Flaws In the MLB Arbitration Process

For those that are not familiar with arbitration, a player is eligible for arbitration if he has more than 3, but less than 6 years of service time or is considered “Super Two” eligible. According to the MLB CBA, “Super Two” eligibility kicks in if the player “has accumulated at least 86 days of service during the immediately preceding season” and “he ranks in the top twenty-two percent in total service” of players who fit the service requirements for “Super 2” eligibility. Arbitration sends the player and team to arbitrators who decide the value of the player’s contract for the next season. Both the team and player submit a figure for the arbitrators to consider and the arbitrators must choose one of these contracts.

MLB Arbitration has long been considered a great compromise for players and teams. Arbitration provides players an opportunity to earn a raise upon their salary of the previous year, but also keeps their salary below its Free Agent value. While arbitration is a fantastic system that gives the player more leverage than he has in the first three years in the Majors, it has flaws that must be resolved in order to keep up with the changes occurring in baseball. As the player and team lobby for their respective contract, each side is limited to using traditional statistics to make their case. This is in large part due to the fact that the arbitrators are not a “baseball people”, so they are unlikely to understand advanced metrics. The other reason sabermetrics are rarely used is that many of the hearings are based on precedence and comparisons to other players’ salaries awarded through arbitration, which were decided based on traditional statistics.

We have seen the effects of this multiple times during the current offseason. The first instance was when the Baltimore Orioles traded Closer Jim Johnson to the Oakland Athletics for Jemile Weeks. It doesn’t seem right for a pitcher with a 2.72 ERA and 101 saves over the past two seasons to only bring a weak-hitting, poor-defensive 2nd basemen back in a trade. However, this is what happened because the Orioles did not think Jim Johnson was worth the projected $10.8 Million salary through arbitration. Apparently neither did many teams if the Orioles could only get Jemile Weeks in return. It is unclear what Jim Johnson would receive on the open market, but it would likely exceed the one year deal he will receive via arbitration; however, it would also likely fall short of $11 Million annually. As I wrote earlier this week, we may have seen the end of big-money closers, in terms of long contracts with high Average Annual Value. The reason Johnson’s value may not be as high as the arbitrators may believe is that, while he has saved 101 games in two years, he had just a 84.7% success rate in save opportunities this past season. Another concern is his FIP, which has increased each of the past three seasons, but that is a statistic that will not be referenced in his case.

The second instance of arbitration leading a player to be dealt was the White Sox trade of Addison Reed for Matt Davidson. Unlike the above trade, this one does bring back a strong return, as the White Sox received a strong 3b prospect with 6 years of team control left. However, another reason the White Sox chose to trade Addison Reed was concern over Reed’s cost in arbitration, due to already having 69 saves in two years as the White Sox closer.  Despite his high number of saves, Reed has a 4.17 career ERA and only an 85% conversion rate, which is rather pedestrian. Reed will likely be overvalued when he goes to arbitration because of his high number of saves, but he has had an even higher number of opportunities.

While both of these examples involve closers and the player being seemingly overvalued through arbitration, arbitration can also undervalue some players. High OBP players with little power are often undervalued through arbitration, as arbitration tends to pay more for HRs, RBI and other counting statistics. The players that are likely undervalued the most are defensive-minded players, as traditional statistics are terrible at determining a player’s defensive value. Traditional fielding statistics, such as errors and Fielding Percentage, often penalize players with the most range, as they can get to more balls and are more likely to commit an error on these more difficult plays. The subjectivity of errors has led to new metrics like Ultimate Zone Rating (UZR) and Defensive Runs Saved (DRS), which reward players for their range. Unfortunately, these new and much more accurate metrics are not used in arbitration cases because the arbitrators are unlikely to understand them. A case can easily be made that even these new metrics are not completely reliable in one season’s worth of data, but over the course of three seasons, these metrics are accurate and are certainly an improvement upon the old metrics.

Among the many issues with arbitration is that it has not kept pace with the game of baseball. This is best exemplified in that arbitration insists on paying players for past performance, rather than considering his future contributions. As Dave Cameron of Fangraphs wrote, “The days of paying for past performance are over…. Past performance matters to the extent that it informs us about what a player will do going forward”. As Cameron rightfully points out, teams are beginning to pay less for past performance and more for what the player’s future value will be. Teams have done this by implementing more advanced metrics in order to determine whether the player is trending upward or downward. This emphasis on paying for future performance and not past production is demonstrated by the increase in contract extensions for players prior to Free Agency. These extensions often cover the prime years of a player’s career and end just as his play should theoretically decline.

The arbitration process in baseball has provided players with proper leverage while still giving teams the ability to retain the rights of its players for 6 years. While the system is an overall success, it has failed to keep up with the advances in baseball analytics. The arbitrators used for the hearings are not considered “baseball people” and for this reason teams and players cannot use advanced metrics in their argument for the player’s next contract. There is clearly a reason the MLB uses arbitrators that are not “baseball people”, as they are looking for an unbiased third party. However, it is still possible to begin integrating advanced metrics into arbitration hearings by using arbitrators that are knowledgeable on these sabermetric statistics. It will not be easy to accomplish, but it is something that must be done before arbitration falls further behind the curve and must be supplanted with a new system altogether.

Anthony Cacchione

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