The hot stove season is winding down, and Major League pitchers and catchers are due to report to their Spring Training camps in the next couple of weeks. This is always an exciting time of the year for baseball fans, as thoughts of the warm sunshine in Florida and Arizona begin to offset the doldrums of cold temperatures and snow. Most of the Major League rosters and payrolls are beginning to solidify, and one of the last hurdles of the offseason is taking place right now in Phoenix, where this year’s Major League salary arbitration hearings are taking place through February 19.
Most baseball fans have at least heard of arbitration, if only through headlines reading something like “(Player) and (Club) Avoid Arbitration” or “(Player or Club) Wins Arbitration Hearing,” but it is probably safe to say that most are not completely sure of what that process actually entails. Even those in the legal profession that may be familiar with arbitration as a standard process of alternative dispute resolution may not be familiar with baseball arbitration and baseball arbitration hearings that are often a very different process than more conventional arbitration hearings.
In January, fellow 3Ls Nathan Brown, Kirk Emick and I had the really great opportunity to represent Marquette Law in the 2016 National Baseball Arbitration Competition, hosted by Tulane Law School in New Orleans. The National Baseball Arbitration Competition is a moot court competition that attempts to simulate the Major League Baseball arbitration process as closely as possible. Even as a lifelong fan of the game, I learned a few things about the process that I did not know before the competition. In this post, I will attempt to break down and provide some insight into the baseball arbitration process through the lens of my experience in the competition.
The competition is co-sponsored by Major League Baseball and the Major League Baseball Players Association, and is really a great event, especially for a baseball nerd like myself. The competition is judged by front office executives, league executives, union officials, and player agents from all over the baseball industry (including Marquette Law grad and Manager of Baseball Operations for the Brewers, Matt Kleine), most of whom have been involved with actual arbitration hearings in the past. The judges/arbitrators do a fantastic job of sharing their experiences and providing insight into the process throughout the competition.
Before the start of the current period of relative labor peace, Major League Baseball had a long history of labor and salary disputes between players and ownership. In the interest of brevity for this blog post, I will not delve deeply into baseball’s extensive labor history, but it should be understood that arbitration was originally a compromise between the players union and baseball’s owners in the 1973 collective bargaining agreement as owners tried desperately to quell free agency and rising player salaries in the early 1970’s. The process has now been in place, largely unchanged, for over forty years, even as veteran players were granted free agency after the 1976 season.
Today, a player is under the club’s control for his first six years of Major League “service time” before he is granted free agency. During the player’s first three years of service time, he is generally paid a league minimum salary, or close to it, as the player has no real leverage to negotiate with the club. However, once a player has accumulated three years of Major League service time, he is eligible for salary arbitration. It is also possible to be eligible for arbitration before the player has acquired three years of service time through what is known as the “super two” provision. Under the super two provision, a player with at least two years of service time who has accumulated at least 86 days of service during the immediately preceding season and ranks in the top 22% in total service in the class of players who have at least two years of service is also eligible for salary arbitration.
If a club and a player cannot agree on a salary for the next season, the club may offer the eligible player salary arbitration to settle the dispute. The club and player may continue to negotiate with each other right up until the actual arbitration hearing. The club may continue to offer salary arbitration to the player until the player accumulates six years of Major League service time and becomes a free agent, free to negotiate with any team.
Baseball arbitration is a process known in the alternative dispute resolution world as “Final Offer Arbitration.” Final Offer Arbitration is a process where each side of a dispute (in this case, the player and club) submits a salary figure to an independent panel of arbitrators. After hearing an argument from both sides, the arbitrators pick one figure or the other. The arbitrators cannot split the difference and settle on a salary that is somewhere between the club’s figure and the player’s. One side leaves the arbitration a winner and the other a loser, which heightens the risk for both sides. This is intentional, as the risk encourages negotiation and settlement to avoid arbitration between the player and the team, with arbitration intended to be the last resort for a salary dispute. This is all laid out in Article VI, Section E of the 2012 Collective Bargaining Agreement: “The arbitration panel shall be limited to awarding only one or the other of the two figures submitted. There shall be no opinion.” The process is designed to produce a settlement, not a verdict.
