Buckle Up, It's Arbitration Season

Andre Dawson was the toast of Chicago. Just a year earlier, he'd come to the Cubs for relative pennies, actually offering the team a blank contract for his services, and he went on to win the MVP.

But here he was, just before spring training in 1988, sitting in a conference room across the table from Cubs executives, pitted in a war over his value. Toward the end of the hearing, when the arbitrator asked Dawson if he had anything to add, Dawson said, as former Cubs executive Ned Colletti recalled years later: "This is the most [screwed up] process I've ever seen."

Dawson actually "lost" his case, settling for a 165 percent raise, to $1.875 million, instead of the $2 million he requested. Colletti, now the Dodgers' general manager, told FanHouse he still remembers the strange feeling he had that day: "I remember thinking to myself, 'Why are we in here, with, of all people, this guy?"

It is all part of baseball's arbitration process, which is unique in the sports world. The idea is to allow for an unbiased third party to settle salary disputes between players and clubs, which sounds perfectly fine. But when you really consider the spectacle of a team essentially laying out a legal case to explain why its own player isn't as good as he thinks he is, just before spring training, it does seem a little strange.

"You try to tell the player that it's just business and it's nothing personal, but they are talking about the player's work, so how can he take it any other way?" said veteran agent Jeff Borris.

That is the main reason why so few arbitration-eligible players ever see the inside of an actual hearing. Since the process began in 1974, around one in eight players who filed for arbitration have actually gone to a hearing, and over the past several years, the hearings have become even less frequent. Among the 111 players who filed for salary arbitration last year, only 46 got so far as exchanging figures with the clubs, and only three actually made it to a hearing.

The arbitration filing period for this year ended on Friday, with 128 players filing. The big one is Tim Lincecum, who could be in for a record salary -- hearing or not -- after winning Cy Young Awards in each of his first two full seasons. The Giants certainly don't want to have to drag Lincecum into a hearing to explain to him what he can't do, but they also aren't likely to acquiesce quickly to a salary request that could easily top $15 million. Last year he made $650,000.

Which gives you an idea of why Giants executive Tony Siegle, one of the men already working on the Lincecum case, said of the arbitration process: "It is the worst thing to happen to baseball since the Black Sox scandal. The player doesn't lose. It's a matter of how much [more] he's going to get."

Siegle is a veteran baseball man, working for his eighth team over a 46-year career. He's seen arbitration from its infancy in 1974, when clubs and players went to battle over $5,000. Today, the differences between club and player figures can be as much as $3 or $4 million.

"Is it a good process for the clubs? No, it hasn't been," Siegle said. "It's one of the main reasons the salaries have escalated so much."

The Basics

There are two ways for a player to become eligible for arbitration. The most common way is for a player to have at least three years of service time, but less than the six required for free agency. The top 17 percent of the players in service time among those with less than three years are also eligible. They are referred to as "Super Twos." It's a group that includes Lincecum, who squeaked over the line by nine days. It means if the Giants had kept Lincecum in the minors for 10 more days in 2007, they'd be saving themselves at least $9 or $10 million this winter. Ah, hindsight.

Free agents are also eligible for arbitration, if offered by their former clubs. That's how Dawson wound up in arbitration, rather than going into a free-agent market in the days of collusion, back in the winter of 1988.

Players file for arbitration in early January. If deals aren't reached by late in the month, salary figures are exchanged and hearings are scheduled for early February. If there's still no agreement by the hearing date, the two sides will make their case before a panel of three arbitrators.

The arbitrators are told to consider the player's production, his past salary and the salaries of other players in his service-time class over his recent years.

"I always felt like if you went to a hearing, it was a failure."
-- Former general manager Jim Duquette That is why the process is so lucrative for players.

When players are free agents, the market determines their salary. If the economy is bad, or if there are a glut of similar players available, free agents may have to take discount deals. Arbitration has nothing to do with supply and demand, though. The salaries are simply compared with other salaries of arbitration-eligible players, so essentially they can only go up.

"The teams that do a good job of developing and scouting, you end up punishing them because the salaries increase so much," said former Mets and Orioles GM Jim Duquette, now an analyst on Sirius/XM Radio. "There are points in time when their salary is more than what they get if they are a free agent at the time. That's one major flaw in the system that I've never liked. I think most people in baseball would say the same thing."

Of course, the players like it just fine.

