The Value of Handling Arbitration Correctly (Daryll)

Josh Donaldson and the Blue Jays agreed to a record pre-arbitration settlement Friday, and it could end up being even more of a bargain for the Blue Jays down the road. His one year $23M deal surpasses the arbitration record given to Bryce Harper for $21.625M. Harper and Donaldson will both now be free agents at the end of 2018 along with of course Manny Machado in one of the most anticipated free agent class in years.

Arbitration is a process that has been in Major League Baseball in various forms since 1970 and here is the formal explanation about how it works:

A player with three or more years of service, but less than six years, may file for salary arbitration. In addition, a player can be classified as a “Super Two” and be eligible for arbitration with less than three years of service. A player with at least two but less than three years of Major League service shall be eligible for salary arbitration if he has accumulated at least 86 days of service during the immediately preceding season and he ranks in the top 22 percent (increased from 17 percent in previous agreements) in total service in the class of Players who have at least two but less than three years of Major League service, however accumulated, but with at least 86 days of service accumulated during the immediately preceding season.

Basically – for the first three years the owners can pay the MLB minimum. After that players who aren’t yet free agents but clearly demanding more than the league minimum file for arbitration. Teams and players have time to agree – and if not – the two sides are sent to an independent arbitrator.

This is the big sticking point. Because when this happens, feelings can get hurt quickly. For Donaldson, he took the resolution in stride even as he hopes for a long term deal:

“I enjoy being a Toronto Blue Jay. I enjoy what we’ve been able to build in this organization. I could be OK if this is where I spend the rest of my career. I could also be OK if they decide to move on. Those aren’t my decisions.”

For owners this was seen as a win as a way to avoid free agency in many cases. Players also appreciate it when they get rewarded accordingly. In some great research at Forbes.com, Maury Brown took a look at how the decisions have been racking up over the years:

MLBSalaryHearingsOverTime

What isn’t graphed though is the effect of when relationships are irreparably damaged after teams go in and prove with all their might why THEIR player deserves LESS money. The famous Atlanta Braves dynasty is also infamous for being hardliners on the process as Ken Rosenthal detailed back in 2014. Essentially they believe rather than wasting time trying to agree on a number they offer one number, let their player offer one, and then go to arbitration.

The GM at the time, Frank Wren, stated their intention this way: “It’s a right that a player has as well as a club to settle a disagreement on where the ultimate salary should be,” Wren said. “We don’t look at it as an antagonistic process. We look at it as a solution to a disagreement on a player’s salary.”

Worth nothing that at the time the players looking at arbitration were Freddie Freeman, Jason Heyward, and Craig Kimbrel. Only Freeman remains.

The question of course to ask is if the system is doing its job? A player like Donaldson presents a most interesting case. It wasn’t long ago that he would be locked up to a 5-6 year deal, kept in Toronto for the rest of his career, and that would be the end of it. Now – however – things are changing. We see many of these albatross contracts like Matt Kemps and Melvin Upton Jr passed around to multiple teams to go away. A player like Donaldson now in his 30’s is less likely to get a multi-year deal. If his play goes down the tubes in 2018 – he may have a hard time getting back up to $20M/year. If his play stays hot in 2018, then the Blue Jays get a deal this year but likely lose the chance to sign him beyond 2018.

This is the delicate balance. A bad arbitration can make getting an in-year extension harder when feelings are hurt, but not going to arbitration can result in a below market contract if players aren’t careful or over-market if teams aren’t careful. Which is why more teams are just going to the file and trial to take any emotion out of it.

Donaldson understands the file and trial process but was happy not to have go through it again like he did in 2015 with the Jays, stating, “Normally there was a filing process, and after the filing process, teams negotiated after that. I think it’s just the way that the ownership in baseball is going. They understand arbitration and they understand how fickle the situation is. I think they’re willing to let it ride on some players, when before that wasn’t the case.”

If there is one area that teams are still tinkering with in order for team optimization, it is certainly the financial/free agency process. The last MLBPA Agreement altered free agency rules again that dealt with draft picks, etc, and now this year we still have tons of great free agents on the markets. Teams don’t want to put out qualifying offers if they don’t need to – and they don’t want to lose draft picks just for signing players.

The chart below shows each teams history through early 2015 but it shows both which teams are willing to go to arbitration categorically and how those teams do. Tampa Bay for example was 100% in arbitration cases, but had just 6 which is likely both because they trade most of their good players before getting to this point or lock them up to long-term deals.

SalaryArbByClub1

Spring Training is on the horizon, and lots of 30 home run hitters still don’t have teams so we are bound to see moves still here in the next month or two. There is a great free agent tracker from Spotrac which shows both who has signed and for what, but also who is still available. That list still includes JD Martinez, Carlos Gonzalez, Yu Darvish, Jake Arrieta, and Eric Hosmer among others. Where they end up will have a dramatic effect on how the 2018 MLB season will play out.

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