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February 25, 2009
The Ledger Domain
Salary Arbitration Beats Free Agency
"Honestly? What's to like about it?"
With a recession now in full bloom, it's clear that the league and its owners are touting the fiscal responsibility card whenever possible. Free agency, once a sure-fire ticket to hefty salary increases, has gone as cold as an April game at Coors Field. Take the example of Pat Burrell, who made $14.25 million last year with the Phillies, and then had to settle for two-year, $16 million deal with the Rays this offseason. Bobby Abreu was reportedly seeking a three-year, $48 million deal in free agency, and instead settled for a one-year, $5 million pact with the Angels that, with incentives, could go as high as $6 million.
Even so, this year more money is going to young players that have reached salary arbitration eligibility than ever before. In some cases, salary increases have been stratospheric (check this out for more on salary arbitration eligibility). Based on an extensive study from January 15th, the deadline for filing, to February 20th, the final day of arbitration hearings (see the 25-page report here) by nature of the process the 111 players in this year's salary arbitration class received a steep increase in salaries, and not the declines we have been seeing in free agency.
The total combined 2008 salaries for the 111 players that filed for salary arbitration in this year's class was $122,947,513. After reaching contracts, these players will see a combined salary figure of $298,891,250 for 2009, or an increase of 143 percent. The increase is up from last year's 120 percent increase. It should be noted that The Associated Press has reported that the increase for this year's class is a record-setting 172 percent from last year, but this is somewhat misleading. The AP used annual average value for the multi-year contracts in this year's group of players, whereas the study for this article uses the 2009 base salary within the contract agreements. How does AAV skew the figures? Instead of the $6 million that Kevin Youkilis will receive this season, AAV shows his salary as $10.25 million based on his four-year, $41 million deal.
When factoring in the 15 multi-year contracts from this year's class of salary arb players, nearly $590 million ($580,816,250) in salaries were reached during the 2009 salary arbitration process. Looking at it another way, as of February 24, $1,100,007,500 has been spent in total on 101 free agents, with 40 percent ($441,000,000) of that total consisting of this winter's hefty Yankee contracts. Remove the Yankees from the mix and you wind up with $659,007,500, or a shade over $78 million more than was spent on salary arbitration this year.
Per the salary arbitration process, if players and clubs do not reach an agreement by a designated date on the calendar, the sides exchange salary figures with the player presenting an asking figure while the club presents an offering figure. This year, the filing date for this process was January 20th, with 46 players exchanging figures with their respective clubs. In another sign that players in salary arbitration continue to see hefty increases each year as the salary arbitration market continues to climb, the average salary for the 48 players that exchanged figures as part of last year's salary arbitration class was $2,839,063. This year's class of 46 exchange players sees an average salary of $3,011,638 for the 2009, an increase of six percent from the year prior.
On the arbitration hearing front, of the 46 players that exchanged salary figures with their employers, only three cases were ruled on by a panel of arbitrators, the lowest number of cases since 2005, when Kyle Lohse, Jeremy Affeldt, and Juan Cruz had decisions rendered. This year, the players beat the clubs two decisions to one in their hearings, with pitcher Shawn Hill of the Nationals and second baseman Dan Uggla of the Marlins winning their cases, while catcher Dioner Navarro of the Rays lost his. As a result, this year marks the first year since 1996 that the owners will not have a winning record in hearings. That year, seven players (Steve Avery, Jeff Fassero, Chuck Knoblauch, Mark Lewis, Mike Stanton, Rick Wilkins, and Bernie Williams) won their cases, while three players (Willie Banks, Arthur Rhodes, and Ivan Rodriguez) lost. Of the 487 salary arbitration cases that have been heard since the process was collectively bargained into MLB in 1974, the owners have now won 280 (57 percent) to the players' 207 victories (43 percent) in the cases heard. More fundamentally, every one of the 111 players in this year's class received an increase in salary, ranging from a low of three percent (Jimmy Gobble of the Royals, and Jason Repko of the Dodgers), to Dan Uggla's salary increase of 1183 percent from 2008 to 2009.
While it is difficult to ascertain exactly how clubs approach player contracts with those that reach agreements before salary figures are exchanged, we can get a good idea of how they approach the process by looking at the deals reached with those players that do exchange figures. To offer up a psychological win for the clubs, contract agreements almost always come in below the mid-point figure, the figure in between the asking figure by the player and the offering figure by the club, for the upcoming season, thus saving the owners a bit of cash. This year, eight deals came in above the mid-point, to the advantage of the respective players, with two of those players (Uggla and Hill) seeing increases due to their winning their arbitration cases. All told, the 29 clubs in arbitration saved $6.905 million in 2009 by brokering deals below the mid-point.
Of the 46 players that exchanged salary figures, management did offered up12 contracts that have 2009 salaries exactly at the mid-point. The 12 mid-point contracts (Jeff Francoeur, Kelly Johnson, Conor Jackson, Justin Verlander, Brian Bannister, Mike Jacobs, Corey Hart, Matt Guerrier, John Maine, Rick Ankiel, Willy Aybar, Ryan Zimmerman) more than double the number of like deals in last year's salary arbitration group, when just five players (Garrett Atkins, Erik Bedard, Joe Beimel, Kevin Correia, and Matt Guerrier) reached these kinds of deals with their employers, a possible sign that management and players saw the pressure the economy is placing the league, cutting their losses and meeting in the middle, as opposed to gambling in salary arbitration.
Other points of interest in this year's salary arbitration cycle: