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The Arbitration Process - Contract Negotiation for Senior Rookies

Can’t we all just get along?

MLB: Houston Astros at Seattle Mariners
There are a surprising number of Jerry Dipoto Negotiating photos where he is probably not actually negotiating.
Joe Nicholson-USA TODAY Sports

Arbitration. A familiar baseball word. It comes from the Latin arbitratus meaning “a promising young pitcher.” I’ll be honest with you, I’m not good at languages. Today is an important day (although not the most important) in the arbitration process. This is a significant part of roster construction for any team, but the process itself, like many things in Major League Baseball, is shrouded in a degree of mystery.

To understand who qualifies for arbitration, you have to understand service time. Service time is the amount of time a player has spent on a club’s active 25-man roster (or disciplinary suspension or disabled list) during the Regular Season. When the player is on the major league roster for that day’s game (even if not yet with the team physically), he is credited one service day; when he is sent down, he stops accumulating service time.A service year is comprised of 172 days. It’s important to note that a service year and a season don’t quite coincide: each regular season must be scheduled over somewhere between 182 and 187 days, so a “season” is longer than a “service year.” However, a player will not be credited with more than one service year for a single regular season, even if their service days in that season exceed 172. MLB is not Cingular and your minutes/service days don’t roll over, sorry.

Before accumulating three years of service time, players earn the major league minimum salary: $545,000 in 2018. They only receive this salary on a prorated basis for each actual earned service day, so the relief pitchers riding the Rainier-Mariner Bullpen Ferry (a WSDOT-licensed Ferry) will only earn that salary rate while with the major-league club. After those three years, annual salary for a major leaguer is determined by the arbitration process.

Beyond the three-year rule, there is also the oft-used and opaque “Super Two” designation. This is a term for players who get an extra and fourth year of arbitration eligibility. It’s tricky, but the basic rule is that if a player has Super Two status if he:

  1. has more than two but less than three years of service time (and with at least 86 service days during the preceding season); and
  2. is in the top 22% of players with more than two but less than three years of service time (and with at least 86 service days during the preceding season).

Here’s an easier way to think of this: Super Two players are those who are closest to three years of service time, but not quite there yet. If you want to get more specific and technical in your mental definition, sorry, you shoulda gone to law school (don’t go to law school). Obviously, this is a substantial financial boon for Super Two players, who get four out of six years at higher arbitration pay rates instead of the standard three. Generally, players get regular raises through arbitration each year as they accumulate further service time, although it’s also usually less than the value of their services if they were free agents.

The Mariners have seven arbitration-eligible players in 2018:

Mariners Arbitration Eligible Players

Player Service Time Year Salary
Player Service Time Year Salary
David Phelps 5.156 4th (Super Two) $5.55mm
Andrew Romine 5.049 3rd $1.05mm
Erasmo Ramirez 4.158 3rd (Super Two) $4mm (Projected)
Nick Vincent 4.067 2nd $3mm (Projected)
Mike Zunino 3.16 1st $2.975mm
James Paxton 3.151 2nd (Super Two) $4.9mm
Mike Morin 3.03 1st $750k

Teams and players subject to arbitration are free to agree on a salary number of their own, of course—as you can see, the Mariners have already settled with Andrew Romine for $1.05mm, Mike Morin for $750,000, and just yesterday, Mike Zunino for $2.975mm. For many players, the first year of arbitration represents a major financial boon—but in Mike Z.’s case, the impact is a little lessened by the $4mm signing bonus he received in 2012. Even so, a 546% raise with more to come is nothing to sneeze at, so good for Mike. Now he can afford that 1 bedroom in SoDo he’s had his eye on.

For players who have not settled with the club, today is the deadline to submit salary figures to the arbitrators. Club and player must both submit a suggested salary, which is shared with the other party to the negotiation. There is an element of calculation and brinksmanship to this: the arbitrators must choose one of these two numbers as the player salary. Both club and player have to try to find the sweet spot that is as favorable to them as possible, but which also isn’t so unreasonable as to be rejected.

After figures are exchanged, player and club can continue to negotiate. If they still have not agreed, arbitration hearings are held each year in a single location for all clubs (usually Los Angeles, Tampa/Orlando, or Phoenix). The hearings take place throughout February, and my sense is it’s pretty uncommon for players to attend hearings, if it happens at all—the nuts and bolts are usually handled entirely by agents, subject to player guidance.

Arbitration hearings follow a mandated pattern:

  1. Player presentation (1 hour)
  2. Club presentation (1 hour)
  3. Player rebuttal (1/2 hour)
  4. Club rebuttal (1/2 hour)
  5. Player surrebuttal (briefly to respond to new issues raised in the club rebuttal, if any)
  6. Club surrebuttal (new issues only, at the discretion of the arbitrators)

After the hearing, the arbitrators generally issue a decision within a day or so, awarding the player either his or the club’s suggested salary. Up until the decision is made, the player and club can still settle at an agreeable number, and you often see players settle with the team relatively late in the process, well after filing and exchanging salaries but before the hearing.

So what can they use to make their case? There’s a specifically negotiated list of what can and cannot be used at an arbitration hearing. Players and clubs can use:

  • On-field performance;
  • Off-field, clubhouse, community value;
  • Injury history (present or past);
  • Past and comparable arbitration salaries of that player or any other player.

Players and clubs are forbidden from using:

  • Settlement offers by player or club;
  • Club or player financial information;
  • Non-publicly available or proprietary statistics;
  • Statcast information or information from wearable technology
  • CBT information

As you can see, the arbitration hearing is clearly calibrated to be about the player’s observable statistical performance only. It’s interesting to me that Statcast and wearable tech information cannot be used: My suspicion is that MLBPA is skeptical of this new technology (and other proprietary statistics, frankly) and sought to exclude them until they know more about it, but that’s conjecture on my part.

That’s the arbitration process. The Mariners have traditionally been among the most reticent clubs to proceed all the way to a hearing, usually settling with all of their players. The only arbitration hearing I can remember the Mariners following through on to the conclusion was Tom Wilhelmsen in 2015, when the club’s number of $1.4mm beat Tom’s number of $2.2mm. The Wilhelmsen case was noteworthy, as it was the first time the Mariners took a player all the way to arbitration since 2003, when they lost an arbitration case to Freddy Garcia. Every year there are about 10-15 arbitration cases across baseball that result in a hearing and decision, so most clubs prefer this approach as well: usually it’s better to spend a couple hundred thousand more and keep the player happy. Want to know why? Well, just look at the alternatives.

UPDATE 10:08 AM: James Paxton and David Phelps have settled with the Mariners.