Bizball: Inside the 2012 Salary Arbitration Class

Salary arbitration is a funny thing. In an era when club owners and COOs are more honed in on cost certainty with contracts than ever, few clubs fully know what player payroll for the upcoming season will be until approximately a month and a half before the season begins. Until each player has reached a contract or gone to hearing in the salary arbitration process, you don’t know what each player will ultimately be paid.

This year, I went diving deeper than ever before in salary arbitration, and for the time, I am making all my data for the 2012 salary arbitration season available for download. Here’s the details, plus an explanation as to why the increases, while large, shouldn’t be too surprising on a certain level.

In 2012, salaries for the 142 players will increase 83 percent from what they earned in 2011 (not factoring in bonuses or deferments).  And according to Ronald Blum of The Associated Press, if you use AAV in multi-year contracts as opposed to 2012 salary, “The 142 players who filed for arbitration last month averaged an 89 percent increase, according to a study of agreements by The Associated Press. That was down from an average jump of 123 percent last year and was the lowest increase since a 73 percent rise in 1996.”

Here’s how the class breaks down:

If we break the positions down further, it looks like this:

If we break it down a player’s eligibility status, it looks like this:

That is looking at all players. When you break players down by service time, a clearer picture is painted. Because the vast majority of players with between one and three years of service time don’t hit the salary arbitration process (the exception being the “Super Twos,” the top 17 percent of players in the two-to-three years range in terms of major league service time, which will change to the top 22 percent part of the new CBA), clubs need only pay them at least the league minimum. When players in this range finally do hit arbitration, the jump in salary is dramatic. For example, the 31 pitchers that were arbitration-eligible for the first time this winter saw their cumulative salaries increase from $17,205,080 in 2011 to $70,347,500 in 2012—an increase of 303 percent.

Clayton Kershaw, with an NL Cy Young award under his belt and the ability to use Tim Lincecum’s first-time salary arbitration numbers as a comparable, saw the largest salary increase of all players this year. Kershaw went from making $500,000 in 2011 to $7.5 million in 2012 as part of his two-year, $19 million extension—an increase of 1400 percent! Removing Kershaw as an outlier, we can say that “rank and file” pitchers in their first year of arbitration eligibility saw their salaries increase 276 percent—an average of $2,027,339—for the 2012 season.

For the 16 first-time infielders, the increase was 226 percent. Pablo Sandoval saw the largest increase (540 percent) of the group, going from $500,000 in 2011 to $3.2 million in 2012 as part of his three-year, $17.5 million extension.

For the 10 first-time outfielders, the increase was 361 percent. Colby Rasmus saw the largest increase (510 percent), going from $443,000 in 2011 to $2.7 million in 2012 with the Blue Jays.

Salaries become somewhat normalized (compared to other industries, the salary increases are astounding) with players that are in their second, third, or fourth year of salary arbitration. Those players break down as follows:

Something that should be taken into account: things have changed dramatically in regard to the salary arbitration process over the last decade. Before, clubs and agents were pretty much left to their own research and preparation for cases. But with the gaps in asking and offering figures becoming so highly pronounced, the Labor Relations Department (LRD) and the MLBPA have become overarching players in how the numbers get filed. For the clubs, they thrive on certainty. For the agents, they thrive on chaos. Much has been made about Scott Boras losing salary arbitration cases in the past, but few that know the industry see him doing so from not being prepared. What Boras and other agents do is look for an opportunity to win one that will set the bar to make comparisons in future cases. Agents may file too high on occasion, knowing the percentages of winning in a hearing may be low, but gamble that in doing so, it could pay dividends in the future.

Conversely, some clubs would rather settle than argue on a mid-point between asking and offering figures that could be artificially inflated due to a high filing figure by an agent. It’s quite possible that this is the case with the Indians, who pride themselves on not going to hearing. The logic is pretty simple: while they may lose money here or there due to settling deals, it pales in comparison to what they could lose at hearing.

And of course, clubs are always aware of not ticking off Commissioner Selig. The league’s LRD always informs clubs as to whether they feel the numbers being filed are in-line with their slotting estimates. Some clubs never buck the league office and take the recommendation graciously. Others will gamble. If they come out on the wrong side of a case after ignoring the LRD, they could get a “nice” phone call from Selig.

Finally, salary arbitration hearings are not 100 percent fool-proof. By that, I mean that if the club side and the player side both make compelling cases, the decision of the three arbitrators at hearing can be a toss-up. At that point, you begin to see where the needle is pointing in terms of past hearings leading up to yours. While the panels are to remain impartial, they could subconsciously go a certain direction. More than once, when panels have gone in favor of one side or the other in prior hearings, when a case comes up as a dead heat, panels have been known to lean in favor of the side (club or player) that has been losing cases prior.

To wrap things up, here are some other vital stats from this year’s salary arbitration class:

• Salaries in 2011 totaled $276,328,860 for the 142 arbitration-eligible players compared to $504,847,000 for 2012.
• The 83 percent increase is a decline from 2011, when salaries totaled $417,617,250 compared to $222,894,345 for the same players in 2010, or an increase of 87 percent.
• Just two players saw their salaries decrease: third baseman Ian Stewart of the Cubs ($2.29 million down to $2.237 million) and Francisco Rodriguez of the Brewers, a free agent that accepted salary arbitration and saw his $11.5 million 2011 salary decrease to $8 million for 2012 as a result of changing roles from closer to setup man.
• Nine players reached “mid-point deals”—deals in which their 2012 salary sits exactly between the figure the player was asking for and the figure the club was offering. Those players are Robert Andino, Daniel Bard, David Ortiz, Shaun Marcum, Brett Gardner, Hunter Pence, Casey McGehee, Jason Motte, and Casey Janssen.
• In terms of multi-year extensions, there were seven two-year contracts, three three-year deals, and one five-year deal (Gio Gonzalez).
• The two largest contracts in terms of total dollars were the five-year, $42 million deal for Gio Gonzalez (Nationals) and the two-year, $40.5 million deal between the Giants and Tim Lincecum.
• Lincecum’s two-year deal had the highest average annual value ($20.25 million)
• The Red Sox and David Ortiz just missed making history. On the morning that they were scheduled for hearing, the sides reached a mid-point deal of $14.575 million.
• The biggest single-year deal reached to avoid arbitration was the Phillies’ contract with Cole Hamels ($15 million), followed by the Ortiz deal.
• The clubs beat the players five-to-two in hearings this year. If not for the two losses by the Marlins (Anibal Sanchez and Emilio Bonifacio), the clubs would have had their first-ever clean sweep in hearings.
• Overall, owners lead 291-214 in 505 cases (a 57.62 percent to 42.38 percent advantage) since arbitration began in 1974 (see the total scorecard).