What began as a concession to owners and a means of tabling free agency in 1973 has evolved to the point where many players have more value as arbitration-eligibles than they would as outright free agents. And as MLB club owners and the Players' Association draw closer to their next Collective Bargaining Agreement, the arbitration issue is becoming quite a topic of discussion and, among increasingly budget-minded clubs, concern.
Raising the bar
|B. Sutter, Cubs||1980||$700K|
|F. Valenzuela, Dodgers||1983||$1.00M|
|D. Mattingly, Yankees||1987||$1.975M|
|D. Drabek, Pirates||1991||$3.35M|
|R. Sierra, Rangers||1992||$5.00M|
|M. Rivera, Yankees*||2000||$7.25M|
|M. Cabrera, Marlins||2007||$7.40M|
|R. Howard, Phillies||2008||$10.00M|
|T. Lincecum, Giants||2010||????||*Lost his arbitration case|
"Most [hearings] are done without any rancor," Smith said. "I've only had two or three with any rancor displayed. To me, it's a continuation of the discussion that club representatives and agents use during negotiations. The only difference is you're expressing your viewpoint before an independent panel, and they're making the decision."But each of those decisions is a precedent, and each precedent has paved the way for more and more money for players who come down the line. According to research by The Hardball Times, the average arbitration awards rose from $68,000 in 1979 to $2.3 million in 1996, a compound average growth rate of 23 percent. Several landmark cases helped usher in that rise. Bruce Sutter obliterated the arbitration record in 1980, when he received a $700,000 contract from the Cubs. The previous record had been $140,000. Three years later, Fernando Valenzuela won $1 million from the Dodgers. Four years later, the Yankees' Don Mattingly pulled in $1.975 million. Four years after that, Doug Drabek scored $3.35 million. A year later, in 1992, Ruben Sierra received $5 million from the Rangers. And eight years later, the new high was established when Mariano Rivera received $7.25 million -- after losing his arbitration case. This all culminated in the case of Phillies slugger Ryan Howard. In 2008, Howard, a first-time arbitration-eligible by virtue of "Super 2" status (a player in the top 17 percent of players with at least two but less than three years of service who accumulated at least 86 days the previous season), countered the Phils' offer of $7 million with a demand for $10 million. The arbitrator sided with Howard, the 2006 NL MVP, granting him a record amount and rattling many a small- and mid-market GM along the way. Last year, Howard and the Phils found themselves in arbitration negotiations yet again. Howard asked for $18 million, the Phillies countered with $14 million, and the sides eventually settled on a three-year, $54 million contract before it reached an arbitrator. Lincecum figures to become the new face of arbitration this winter. It has been speculated that he could ask for somewhere in the neighborhood of $20 million. Indeed, that's a figure that would have caused heart attacks in '73, and still might today. "Because [arbitration] is an attempt to give players some reasonable market opportunity, it does create contracts that may exceed the budget capability of some teams," agent Ron Shapiro said. "So some teams choose to non-tender guys." Flipped markets That's not the only time teams have to make a choice, with regard to arbitration. Arbitration has become a prickly issue in free agency. Only those teams who offer arbitration to their Type A and Type B free agents (as determined by the annual Elias Sports Bureau rankings) are guaranteed to receive Draft pick compensation if those players sign elsewhere. Not long ago, it was a no-brainer to make the arbitration offer, because players were generally worth less in arbitration than in free agency. With the economic climate forcing teams to make more rational financial decisions, the ramifications regarding arbitration have become decidedly more complex. "The markets have flipped," Yankees general manager Brian Cashman said. "Normally, you'd offer arbitration, because there was never a concern of a guy actually taking it. Now, it's a vehicle for a guy to make more than he'd make in free agency." A year ago, Cashman decided not to offer arbitration to free agents Andy Pettitte and Bobby Abreu, both of whom made $16 million in 2008. Given arbitration's inherent nature (no more than a 20-percent pay cut is allowed, per the Collective Bargaining Agreement), both would have made at least $12.8 million for '09, had the offer been extended. Even the deep-pocketed Yanks weren't willing to fork over that kind of cash. So the Yankees watched Abreu walk. He wound up signing a one-year, $5 million deal with the Angels. And they ended up re-signing Pettitte for a $5 million guarantee, plus incentives that pushed the value of his contract to $10.5 million. It's clear, then, that the Yankees made the right move. "Arbitration has become a very expensive proposition," Cashman said. But it's a proposition with no realistic alternatives, at this point. The owners granted the players unprecedented bargaining power in 1973, and the players aren't in any hurry to give it up. Arbitration already includes a 20-percent ceiling on pay cuts. The only way to avoid the gigantic contracts that eventually set the tone for free-agent contracts down the line would be to establish some sort of ceiling on pay raises. But good luck getting the players' union to sign off on that one. One thing clubs and agents agree on is the inherent need for arbitration in order to prevent all players from becoming free agents just three years into their Major League careers. "We get enough player movement as it is today," Smith said. "If you had complete free agency, it would be like fantasy baseball. There's got to be more stability in the game than that." Said Nero, the agent: "Marvin Miller was a genius. He knew that if he granted free agency to the clubs, that theory of economics would crush the marketplace. But when you have players that are protected by a system in which they have to be paid like comparable players, it gives them the metrics of salary increases that create a platform when they become free agents, and it lightens the supply of free agents, so that supply and demand is in their benefit. I think Marvin will prevail." The arbitration system has helped many players prevail since its inception in 1973. The process' full name is "pendulum arbitration," and the pendulum has certainly swung in a big way over the last 36 years.
Anthony Castrovince is a reporter for MLB.com. MLB.com reporters Chris Haft, Bryan Hoch and Brian McTaggart contributed to this story. This story was not subject to the approval of Major League Baseball or its clubs.