Salary arbitration: Battle of the midpoint
If there’s a case to be made for bliss in a relationship, it’s bound to be reached through compromise. Except in sports.
The bottom line is winning, often at any cost, and compromise is a near-foreign concept. Meeting in the middle? Only if it’s tagging someone in a rundown.
Right-hander Felix Hernandez's five-year, $78 million deal actually helped the Mariners save nearly
So when Major League Baseball introduced salary arbitration in 1974, it was purely a labor issue, not some kindly action the owners took upon themselves. Union head Marvin Miller and the MLB Players Association had yet to conquer the reserve clause that tethered players to teams. By allowing a group of players, mostly between three and six years of major league service time, to essentially barter for their salary – the player asked one number, the team offered another and either they agreed on something in the middle or went in front of a panel that chose a side – MLB had lost an important fight.
While the salaries for arbitration-eligible players rose from their first three years – substantially in most cases – it allowed teams to keep players under their control. Eventually, when Andy Messersmith and Dave McNally broke the shackles of the reserve clause and ushered in free agency, clubs, through salary arbitration, could at least keep a player under control until they had six years of major league service time, at which point they hit the open market.
The biggest stories about arbitration often involve the enormous salary increases, and they are important, often precedent setting. It's the other cases, though, the ones that involve compromise, that comprise the majority of arbitration cases. After all, if a club thinks a player isn’t worth what he will get through the arbitration process, it can non-tender, or release, him.
Including the three free agents who accepted arbitration (starter Carl Pavano(notes) and relievers Rafael Soriano(notes) and Rafael Betancourt(notes)), 213 players qualified for the process in 2010 (see the list here). Some were designated for assignment, others non-tendered, a few outrighted to the minors. And on Jan. 19, the final day of pre-exchange haggling, 68 players agreed to a contract. Only 44 players of the 213 ultimately exchanged figures.
Why the heavy push? Why did so many players and clubs work feverishly to reach contracts, when salary arbitration hearings don’t start until Feb. 1?
For the 44 players and their clubs that exchanged salary figures, the battle is now for the middle. If there’s such a thing as competing in a compromise environment, this is surely it.
Much has been made in how much a player is asking or how much the club is offering. The difference between the two is often highlighted in articles, but the real focus is the number between them.
It’s this midpoint figure where a dollar one side or the other offers a moral victory. A dollar below, the club wins. A dollar above, the player gets braggin rights. To give an idea of how closely the sides look at the midpoint figure, take in these three deals that have already been reached with players that exchanged salary figures.
Jonathan Papelbon(notes) reached a $9.35 million settlement with the Boston Red Sox, setting a record for a reliever with four years of major league service time. Papelbon sought $10.25 million, while the Red Sox offered $8.45 million, a difference of $1.8 million. What was the midpoint between Papelbon’s asking and the Red Sox’ offering? Exactly $9.35 million.
Other players to reach midpoint deals include Red Sox reliever Ramon Ramirez(notes) (asked $1.25 million, offered $1.06 million, settled at $1.155 million) and Houston Astros reliever Tim Byrdak(notes) (asked $1.9 million, offered $1.3 million, settled at $1.6 million contract). In a rare bit of symmetry, Tampa Bay and Matt Garza(notes) filed the exact same figures ($3.35 million). They agreed to the salary just before the deadline but didn’t get it finalized in time. In a case of playing nice, they decided to file exactly the same.
Most cases don't come out smelling so sweet. Some players are compelled to settle for below the minimum rather than risk a lower salary in front of a panel. Reliever Brandon League(notes) will see $25,000 less than the midpoint in his $1.0875 million deal with Seattle, while Milwaukee pitchers Todd Coffey(notes) and David Bush settled with even larger gaps. Coffey’s $2,025,002 deal is $49,998 below the middle, while Bush’s $4.215 million salary falls is $72,500 below that compromise point.
Even lower are the players who reach long-term deals. It makes sense. In exchange for security, they offer their team present-year flexibility. The two best examples are two of the richest contracts handed out this offseason: Seattle ace Felix Hernandez's(notes) five-year, $78 million deal and Philadelphia starter Joe Blanton's(notes) three-year, $24 million pact. The midpoint between Blanton’s asking figure and the Phillies offering salary was $8.875 million, and they will pay him $7 million this year, nearly a $2 million "savings." Hernandez sought $11.5 million while the Mariners offered $7.2 million, and his $6.5 million salary this season leaves them $2.85 million below the midpoint.
One case still without a deal outlines the art of the asking and offering figures, and it may well throw the notion of compromise out the window.
Tim Lincecum’s(notes) entry as a salary arbitration eligible player is a benchmark case. No player with such success has had so little major league service time. Lincecum has landed back-to-back Cy Young awards with under three years of service time, and he qualifies for arbitration as a Super 2 only because the Giants didn't wait an extra week to call him up in 2007.
Lincecum filed a $13 million asking figure while the Giants offered $8 million, leaving a $10.5 million midpoint. Should they meet there, Lincecum would surpass Ryan Howard’s(notes) $10 million award in 2008 as the highest salary reached for a first-time-eligible player. Still, it's fair to ask whether the $13 million asking figure is too low.
A comprehensive look at Lincecum's case in November figured the Giants would indeed file for $8 million but pegged Lincecum's asking price at $16.8 million for a midpoint of $12.4 million – double Papelbon’s first-year record for a pitcher.
It's moot now. Lincecum has a decision. He can gamble. The baseball world loves a juicy arbitration case, and this would set the standard. Lincecum may strike gold at $13 million and leave the Giants regretting their offer, or he may strike out and make less this year than Oliver Perez(notes).
He can negotiate a long-term deal, too, one that limits his money but sets up his grandchildren's grandchildren.
Or Lincecum can settle in the middle, get his record and set himself up for an even bigger payday next year. It's usually what happens, though agents, players and executives dealing in millions of dollars know the truth.
Compromise isn't always easy.
Remaining Salary Arbitration Eligible Players
Players left in salary arbitration as of Jan. 24. See updated details .
Maury Brown is the founder and president of the Business of Sports Network, which includes BizofBaseball.com .