The effect of this process is that the argument really becomes about the midpoint between the figure submitted by the player and the figure submitted by the club. (For example, if the player submits a salary request of $3 million and the club submits an offer of $2 million, then the midpoint would be $2.5 million.) This is because, if an arbitrator finds a player to be worth even 1 cent above the midpoint ($2,500,000.01 in this example), the award must go to the player, even if the player’s submitted figure is well above that midpoint. Likewise, if the player is found to be worth even 1 cent less than the midpoint, then the award must go to the club. In effect, this means that each side needs to prove in their arguments that the player is worth more or less than the midpoint, and does not necessarily have to prove that the player is worth the figure that was submitted in order to win.
In an actual baseball arbitration hearing, the arbitrators are selected by both sides. If both sides cannot agree on the arbitrators, then the arbitrators are selected from a list of “prominent, professional arbitrators” provided by the American Arbitration Association. This means that it is very possible (and even likely) that the arbitrators hearing the argument may know very little, if anything about baseball. Therefore, each side really should want to avoid using advanced statistics and metrics in their arguments unless they can be thoroughly explained in the time allotted, in order to avoid confusing the arbitrators. The key in the arguments is to create a narrative about the quality of the player’s contribution to the team that is in relatively simple terms for the arbitrator and easy to follow. The narrative is generally accompanied by exhibits via PowerPoint that show stats, graphs, charts, and even flattering (or unflattering) pictures of the player in an attempt to paint that player in the light of the narrative.
There are rules in the Collective Bargaining about what topics can be subject to argument for either side. Article VI(E)(10)(a) reads:
The criteria will be the quality of the Player’s contribution to his Club during the past season (including but not limited to his overall performance, special qualities of leadership and public appeal), the length and consistency of his career contribution, the record of the Player’s past compensation, comparative baseball salaries . . . the existence of any physical or mental defects on the part of the Player, and the recent performance record of the Club including but not limited to its League standing and attendance as an indication of public acceptance.
This means that everything from basic statistics to the player’s off-field behavior to the club’s ability to make the postseason to the club’s attendance is available as a potential argument in an attempt to prove a player’s value. However, there are a few exceptions. Evidence submitted in the arguments may not include: the financial position of the player or club (including the arbitration award’s effect on the club’s competitive balance tax implications), press comments (other than awards from press organizations such as the Baseball Writers’ Association of America), offers made between the player and club before the arbitration hearing, the cost of the hearing, or the salaries of players in sports that are not baseball.
For example, in the competition our team was tasked with taking the unenviable position of the club against Angels’ right fielder Kole Calhoun in one round of the competition and Rockies’ second baseman DJ LeMahieu in another. Both of these players are very, very good and should be expected to win their arbitration hearings. In fact, Calhoun and the Angels recently avoided arbitration and settled for $3.4 million, a figure that is well above the competition’s midpoint of $2.75 million. In order to argue against these very good players, we pointed out things like the fact that the Angels and Rockies have not had very much postseason success in recent years, and the fact that LeMahieu and the Rockies play in Coors Field, a very hitter-friendly park that could potentially be aiding some of LeMahieu’s offensive stats. One of our best arguments against Calhoun was that he had a very poor September in 2015, which was arguably a major reason why the Angels missed the postseason by just 1 game. Our opposition noted (and I personally feel) that it simply isn’t fair to blame one player for a team’s failure to reach the postseason, but the fact is, in the realm of baseball arbitration, that is a fair argument to make.
The other, crucial part of each side’s argument is the comparison of the player’s salary request to the salaries of other players in the league. The key here is to prove that the player’s stats and contributions are comparable to other players on your side of the midpoint. The more players with similar stats and accolades that you can find on your side of the midpoint, the more persuasive your argument is going to be. Each side wants to use the comparisons to prove that their player is similar or better or worse than the players they are compared to.
