The Salary Arbitration Process

Thank you to Mike F. for submitting the following question: I am a huge baseball fan and understand the basics of salary arbitration, but how exactly does the actual arbitration process work?

You hear it every year after the season winds down. It is a list of players that are arbitration eligible during that off-season. However, very few people know what that means, or what process will be followed to determine the player’s salary for the following season. In order to be eligible for arbitration, a player generally must have between three and six years of Major League Baseball experience, with a few other exceptions which would otherwise qualify them. Once the player has qualified for arbitration, he must notify the MLB Player’s Association that he is electing to proceed with arbitration. The Association will then notify the league, who will then notify the individual club of the impending proceedings. Once all parties are notified, each side, the player and the team, will have three days to submit their arbitration figure for what they believe the player should earn the following season. This is where it gets tricky. While the figures are “locked in” once they are submitted and cannot be changed, the team and the player can continue to attempt to negotiate a contract in order to avoid arbitration altogether, which occurs the majority of the time for several reasons discussed below. If the sides do not reach an agreement before the hearing, an arbitration panel of three people will be selected by the MLB Labor Relations Department.

Once the hearing begins, each side will have one hour to present their case on why they believe the player should earn the amount that that particular side submitted. The MLB Collective Bargaining Agreement actually lists the information that can be submitted to the panel in support of each side, such as “the player’s contribution to their team during the past season, the length and consistency of the player’s career contribution, the existence of an physical or mental defects on the part of the player, and the recent performance of the club as an indication for the public’s acceptance.” The Collective Bargaining Agreement also list what data in inadmissible, such as “the financial position of the player or the team, previous offers made by the team or the player, or salaries in other sports or occupations.” After both sides have given their initial presentations, each side will then have one half-hour for rebuttal and summation, and the panel will then select which of the two submitted figures they believe the player most deserves based on the information presented.

Because the panel is only allowed to pick one of the two salaries submitted, it is very important that each side strategically selects an appropriate figure. This is also the major reason that the player and the club usually end up agreeing on a contract before the hearing, as it is a way to hedge yourself against having to leave yourself in the hands of the panel. Teams and players also would rather come to a compromise that is satisfactory to both sides, instead of the team having to point out the defects in a player’s game or person in order to prove why the player is not worth what he believe he is, which could cause tension down the road.

Hope this helps Mike!