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February 25, 2013
A Detailed Look at the Salary Arbitration Class of 2013
Several years ago, when I was deep in the throes of researching Major League Baseball’s labor past, I contacted former MLB Players Association Executive Director Marvin Miller to ask him some questions about the defining early moments of the players union. I knew well of Curt Flood’s struggles and eventually the Peter Seitz ruling that allowed for free agency. It was well documented, and only a scrub would phone Miller without having that information in his or her back pocket. But, I had latched onto another labor facet that preceded free agency. It was still fuzzy, but the impact of salary arbitration seemed larger than it was often portrayed, taking a back seat to the struggles of Flood and the breaking of the reserve clause. So, as I talked to Miller, I brought up the subject.
“Which was more important, achieving salary arbitration or free agency?”
Surely, this would be an easy answer, as the breaking of the reserve clause and the advent of free agency were seen as monumental in the media. Miller paused, and then, making full use of one of his gifts, put it in simple and clear terms:
“You see, there really could not have been one without the other. At the time, we knew that going directly after free agency would be a difficult battle, so we leaned upon labor law and used salary arbitration as our first step. Of course, the owners were opposed to it, but they seemed to sense that salary arbitration would surely be better than free agency. It wasn’t until it was implemented that they understood that it was a controlled form of salary escalation that we thought the players clearly deserved.”
From there, Miller said something that may still not fully resonate with fans today.
“Salary arbitration is one of the single most important aspects that the union has provided for the players. It was one of our crowning achievements.”
Miller passed away this last year, but the legacy of salary arbitration that has been in place since 1974 lives on. Last week, another year of the process ended; along the way, there were surprises that said as much about how clubs, the league, and the MLBPA are functioning as any signs offered in years past.
In all but two of the 39 years since arbitration had been crafted—with 1976 and 1977, the years when free agency was being implemented, representing the exceptions—at least one hearing had taken place. That streak was snapped this year, when the rooms set aside in Hyatt Regency Phoenix were silent. No arguments by club and player representatives were made, and the three-arbitrator panel was not asked to render a single verdict. All the players that were eligible for arbitration reached contract settlements with their respective clubs in advance of hearings.
As this graph, based on the historical salary arbitration scorecard, shows, hearings have been slowly tapering off since the high-water mark of 35 in 1986. There have been nine years (1974, 1980-83, 1986-87, 1990, 1992) with 20 or more hearings since the process began, but over the past 20 years, there have been only seven winters with double-digit hearings, and over the last nine winters, the peak figure is eight.
This may seem like an astonishing achievement. In some ways, it says a lot about what we at Baseball Prospectus and others doing player research have figured out: The more data you have, the better the analysis that you garner. The process of comparing players and their salaries that started in 1974 was ill defined, poorly understood, and built on shaky comparison work that utilized limited data and resources. Now, both the players’ union and the league have their own proprietary databases and full staffs devoted to finding favorable comps, a change that has resulted in narrower gaps between requested and offered salaries. That, in turn, has reduced the number of the wildly incongruous submissions that lead to hearings, and has instead paved the way for pre-hearing compromises.
Several recent record-setting cases have likely had an impact, as well. For example, the record for a first-time arbitration-eligible player is Ryan Howard’s $10 million salary in 2008, which he earned by winning a hearing against the Phillies, who had offered only $7 million.
At the same time, clubs have more revenues from which to draw, and many have decided that extensions for key players—which run through their arbitration years and often a year or more beyond the end of the team-control period—are a better risk than lucrative free-agent investments. That change in mindset has diminished the supply of free agents hitting the market, and, concurrently, increased the demand for those that do. Combine lower supply with higher demand, and the escalation of years and salaries in free-agent contracts should come as no surprise.
Inside the 2013 Salary Arbitration Class
So, what of the 2013 class? What can we say about it? What’s behind the numbers?
To begin, I tracked 160 players that, after the end of the 2012 season, were eligible for salary arbitration (download the data here). By January 15, the deadline for eligible players to file for arbitration, the number of unsettled cases was 133, down from 142 the previous year. In an annual flurry of signings, that number was whittled down to just 35 by January 18, the deadline for salary figures to be exchanged between players and their clubs. By February 18, two days before all hearings had to take place, every one of them had reached a settlement.
As Miller said, salary arbitration is a huge consideration for each club in terms of player payroll planning. The 160 players that were eligible this year saw salaries totaling $233,533,506 in 2012. Those same players now total $473,010,000 for just the 2013 season, an increase of 106 percent. When you add in that 17 of the players reached multi-year extensions, the total salary allocated for the 2013 class hits an incredible $619,085,000, with an average annual value of $3,081,651.
