A Preliminary Look at the Arbitration Market

With arbitration filings coming up and settlements flying in, today would be a good day to examine the early returns on arbitration eligible players. Many teams appeared to believe that arbitrators would not be giving the same type of discounts versus free agent rates as they have in recent years, given the rules of arbitration combined with the struggling economy. Now, with some numbers in, we can evaluate that claim.

Following are tables showing the settled salaries for arb-eligible players as of Monday night. For reference, “eqFAyrs” are the equivalent free agent years purchased in this contract. Arbitration in the past has tended to award 40% of FA market value in year 1, 60% in year 2, and 80% in year 3. So for third-year eligible players, a one-year contract is buying .8 equivalent free agent years, or eqFAyrs. The column “actYrs” simply shows the actual amount of years the contract covers. The “chWAR” field is WAR as projected by CHONE. Finally, we have “eq$/war,” which is $/war with the discount factored in, and “act$/war,” which is just salary divided by projected WAR. Each * after a player’s name means they were signed to a multi-year deal, with as many extra years as *s present.

Here are the third-year arbitration eligible players.

No major surprises here. There are some overpays (Heilman, Santiago), and some good deals (Gaudin, Gerut, De La Rosa, Correia). Overall, this market is very much in line with the overall free agent market, which is hovering somewhere between $3.5M and $4.0M per marginal win, as shown by the 3.44 eq$/WAR total for this group. At 2.75 act$/WAR, this group is still a good discount.

The second-year arbitration eligible market is more interesting.

Even looking at act$/WAR here, this group is hardly even a discount, at 3.2M. This group is seeing the type of raise that we would have expected without the economic collapse – a raise from $4.4M/WAR in 2009 to $4.8M/WAR in 2010 would have followed normal trends. These players are overall slightly better than the third-year arb group, but not by a significant amount. It appears that these players are either getting raises or are having their salaries stay constant as a result of high arbitration rewards in the 2009 offseason, and the arbitration rules are making the process less of a discount for the teams.

Finally, we have the first-year arbitration players.

This group is more in line with the free agent market and the third-year arbitration eligible group. As this group does not have any high arbitration rewards to serve as a lower bound for next year’s salary, this seems to follow. These players are generally a fantastic deal, coming in overall at only $1.58M per marginal win, somewhere near 40% of their free agent market value, as expected.

So far, we’ve seen two groups act as expected and the second-year arbitration eligible players showing up as a bit of a market irregularity. It will be interesting to see if this is corrected when arbitration hearings and settlements are complete, and it will be interesting to see if the other groups remain as they are as we proceed through the offseason.

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14 Responses to “A Preliminary Look at the Arbitration Market”

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  1. recca says:

    So should Kenny Williams get the Blame for the Bobby Jenks deal?

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  2. Ken says:

    For players with very low incomes the $/war calculation is misleading. A replacement level player making the league minimum should be of average value – but here he would be paid an infinite amount per win. Similarly for a guy like Roman Colon, paid $670,000 for 0.1 of a win. In the table that is measured as $6.6m/win – when in fact he is paid $270,000 for the 0.1 marginal wins – or $2.7million per win. You need to adjust for the fact that a replacement level player comes with a replacement level salary.

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  3. Judy says:

    I would think that waiting on Jenks might have been dangerous, if Papelbon’s deal gets done and Jenks had that to use to make his case?

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  4. Mike K says:

    Are you lumping the super-two’s from last year in with the “first year arbitration” players? For example, pretty sure Melky Cabrera was arb-eligible last year as a super-two, so technically he is in his second year of arbitration. Same thing at the end, there could (but I’m not sure) be some players in your “third year arbitration group” that are actually in their fourth year.

    Chances are this is the 100% correct thing to do, based on how players have been compensated in the past. E.g. super two’s in their second year are treated just like first year arb players. It would just be nice to see it explicitly stated, with a sentence or two.

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    • Jack Moore says:

      That’s a good catch – I took out all players who were super-2 eligible this year, I’ll have to take a look through it later for those who were super-2s in the past.

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  5. JayCee says:

    Josh Hamilton signed, per the Dallas Morning News. MLBTR doesn’t have this yet.

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  6. Judy says:

    And Papelbon, for $9.35 million.

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  7. JayCee says:

    Isn’t there some rule where none of these guys can be traded for awhile?

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  8. Sean D says:

    How come Barmes’ chWAR is listed in the graph as 0.7, but if I go to his FanGraphs page he has a chWAR of 1.9. Is there something I’m missing here?

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