It’s getting a bit warmer outside, the sun is setting later, the grass is getting longer, and my allergies are starting to make their presence felt. Spring is here, and for baseball fans that means only one thing; opening day is just around the corner.
Several weeks before pitchers and catchers reported for spring training, many players were engaged in a different sort of preparation for the upcoming season. Under the current Major League Baseball (MLB) collective bargaining agreement, players remain under the exclusive control of the team that drafted or signed them until they accrue six years of major league service time. Players on their rookie contracts have no leverage. Clubs can set their salaries wherever they see fit (typically somewhere around league minimum).
Once a player has accrued six years of major league service time, they are eligible to become a free agent. Free agents can sign with any club for any terms to which the player and club agree. Free agency is the holy grail for MLB players. It’s their chance to get paid the big, big bucks (e.g., Shohei Ohtani signed a ten-year, $700 million contract with the Los Angeles Dodgers this offseason).
Players who have accrued between three and five years of major league service time are eligible for arbitration.[1] Arbitration is necessary when the player and club cannot come to an agreement on a salary number for the upcoming year. Baseball arbitration is extraordinarily unique, not only in its’ structure as an arbitration itself, but as means of salary dispute settlement.
At arbitration, both the club and the player present their proposed salary number. The parties are locked into their proposed number throughout the hearing. The three-member arbitration panel must choose one of the figures presented. The panel cannot split the decision down the middle. The structure of the arbitration places pressure on the parties to bring figures they truly believe are reasonable.
Each side typically receives an hour to present their case-in-chief and thirty minutes for rebuttal. The arbitration panel will consider the player’s contribution to the team, the club’s record and attendance, a player’s “special accomplishments” (e.g., all-star appearances, awards, postseason performance), and the salaries of comparable players in experience and performance.
Baseball arbitration can produce some awkward outcomes. While players are trying to convince the arbitration panel that they are worth the figure they’ve put forward, their club is doing the opposite. The club is trying to show the arbitration panel that the player is worth less than he believes he’s worth. However, the player remains a part of the club regardless of the decision the panel reaches. Therefore, it’s essential for clubs to ensure players do not feel demeaned by the process—after all, the club still needs the player to show up and play their best for the upcoming season.
Perhaps the potential of hurting club-player relations is one of the reasons less than 8% of arbitration eligible players in 2024 went through with the process. Of the fifteen cases that went to the arbitration, nine were won by the player, and six by the club. One of baseball’s best and most promising young stars, twenty-four-year-old Vladimir Guerrero Jr., won his hearing against his club, the Toronto Blue Jays, for a record setting $19.9 million—the highest arbitration salary awarded in the history of MLB arbitration.
In conventional arbitration, the arbitrator has more leeway to decide the outcome of the dispute. Often in conventional arbitration, the arbitrator will find a compromise somewhere between the parties’ positions. Rarely does an arbitrator adopt one of the party’s proposals as the outcome. If parties believe that the arbitrator is likely to find a compromise, they may be less likely to negotiate in good faith, instead opting for the arbitrator to find middle ground for them.
Baseball arbitration’s unique structure encourages settlement for several reasons. Parties are incentivized to settle because the arbitrator can only select one of the proposed figures. The only way for the parties to hedge their bets is to settle on a figure somewhere in between that proposed by the player and the club. Also, the parties must present a reasonable negotiating position since the arbitrators cannot compromise between their positions. It would be disadvantageous to present an unreasonable negotiating position because parties must stick with their proposed figure throughout arbitration, and an unreasonable position would almost guarantee defeat.
As a baseball fan, I am appreciative of the numerous holdouts baseball arbitration has undoubtably prevented since its introduction in the 1970s. For that reason alone, you may call baseball arbitration a “hit.” But, with the added fact that baseball arbitration has been incredibly effective in encouraging settlement between clubs and players prior to ever reaching a hearing, you might venture as far as to call it a “homerun” for the sport.
[1] A player can be eligible for arbitration prior to their third year of major league service. Players who have accrued more than two but less than three years of major league service time, and who rank in the top 22% of service time, are considered arbitration eligible (known as a “Super Two” players).
Written by Christina Charikofsky. Christina is a legal intern at Kollman & Saucier and a second year student at the University of Baltimore School of Law.