Part of the increase in players and contract dollars is due to changes made as part of the new labor agreement. As part of the latest CBA, the percentage of players with at least two years of service time that are arbitration-eligible increased from the top 17 percent to the top 22 percent (in terms of service time above 2.000 but below 3.000). As a result, the number of so-called “Super Two” eligibles rose to 22 from 16. The first beneficiaries of the change were Drew Storen, Chris Johnson, Tyler Colvin, Everth Cabrera, Sam Fuld, and Josh Thole. These six, who would have been ineligible under the previous labor agreement, added $10,315,013 in 2013 salaries.
The 81 players that were eligible for salary arbitration for the first time make up the brunt of the large salary increase for the entire class. The only first-time eligible player to earn over $1 million last season was Jeff Samardzija of the Cubs, but that was because his original post-draft contract was a five-year, $10 million major-league deal. He was signed to a one-year deal in 2012 for $2.64 million, and the Cubs and Samardzija reached the same salary number for 2013, thus avoiding arbitration.
All told, first-time arb players earned $43,169,518 in 2012, compared to $163,460,013 for the upcoming season, an increase of 279 percent. The large increase shows the two sides of the coin. On one side, it shows that while players are under control, clubs are merely required to pay them the appropriate league minimum; thus, teams get the most value per dollar during that stage. On the other side, once the player hits salary arbitration, his salaries escalate drastically—a hike that Miller and the players believed was fair, in light of the revenues clubs that were receiving when the process was put in place in 1974.
The best example this year is Giants catcher, and 2012 National League MVP, Buster Posey. Posey led the senior circuit in batting average, and based upon his MVP award, was bound to hit pay dirt as a first-time salary arbitration player. After making $560,000 in 2012, his salary jumped a lofty 1,201 percent for 2013, to $8 million, making him the clear winner in this year’s class.
But beyond Posey, this year’s class was thin on big-name stars, and because of that, few staggering numbers cropped up. The highest salary one-year salary was obtained by one of Posey’s teammates, right fielder Hunter Pence. Given that Pence entered salary arbitration eligibility as a Super Two in 2010, he was in his fourth and final year of the process. Pence and the Giants came to terms on a $13.8 million paycheck, up 33 percent from the $10.4 million he earned last season.
As for as multi-year extensions, the most lucrative (and perhaps surprising) contract doled out in salary arbitration goes to Rangers left-hander Matt Harrison. After earning $2.95 million as a second-time eligible in 2012, he landed a five-year, $57 million extension. Harrison was the only player to land a five-year commitment; in fact, only one other player, Brave-turned-Diamondback Martin Prado, netting more than three years.
As mentioned earlier, compromise in reaching settlement contracts has made for fewer hearings in recent years. The ultimate compromise, a settlement contract at the exact midpoint between the asking and offering figure, is now seen regularly. In 2013, there were eight such cases: Marc Rzepczynski (Cardinals), Joaquin Arias (Giants), James McDonald and Neil Walker (Pirates), David Murphy (Rangers), Shin-Soo Choo (Reds), Jonathan Herrera (Rockies), and Max Scherzer (Tigers).
Since far more than eight players exchanged figures with their teams, the majority reached deals that were either above or below their midpoints. In nearly all such settlements, the club comes out on top. Only five players—David Freese, Prado, Jim Johnson, Clayton Richard, and Homer Bailey—will take home more than the exchanged-figure midpoint in 2013, with Prado seeing the highest amount over the midpoint ($150,000). The other 18 players were below the midpoint, ranging from a low margin of $6,500 between the Angels and righty Kevin Jepsen to a high of $1.45 million, in favor of the Rockies in their dealings with center fielder Dexter Fowler. (It should be noted that in the mock salary arbitration hearings that were conducted here on BP recently, I represented Fowler, and his overly high filing figure made it more difficult to establish a compelling argument.)
Clubs will continue to dole out large sums in salary arbitration, especially if the trend toward developing young talent continues. Every club in the league had at least one salary arbitration eligible player, ranging from a low of one (Marlins) to high of 11 (Orioles). The Red Sox, who had nine eligibles, will see the largest amount of salary allocated to their lot, a total of $34,443,013. The aforementioned Marlins get to skip away with the lowest outlay: the $975,000 going to right-hander Ryan Webb.
The table below shows the amounts that all 30 clubs will pay their arbitration-eligible players for the 2013 season, the average salary per player, the total contract dollars awarded if you account for cases that were resolved with multi-year extensions, and the teams’ averages with those included.
The importance of salary arbitration will persist in Major League Baseball as long as there is a union for the players to manage their employment relationship with the league. While there were no real hearings this year, it’s good to know that we at Baseball Prospectus did our mock hearings to not only provide a glimpse into the process for readers, but also to enlighten ourselves along the way. It was no surprise to learn that many front-office types across the league took note of them.
For those interested, you can download the source data for this year here. It is broken down by the following: