MLB Arbitration Wrap-up – 2005

A recap of the 2005 MLB arbitration proceedings provided from a person with a birds-eye view of the matter.

In 2005, 89 players filed for salary arbitration, the fourth highest total in the last 12 years. Before players and clubs exchanged figures on January 18, forty nine of these players had agreed to contracts with their Clubs. Of the remaining 40 players, only three players, all pitchers, actually went to an arbitration hearing. The total of three hearings was the lowest in the 30 years that arbitration hearings have been held.

In two of the hearings, the arbitrators sided with the Clubs (Kansas City-Jeremy Affeldt and Oakland-Juan Cruz). In the other (Kyle Lohse-Minnesota), the arbitrators chose the player's figure. It was the 9th straight year that the majority of the decisions went in favor of the Clubs.

Of the 37 cases that settled after the exchange of figures but before a hearing, only 4 settled above the midpoint and the vast majority settled below the midpoint. This suggests that players (and their agents) may have overestimated the market based on some of the unexpectedly high salaries paid to free agents prior to the filings.

There are two situations where arbitration can come into play. By far the most common is the situation involving players, under control of their Clubs, with 3 to 6 years of major league service (MLS), plus the 17% most senior MLS-2 players, sometimes referred to as "super twos". Of the 89 players who filed this year, 86 were in this category.

The other situation involves free agents. When a player with 6 or more years of major league service files for free agency, his Club has the option of offering arbitration. A Club must offer arbitration in order to get compensation in the form of draft picks if the player signs with another Club. If the player accepts arbitration, as Roger Clemens did this year, he is no longer considered a free agent and he becomes bound to that Club. If a player refuses arbitration, as Carlos Beltran did, the Club faces a deadline for signing the player (January 15 this year) or they are prohibited from signing the player before May 1. The other two other free agents who accepted arbitration this year were Ron Villone of Seattle and Placido Polanco of Philadelphia.

The most interesting cases this year involved three comparable starting pitchers who have become staff aces – Roy Oswalt of Houston, Ben Sheets of Milwaukee and Johan Santana of Minnesota. All were eligible for arbitration for the second time. The three Clubs took different approaches. Milwaukee signed Sheets, coming off surgery, to a one-year contract for $6.0 million, the midpoint between the two filings. Houston signed Oswalt to a two year contract for $5.9 million in 2005 and $11.0 in 2006. Minnesota took it a step further by offering Santana a four-year contract, buying out two years of free agency. The contract is for $40 million for 4 years but the breakdown by years is unavailable. Presumably the 2005 salary is in the range of $6 million, consistent with the salaries of Oswalt and Sheets and also with Roy Halladay's 2004 salary in the first year of a $42 million, 4-year contract signed when he was arbitration-eligible for the second time a year ago coming off a Cy Young season.

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