Rounding the Bases: Arbitration and Multi-year deals

MlbHlSqThere were no major free agent deals signed and we didn’t have a steroid confession from one of the biggest stars of the last 20 years, so compared to the previous week the last seven days might seem uneventful.

However, that isn’t the impression you would get if you looked at the list of transactions that have taken place.  The last week or so has been dominated by contract negotiations between teams and players who are eligible for arbitration.  128 players filed for arbitration on Friday 15th and arbitration figures had to be filed on Tuesday 19th.  

‘Arbitration’ is the process by which players who have between three to six years of Major League service time negotiate their salary for the upcoming season with their current club.  They are joined by some of the players who have between two and three years of service time (the top 17 per cent in terms of the amount of service time accumulated) and also any players who would have been free agents had they not accepted an offer of arbitration from their previous team (there were just two this year: Carl Pavano and Rafael Betancourt). 

There are three main outcomes to the arbitration process:

  1. the team and player come to an agreement on a one-year contract
  2. the team and player come to an agreement on a multi-year contract
  3. the team and player are unable to come to an agreement, so the case is heard at an independent arbitration hearing to set the value of a one-year contract.

Virtually all cases are decided without needing to have a hearing.  For example, of the 111 players who filed for arbitration last year only 3 cases ended up going to a hearing (Dan Uggla of the Marlins, Shawn Hill of the Nationals and Dioner Navarro of the Rays).

One-year contracts

A team normally has a player under control for six Major League seasons at the start of his career.  During the first three seasons the player’s salary is determined at a Major League standard rate.  For the other three seasons the player is eligible for arbitration (note that some players reach this point a year earlier and are referred to as ‘Super 2s’).  The important thing to remember is that the player is still under contract with the team during those final three years (unless the club declined to offer arbitration) so he can’t go anywhere else.  The only thing up for negotiation is the player’s salary for the coming season.  If there was no arbitration element to the process, the club could effectively offer whatever they wanted and the player would have no choice but to accept it.  The prospect of a potential arbitration hearing means that clubs have to be realistic with their offers. 

The vast majority of players will reach an agreement with their club on a one-year contract for the coming season.  Salaries are negotiated based on performance level first and foremost and they also tend to rise each year, so for example two players of the same standard may get a different amount of money if one is in his fourth year and the other in his fifth.  Some of the most lucrative contracts agreed so far have been:

  • Jonathan Papelbon, Red Sox – $9.35m (£5.795m)
  • Dan Uggla, Marlins – $7.8m (£4.835m)
  • Carl Pavano, Twins – $7m (£4.34m)
  • Jorge Cantu, Marlins – $6m (£3.72m)
  • Jorge De La Rosa, Rockies – $5.6m (£3.47m)
  • Ryan Ludwick, Cardinals – $5.45m (£3.38m)
  • J.J. Hardy, Twins – $5.1m (£3.16m)
  • Russell Martin, Dodgers – $5.05m (£3.13m)
  • Jeff Francoeur, Mets – $5m (£3.1m)

Multi-year contracts

This year-by-year situation can be bypassed at any time if the player and club reach agreement on a multi-year contract. A multi-year deal offers the club some certainty when it comes to planning their budget for the next few years, but more importantly it also normally means they save a bit of money as well.  If a club thinks they might pay less by going through the arbitration process each year then clearly they will take that option.  That then leaves the player with a decision: does he take the risk of going year-to-year in the hope of earning more money in the long run, or does he accept less cash in return for the security that guaranteed money brings? 

It all comes down to whether a deal can be agreed between both parties and sometimes, even if both are open to the idea, an agreement can remain elusive. For example, Papelbon has consistently said he’s open to signing a longer deal; however he wants a fair amount of money as one of the top closers in the game and the Red Sox are happier going year-to-year.

Game One NLDS - St. Louis Cardinals at Los Angeles Dodgers

The Dodgers ended up finalizing a one-year deal with Russell Martin, but signed two-year deals with Andre Ethier ($15.25m/£9.47m), Jonathan Broxton ($11m/£6.83m) and Matt Kemp ($10.95m/£6.8m).  The Rockies took a one-year approach with Jorge De La Rosa, but signed Huston Street on a three-year deal ($22.5m/£13.97m) and both Rafael Betancourt ($7.55m/£4.69m) and Ryan Spilborghs ($3.8m/£2.36m) on two-year contracts. Clubs are particularly keen to sign players to multi-year deals if they can buy out a year or two of that player’s free agency (i.e. so that they maintain control of the player for a season or two after he would normally become eligible to hit the free agency market).  The Marlins did that last week by agreeing a four-year, $39m (£24.2m) contract with ace pitcher Josh Johnson.  The contract covers his final two arbitration-eligible years and the first two of his potential free agency. 