"I think it's an excellent way to resolve the salary," said Borris, whose agency, the Beverly Hills Sports Council, represents Lincecum.

Lincecum is also going to benefit from a clause in the arbitration rules that allows the arbitrators to take "special accomplishments" into consideration. Because Lincecum won a Cy Young, he can compare himself not just to other players with similar numbers and service time, but to any player with similar accomplishments. If Lincecum had the same stats over the past two years and happened to finish second in the Cy Young voting both years, he'd have to compare himself to someone like Justin Verlander, who made $3.65 million in his fourth year. Instead, Lincecum's agents can use any Cy Young winner as a salary comp, from Roy Halladay to CC Sabathia to Johan Santana.

That's why there could be a wide gap when Lincecum and the Giants exchange figures later this month, and why it's possible that it will end up being Giants v. Lincecum, which would be the classic confrontation teams try to avoid

"I always felt like if you went to a hearing," Duqette said, "it was a failure."

Team vs. Player

Throughout most negotiations, the agent acts as the buffer between the team and the player, who never has to hear or see exactly how the sausage is made, so to speak. But if the disagreement gets all the way to an arbitration hearing, the player is almost always sitting right in the middle of it.

Siegle, who boasted that his clubs are 6-0 when he's been part of a hearing, said that when the Phillies beat Kevin Gross in a hearing in 1987, he approached Gross on the first day of spring training by tying a white flag to a broomstick, as if to signal a truce and an end to whatever acrimony the process may have caused.

While Siegle said he's been lucky enough to avoid any hard feelings from his arbitration cases, he said "I've heard some wicked stories."

Duquette said when he was the Orioles GM he had to take Rodrigo Lopez to a hearing. The club won, but Lopez had some hard feelings and he ended up having a bad season.

"You are forced to point out in a negative light the players weaknesses, why he shouldn't be making a large sum of money," Duqette said. "He's still going to make a lot of money, but you have to say negative things and your risk the player taking those so personally he tries to prove you wrong."

Siegle said it's a delicate line the club must straddle to make its case strongly without alienating the player.

"It's all in the presentation," Siegle said. " There have been other people go into these hearings and they just decimate the player. I've never believed in that. There are enough things that you can say tactfully."

Steve Goldberg, a retired law professor who has been serving as a baseball arbitrator since 1981, said he's seen a shift over the years in the way teams go about proving their case against their own player.

"Clubs have become much more sophisticated about that and they try very hard to keep the discussion away from being negative about the player," Goldberg said. "The best example is they start the discussion by saying 'We think so and so is a marvelous man and a wonderful player and we hope he plays for us forever, but we think his demand is for too much money."

Colletti, who was in the ultimate tough spot when he had to go against Dawson, the reigning MVP, said he believes that agents actually rely on the awkwardness of the situation to help their case.

"The player is not required to be there," Colletti said. "The agent thinks if the player is there, the club will soften its case."

Making the Case

Agents and clubs begin preparing their case for arbitration months before hearings that will likely never happen. They search through reams of data, creating packets of exhibits and visual displays, to prove why their dollar figure is more appropriate than the other. Most teams have experienced law professionals, not the normal baseball operations people, handle the actual case at the hearing.

Each side has one hour to present its case to the panel. Then there are 30 minutes for each side to rebut. There may be some additional rebuttal after that. The whole process takes about three hours. After that, the arbitrators adjourn to make their decision, which typically comes down the next day.

They are told to consider a player's production and the salaries of comparable players, but also his consistency. That's where things can get tricky, especially because young players don't have much of a track record.

"The tough ones are when we get a player who hit .280, .280 and then in Year Three he hits .350," Goldberg said. "How do you assess what he should be getting paid going forward? Is he a .350 hitter or a .280 hitter?"

In the end, the arbitrators have to pick either the player's number or the team's. Nothing in between.

Goldberg, an experienced labor arbitrator, said that's a relatively rare arrangement, but it's for a reason.

"It has an in terrorem effect," he said. "It scares the (expletive) out of them."

In other words, the point is discourage the sides from even going to a hearing.

"Generally, when a player wins his case, he's overpaid and when he loses his case, he's underpaid," Borris said. "The true market value of a player is in the middle. That's what the system is designed to do, to produce settlements."

So there is a financial incentive, as well as the desire to avoid face-to-face confrontation, that encourages teams to find the middle ground on their own, without going into that room.

"If both sides are reasonable," Duquette said, "you should be able to come an equally undesirable salary."