Baseball 101: Arbitration and Free Agency

Free agency and arbitration – you've heard them. But how much do you know about them?


Brief History:
Salary arbitration first entered the baseball scene thirty years ago in the 1973 Collective Bargaining Agreement. It was meant to help the players get fairer salaries. In years past, owners would low ball and drastically underpay players ineligible for free agency, in the name of making money. Most owners reacted positively to this proposal. In fact, according to MLB historian Jerome Holtzman, only two teams that disapproved were St. Louis and Oakland.

How has arbitration changed through the years?
Originally, arbitration was offered to players with two to six years of experience. In 1985, the Union gave up year two; instead, in 1990, they created a "Super Two" class. If a player with over two years of experience but less than three has accumulated 86 days of major league service in the immediately preceding season and ranks in the top 17% of that service class, he then is considered a "Super Two" player. Then in 1995, the panel of arbitrators was boosted from one to three. This not only helped the judgment be fairer, but made it less likely the parties fire an arbitrator over a salary decision.

What does it mean to be "arbitration-eligible"?
Players who are arbitration eligible are those who have had more than three years of major league service but less than six, and are also at the end of their contract. The only exception is if a player is classified as a "Super Two" player. Players can be "arbitration eligible" in the sense that teams can offer arbitration to a free agent.

What does it mean if a team "offers arbitration" to a player?
When contracts are run out and options declined, a team can choose to offer arbitration to a player – whether he has less than six years of experience or more. If the player is a free agent, he can choose to accept or decline. However, if the team declines offering arbitration to a player before the deadline (December 7), then that free agent is allowed to sign elsewhere and, and the team loses negotiating rights with the player until May 1 of the following year.

If a player has less than six years of experience, and if the team offers him arbitration, he can not decline it because his rights are still controlled by the team. However, if the team declines to offer him arbitration, he then becomes a non-tendered free agent. The team is still allowed to negotiate with the player, but now the player is also free to talk to other teams as well.

So what happens if the player accepts arbitration?
Free agents have until December 19 to accept or decline arbitration. If they accept, they are bound to the team for at least another year. Usually, the offer of arbitration is to extend negotiating time. In most cases, they reach an agreement before the arbitration date and do not go to a hearing.

What about if a team offers a free agent arbitration, but he declines?
The team can still negotiate with the player until January 8. If they cannot come to an agreement by then, they cannot negotiate again until May 1 of the following year. If the player signs elsewhere, the team that "lost" him is granted a compensation pick.

What happens at an arbitration hearing?
Basically, both sides present a number. The panel analyzes the player's career statistics but weigh the last year's stats more heavily. They then decide what salary the player shall receive, and their decision is final.

Free Agency

Brief History:
"Free agents" can be traced back as early as 1931 – though, do not be under the illusion that they were anything like modern day free agents. Judge Kennesaw Landis granted free agency to several Browns players based on minor league farm system contract violations.

What really got free agency going was when centerfielder Curt Flood refused to show up for training camp in 1969 unless the St. Louis Cardinals gave him a raise. The Cardinals conceded, but after a nondescript performance from Flood, they traded him away to Philadelphia. Enraged, Flood challenged the legality of the Reserve Clause, stating that he should be allowed to freely negotiate with other teams. The Reserve Clause pretty much allowed a team complete control over a player. A team could continue renewing a player's contract year after year until they did not want him any longer. Flood's lawsuit against Commissioner Bowie Kuhn made it all the way to the Supreme Court. Though Flood lost, this got the players to thinking.

In 1972, pitchers Andy Messersmith and Dave McNally challenged the system one more time. They simply refused to sign their contracts, and an arbitrator upheld their case.

Finally in December of 1975, the players won the right to free agency. Arbitrator Peter Seitz ruled that the reserve clause only gave the team the right to another year, thus breaking the possible perpetual renewal of a player's contract. The players signed an agreement during the All-Star break in 1976.

Who is eligible for free agency?
Players who have accumulated six or more years of Major League experience and are without a contract for the next year are eligible for free agency.

Well, what happens if they're eligible for free agency?
If they want to be declared a free agent, they must file paper work with the Major League Baseball Players Association. If the teams still desire to keep the player, they can either (a) come to a deal or more commonly, (b) offer arbitration. Teams have until December 7 to offer arbitration. If they don't well… you know what happens.

What is a type A, B, or C free agent?
Free agents are classified according to how they performed in the previous year compared to their peers. Type A free agents are in the top 30% of their position, Type B 31-50%, and Type C the lower 50%.

Why classify the free agents?
This statistical ranking of the free agents determines compensation picks. If a team loses a Type A player, they receive a supplemental first round pick as well as the signing team's first or second round pick. (If the signing team's first round pick is in the top fifteen, then the team receives the second round pick instead.) If a team loses a Type B free agent, it gets the signing team's first or second round pick (same as Type A's criteria). If a team loses a Type C free agent, they receive a supplemental second round pick.

Any catches?
Yes, one. The team must offer the player arbitration in order to receive compensation. Should a team lose a free agent before the December 7 deadline, they can still offer arbitration to the player to receive the compensation picks. This is why teams usually wait until after December 7 to sign any players – to avoid losing picks.

Is it true a team can only offer a free agent a contract max 20% less than the previous year's salary?
No, that only applies to players with very little service time, and thus not arbitration eligible. Teams automatically renew these contracts at whatever salaries they like, but it cannot be 20% less than the previous year's.

Michelle Lo, also known as the Armchair Manager, writes recaps and other miscellaneous articles and designs some of the graphics at She can be reached by email at

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