The Phillies made a similar move over the last couple of days by signing multi-year contracts with Joe Blanton and Shane Victorino. Blanton’s deal is worth $24m (£14.9m) and covers his final arbitration year and his first two potential free agent years.  Victorino’s deal is worth $22m (£13.66m) over three years and covers his last two arbitration years and what would have been his first year as a free agent. 

The Seattle Mariners also agreed a multi-year contract extension with one of their players, but we’ll get to that later.

Arbitration looming?

The club and player can continue to negotiate once numbers have been filed for a potential arbitration hearing right up until the case is due to be heard.  As already noted, arbitration cases are rare and filing numbers often just gives both sides more time to negotiate a deal; however one case that looks almost certain to go to a hearing is that of Tim Lincecum. 

San Francisco Giants v Oakland Athletics

As a ‘Super 2’, he is eligible for arbitration for the first time in just his third full Major League year and he comes to the process in an unprecedented position.  No pitcher has ever won two Cy Young awards (given to the best pitcher in each league) during their first two full seasons. The Giants paid Lincecum just $650k last year.  That’s the equivalent of one of the best young players in English football being paid £7,758 per week, the sort of sum that even some players in League One are earning. 

The Giants were able to pay Lincecum at an absolute bargain price over the last two years because he had no bargaining power when it came to agreeing a salary each year.  Well, he has a a fair amount of bargaining power now and that’s why he is asking for $13m (£155,154 if we stick with the ‘pounds per week’ theme), while the Giants have offered $8m.  If it goes to an arbitration hearing in the first half of February, the panel has to choose one or the other: they cannot just split the difference.  Either way, that’s a handy raise for Lincecum, although he has certainly earned it.

King Felix to reign in Seattle for years to come

One player who has avoided arbitration is Felix Hernandez.  He signed a five-year contract extension with the Seattle Mariners this week worth $78m (£48.4m).

Diamondbacks vs. Mariners in Seattle.

The starting pitcher from Venezuela has been hailed as King Felix since making his Major League debut at just 18 years of age in 2005.  Last season was his finest to date (19-5, 2.49 ERA) and, considering he’s still only 23 years old, there is plenty of time for him to get even better, scary though that sounds.  The five-year deal covers Hernandez’s remaining two arbitration years and his first three free-agent years.  Mariners fans were looking ahead to King Felix’s impending free agency at the end of the 2011 season with dread, while some Red Sox and Yankee fans gleefully taunted them about how they were destined to steal their ace away.  Indeed, Boston made a big push to acquire Hernandez in a trade last year and questions were being raised about whether the Mariners might have to trade him over the next year or so for valuable prospects if they couldn’t sign him to an extension.

Well, Mariners fans can now return the favour to Red Sox and Yankee fans, sticking their tongues out and singing “nah, nah, nah-nah, nah” safe in the knowledge that the two AL East behemoths aren’t going to get their hands on King Felix for a few years yet.  More importantly, ensuring Hernandez will be part of their rotation for the next five years gives the Mariners a real chance to be postseason contenders over that period.  With their ace locked up for another five years and both Cliff Lee and Chone Figgins being added to the roster, this has been a fantastic offseason for Mariners GM Jack Zduriencik.

Other notable deals this week

  • The Angels signed free agent starter Joel Pineiro on a two-year deal worth $16m.  He will replace John Lackey in the Halos’ rotation.
  • The Angels made another move by trading away Gary Matthews Jr to the New York Mets for veteran reliever Brian Stokes.  It marks the end of a horrible free agent mistake by L.A.  Despite all of the warning signs, the Angels gave Matthews Jr a five-year deal worth $50m prior to the 2007 season based entirely on his career year in 2006 which was completely out of line with his previous level of play.  He was relegated to being an expensive fourth outfielder and the Angels have had to pay $21.5m of the $23.5m left on his contract just to make him go away. 
  • Two free agents decided to return to their 2009 teams: catcher Bengie Molina has re-signed with the Giants on a one-year deal worth $4.5m, while pitcher Vicente Padilla has gone back to the Dodgers (who he pitched well for after joining the team late in the season) on a one-year, $5.025m deal.
  • Pitcher Doug Davis has returned to the Milwaukee Brewers on a one-year, $5.25m deal. Davis pitched for the Brewers between mid-2003 and 2006 before being traded to the Diamondbacks. He joins Randy Wolf as the Brewers’ two much-needed additions to their starting rotation.

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