Oddly enough, in our round against LeMahieu, each side wound up comparing him to the same players, but for different reasons. Each of the players LeMahieu was compared to were below LeMahieu’s midpoint (although close to it), and the LeMahieu side’s strategy was to prove that LeMahieu was so much better than these players that he obviously deserved to be paid more than them and above the midpoint. In the baseball arbitration process, this is a risky argument, because even though they did a fine job of establishing that LeMahieu was a better player than Dee Gordon, Daniel Murphy, and Gordon Beckham, they still failed to establish that LeMahieu was comparable to any player making more than the midpoint, and an arbitrator might not be persuaded to award above the midpoint if there isn’t evidence that any other comparable player is making anywhere close to what the player is asking for.
When making comparisons, you generally want to try to compare your player to players that play similar positions. Generally, you can make comparisons within four categories: “middle of the field” players (2B, SS, CF); “corner players” (1B, 3B, LF, RF); catchers; and pitchers. For example, one of our player comparisons for right fielder Kole Calhoun was third baseman Justin Turner, on the reasoning that they are both “corner players,” even though they are not both outfielders. It is risky to compare players from different categories, because offensive and defensive expectations are often different for players in different categories. In the final round of this year’s competition, the team arguing against DJ LeMahieu, a second baseman, compared him to Brandon Belt, a first baseman. Their argument was pretty fantastic otherwise, but that team ended up losing, and many in the room felt a big part of that loss was because of the fact that the stats of a second baseman and a first baseman simply aren’t very comparable, as a first baseman is generally expected to hit for more power with more home runs and extra base hits.
There are a few key differences between the competition and an actual baseball arbitration hearing. First, in an actual hearing, each side has one hour to present their initial argument (player goes first), and then each side has one half hour to present a rebuttal to the other side’s initial argument and provide a summary of the argument. After the club’s rebuttal, the player is entitled to a brief surrebuttal, but only to address new issues that have been raised in the club’s rebuttal. The club may then request it’s own surrebuttal at the discretion of the judge, but is not entitled to one. In the competition, each side was limited to fifteen minutes for their initial argument, and seven minutes for rebuttals, with the player’s side allowed a brief surrebuttal at the judge’s discretion.
Second, actual hearings are heard by a panel of arbitrators, while in the competition the hearings were heard by just one judge/arbitrator. Additionally, all of the judges/arbitrators in the competition worked in or around baseball in some capacity, so there was no real risk of losing the judge/arbitrator with advanced statistics, though we were advised in the rules to avoid using them anyway unless they could be thoroughly explained in the time allotted. Believe me, BABIP and its relevance may seem to a hardcore fan like it would be easy to explain quickly, but you really do not want to waste any of those precious fifteen minutes of your argument with an explanation of a relatively obscure stat.
Finally, in an actual hearing, the player himself must be present in the room. Because of this, a club really wants to be careful how it frames its argument and narrative about the player and avoid using unduly harsh language in order to avoid any more tension than necessary between the employee and employer. From talking with some of the arbitrators and judges at the competition, it would seem that most players understand the process and that it is simply business, but most teams still choose to frame arguments in a way that doesn’t necessarily highlight the negatives of the player, but merely proves that the player’s contributions simply don’t warrant a salary above the midpoint. Further, some clubs may utilize outside counsel to present the argument on their behalf in order to somewhat distance themselves from the negative aspects of the argument.
Other than those key differences, the National Baseball Arbitration Competition does a pretty great job of simulating and illustrating a process that even many hardcore baseball fans and writers know relatively little about. Even though our team did not achieve the results we were expecting, I still had a lot of fun and learned a lot about the process. It was also incredibly rewarding to be able to interact and hear from people who actually handle these cases from both sides.
Hopefully this post was able to provide some clarity and insight to the baseball arbitration process, though I feel like I could continue writing even more about it. Please, if you have any specific questions about baseball arbitration or my experience in the National Baseball Arbitration Competition, do not be afraid to ask in the comments or tweet to Marquette Sports Law Society’s blog @MarquetteSLS. Also feel free to contact myself (firstname.lastname@example.org), Nathan (email@example.com) or Kirk (firstname.lastname@example.org) if you have any other thoughts or questions about our experiences with the competition.
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