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Inside Salary Arbitration

NOTE: There was an error in the salary arbitration details around Sean Marshall and Carlos Villanueva as it pertains to settlement contracts in advance of salary arbitration (some of the figures were flipped). That has now been corrected. — Maury Brown

Before Curt Flood’s landmark case, and before Messersmith and McNally held out in a contract year, thus allowing for the reserve clause to be challenged and overturned, Marvin Miller and the MLBPA got the players salary arbitration. What was initially seen as a win by the owners – the thwarting of free agency – was a huge win for players.

Since 1973 the process has been in place, and since that time it’s been largely misunderstood. The process is based largely on three factors:

Along the way, MLB’s calendar ticks away with deadlines for certain milestones to be met – when players and clubs exchange figures; when all players in the process have settled on contracts or had hearings, etc.

So, a player’s Major League Service Time (MLST) is driven by the amount of time that a player is under. A player of between 3 and 6 years of service time (the CBA defines one full year as a total of 172 days of Major League credited service) becomes automatically eligible salary arbitration.

There’s also a select group of players – Super Twos – which fall under salary arbitration. The current CBA defines these players below the “3 to 6 MLST” range as:

A Player with at least two but less than three years of Major League service shall be eligible for salary arbitration if: (a) he has accumulated at least 86 days of service during the immediately preceding season; and (b) he ranks in the top seventeen percent (17%) (rounded to the nearest whole number) 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. If two or more Players are tied in ranking, ties shall be broken consecutively based on the number of days of service accumulated in each of the immediately preceding seasons. If the Players remain tied, the final tiebreaker will be by lot.

This “tweener” of sorts is a key clause that is already being discussed by the owners and GMs during their quarterly meetings in Florida as it is being discussed as part of collective bargaining for the next CBA. Players such as Stephen Strasburg have been held back in the minors (although the Nationals said it was for other reasons), while Tim Lincecum was able to leverage his Super Two status into a mullti-year contract last season.

At a given date on the calendar (this year it was January 19), if the parties have not yet reached a deal, the club and player exchange salary figures for what they wish to pay, or be paid, for the following year (see a detailed report on each player and club in the last salary arbitration class). If a deal is not reached by the club and player, then both sides present their case at a hearing before a panel of three arbitrators, which then rules whether the player figure or the club figure will be paid to the player over the next season. There is no in-between. It is either one, or the other.

While management may have had fits when the process was initially put in place, and still argues that players leverage the system dramatically, the truth is it works. There were 210 players eligible for salary arbitration in late November of 2009 (see the complete listing), and by the time the deadline for hearings was reached on Feb 20 of this year, all but 8 cases were resolved before hearings (see the panels, and arb scorecard). Of those eight hearings, clubs won 5 cases (B.J. Upton, Brian Bruney, Wandy Rodriguez, Sean Burnett, and Ryan Theriot) while players won 3 (Cory Hart, Cody Ross, and Jeff Mathis).

Key to the process is how players, their agents and the clubs look at “comps”. The majority of rank and file players can be fairly easily measured between each other. As example, let’s use Rangers reliever Darren O’Day.

As a first-time salary arbitration eligible player, O’Day can be compared to last year’s class of relief pitchers, or players in years past that had the same amount of MLST at the time. You don’t compare pitchers to position players, and rarely do SPs get used.

Last class, 6 relievers with between 3 and 4 years of MLST exchanged salary figures with their respective clubs. Here is a breakdown of the salary figure the players was asking, the figure the club was offering, the difference between the two, the mid-point between the figures, what the settlement figure was, and where it was – plus or minus mid-point – for the club or player:

Ramon Ramirez

Carlos Marmol

Sean Marshall

Carlos Villanueva

Mike Adams

Brandon League

Looking at the figures, you’ll notice that differences between asking and offering figures march to a nearly the same beat for player and clubs with salary reached being at or close to the mid-point between the figures.

Where those that follow analytics may get a twitch is when you then tie salary to stats. Because the arbitration process ultimately could be determined by a panel of arbitrators, not of a baseball background but from the American Arbitration Association, no advanced stats are used to compare players. So, no WAR. No wOBA. What you get are the traditional stats, with the likes of OPS and WHIP just now making its way into the arbitration panel vernacular.

So, for O’Day, an argument by management or agent will center on whether he is better or worse than players he is compared to on the list, and possibly others with the like MLST and salary from years past. Clearly though, he will likely land between $1-$2 million for 2011.

Finally, we’ve talked rank-and-file players. The system does account for “special accomplishments”. Going back to the Rangers, Josh Hamilton will be in his second year of salary arbitration eligibility. He won ALCS MVP honors, just earned his second Silver Slugger Award, led the league in Batting Average (.359), Slugging % (.633) and OPS (1.044), ranked 5th in the AL in Home Runs (32), and 6th in the league in Total Bases (328), making Hamilton not only ALCS MVP but a solid candidate for AL MVP when the BBWAA compiles their votes. With the awards and solid stats for the 2010 season, Hamilton is in line for another big paycheck in 2011. The question is how much?

Hamilton will have 4 years of Major League Service Time this year.  Ryan Ludwick, as a position player last year earned $5.45 million in salary arbitration within the second-year eligible players. Hamilton will ask for more, and surely get it. Based upon his strong showing in 2010, plus the awards, Hamilton could land $10 million or more if he and the Rangers don’t reach a multi-year deal. Matt Holliday might be a comp that is used by Hamilton’s agent Michael Moye. Moye could cite Holliday as having 4 years of MLST in January of 2008 when Holliday landed a 2-year $23 million deal that earned him $9.5 million in 2008 and $13.5 million in 2009.

Based upon the detailed salary arbitration report for last year’s class (PDF), here’s some key notes:

Follow Maury Brown on Twitter @BizballMaury