Back to Basics: How does Arbitration Work?

What is Arbitration?

Arbitration is a process in which a player and his team will negotiate and try to settle on a salary. If an agreement cannot be met, the two parties will go to an arbitration hearing with a third party moderator who will determine the player’s salary.

When are Players Eligible?

Players are eligible when they meet either of the two conditions:

1. He played in the majors for at least 3 seasons.
2. He qualifies as “Super 2”, meaning he has spent between 2 and 3 years in the majors and has spent at least 86 days in the majors the year before. Additionally to qualify, he was among the top 22% of players between 2 and 3 years in the majors.

Quick Note about “Super 2”:

Super 2 is intended to allow high achieving players to receive a higher salary based on their worth. However, once they reach “Super 2” status, they are then eligible for arbitration every year from that point on, and their leverage for earning more gets higher every year thereafter. (Example: if a player qualifies as Super 2 and is awarded $2 million, the following year during negotiations, talks will start at $2 million). This is why we see teams keep players in the minors for more time than expected at the beginning of the season. The super 2 cutoff is usually mid-June, so that’s when a lot of teams will start calling up players. It is a lot cheaper for the team to avoid arbitration negotiations for as long as possible (especially is the player is really good).

Step by Step Process:

1. Teams decide whether to offer arbitration to players (mid December). If a team does not offer arbitration, the player is non-tendered and released.
2. Teams and players negotiate for the next month (until early/mid January) on what they believe the player’s salary should be.
3. If an agreement cannot be met, an arbitration hearing will take place in the first few weeks of February. Both teams will submit their salary and make a case for why they believe their suggested salary is appropriate. A third party arbitration panel will then determine which salary of the two the player shall be awarded.

The Arbitration Hearing

The actual hearing typically takes place in the following arrangement:

1. Player Representative (1 hr): Presents why his suggested salary is appropriate
2. Team (1 hr): Presents why their suggested salary is appropriate
3. Short Recess
4. Player Representative (1/2 hr): Offers an argument against the team’s salary
5. Team (1/2 hr): Offers an argument against the player’s salary
6. Player Representative (1/2 hr): Summary and final argument
7. Team (1/2 hr): Summary and final argument

This order may give the team a slight advantage since they are presenting their arguments last, so in some cases, the player’s representative may argue to change the presentation order.

While there are now all these fancy stats that really dive into a players ability and potential, Arbitration panels tend to stick by and make decisions based on older statistics, such as RBIs, wins, saves, etc. (older stats like these sometimes don’t tell the full story or reflect a players true ability)

Who are the Unbiased Arbitrators?

There are three arbitrators on each case (one is the “chair” of the panel), chosen by the MLBPA and the Labor Relations Department of MLB. If the MLBPA and Labor Relations Department cannot decide on enough people for the panel, they request a list of arbitrators from the American Arbitration Association and take turns removing names from the list until they are left with enough for every case.

Is the Hearing Schedule Arranged a Certain Way?

MLB and the Players Association try to have hearings for similar players on the same day. This is because if a player receives a large salary, then this could affect cases in the coming weeks. For example, if a young player receives a record breaking salary early in the process, this can be brought up as a comparison for similar players in the upcoming hearings.

Can a Panel Come up with its Own Salary?

No, the panel does not meet in the middle or try to come up with its own number, it must pick between the two salaries. This makes going to arbitration higher risk for teams and encourages negotiations to avoid the hearing.

How do Teams Come Up with Their Salary for the Player?

Primarily, teams will look at similar players across the league and see what they received during arbitration in the past couple of years. Teams also look at the player’s performance, especially the past season and any awards that the player has received may also be taken account. The goal is to save the team some money, so if they can figure out what a player might be expecting, they can try to get the price down a bit.

Other Factors that May be Used During a Hearing (by the player or the team):

• Any evidence of physical/mental concerns of the player
• Length of his career
• The player’s contribution/value to the team
• The player’s past salaries
• Leadership ability of the player
• Public appeal of the player

If a Player was Eligible Last Year, can his Salary be Reduced this Year?

Yes, but it can only be reduced by a 20% maximum.

What Happens if a Player Wins the Case but is Now too Expensive for the Team?

If a team believes the player is too expensive after the hearing, they can cut the player from the roster. The arbitration salary is not guaranteed until the player is on the 25-man roster when the season begins. If a player is cut on or prior to the 16^th day of Spring Training, the player is owed 30 days of termination pay. If the player is cut after the 16^th day of Spring Training up to the end of Spring Training, the player is owed 45 days termination pay. The termination pay is depended on the prorated version (salary based on a shorter time frame) of the agreed upon arbitration salary.

What if a Player Doesn’t like the Result and Wants to Back Out?

The arbitration is binding, so the player has already signed a legal agreement that states they will play for the salary determined by the panel.

Final Thoughts

I hope this helped clear up any confusion about this whole process. If you have any other questions or want more information please let me know in the comments below!