• The smallest gap between offering and asking salaries was Alex Escobar and the Washington Nationals. He asked for $590,000, and was offered $500,000.
• The biggest winner in salary arbitration (or the Heel Click Award) was Chase Utley. He wound up with the longest contract length (seven years), the largest total contract amount ($85 million) and the largest signing bonus ($2 million). The Phillies have now wrapped up Utley for his two remaining arbitration years and his first five years of free agency.
• The biggest loser in salary arbitration is a bit of a subjective point, but the Marlins are the biggest losers in my mind after taking Miguel Cabrera all the way to a hearing, where they understandably lost, while risking making their relationship with their star acrimonious. Cabrera and the Marlins were just $700,000 apart, a relatively small gap in relationship to the level of player Cabrera was in '06 (.341 EqA, 78.7 VORP, 10.2 WARP) and is projected to be by PECOTA (.349 EqA, 68.8 VORP, 7.9 WARP) for 2007.
• Josh Paul gets the dubious distinction of losing in arbitration two years in a row.
• Bill Gilbert informs me that two free agents who accepted arbitration this year were Tony Graffanino of Milwaukee and Todd Walker of San Diego. When Walker's case went to a hearing on February 20, it was the first time since 1991 that a potential free agent went to a hearing.

So, what's the overall consensus following the 2007 salary arbitration process? Well, for the most part, that salary arbitration works. As outlined, of the 106 players that filed for arbitration, all but seven came to terms before going to hearings. Of those seven, owners won 4-3. Historically, owners lead the players 273-203 since the process was put in place. If they can put together one more good year, they should be able to hang on after that for 300 wins.

As Miller anticipated, the players wind up with salary increases, even though the majority of them that reach contracts before hearings sign below the midpoint of the two figures that are exchanged. Case in point, the Cubs and Zambrano. With the gap between asking and offering salary amounts so wide, there was extra incentive for both parties to get a deal done rather than risk losing in arbitration.

Maury Brown is an author of Baseball Prospectus. 
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