Monday, April 21, 2008

Who Needs Arbitration Years?

I have noticed a trend occurring in our fair sport recently. More and more, teams are signing players with under 3 years of service time to long term contracts that buy out their arbitration years, and often have options that cover at least the first year of free agency. I am going to do a bit of explaining, so if you understand the basics of a major league contract, feel free to skip to the next paragraph. The way it works in the major leagues is when you are a minor leaguer, the team owns the rights to you. When you are called up to the major leagues, and are on the 25-man roster, you earn a higher salary than that in the minors, but it is still the major league minimum. The team that you play for is able to unilaterally decide your salary for the first 3 years (2 in some circumstances) that you accrue service time. After those 3 years, you are eligible for arbitration, where you make a case for a certain salary, and the team makes a case for a certain salary to a board of arbitrators, and you get compared to people who have performed similarly and see what their salaries are. The arbitrators then decide who is more correct and award your salary based on the information presented. This happens for 3 more years until you are eligible for free agency. Ok...back to the original story.

The most recent example of this is Tampa Bay and Evan Longoria reaching a 6-year deal with 3 option years, for a guaranteed $17.5 million. This is also the most extreme deal as Longoria had logged all of 20 at bats over a 6 game period. If the option years are picked up, the deal could reach a total of $44 million over 9 years. The importance of this is that they are avoiding the sometimes bitter arbitration process and even more importantly- eliminating any need to send Longoria back to the minors so he wouldn't gain super-two eligibility. Additionally, if all the options are picked up they are buying out Longoria's first 3 free agency years for $26.5 million. This is a bargain in todays terms, and considering how salaries are likely to keep increasing...the Rays could end up with another Carl Crawford type situation on their hands.

Another example of this is the Colorado Rockies locking up stud shortstop Troy Tulowitzki after only 1 season in the majors. This offseason they signed him to a 6-year contract for $31 million, with a club option for $15 million. This contract buys out his first year of free agency, with the option for the second year. This is the largest contract ever for a player with under 2 years of service time, even in regards to the Longoria contract as there is more guaranteed money. Odds are that Tulowitzki gets a better deal because he's played more games which gives him more leverage. Additionally he plays a gold glove shortstop, and hits quite well, which gives him more value than the third baseman Longoria.

Moving on to yet another example, we have Arizona Diamondbacks centerfielder Chris Young. Young signed a 5-year, $28 million extension, which means that he'll keep his base salary for this year and start earning the big money next year. This deal buys out his first 2 years of free agency, with a club option for 2014 at $11 million.

This has even been done for pitchers as the Cleveland Indians and Fausto Carmona reached a 4-year agreement, for $15 million dollars guaranteed with club options for 2012-2014. Carmona had 2 years of service time in, but one of them was as a reliever, and he only had 1 good (great, really) year as a starter, so he receives considerably less guaranteed money than the other players we've been talking about. Speaking of Cleveland, they gave Grady Sizemore a 6-year contract worth $23.45 million, which was at that point the largest deal ever for a player with less than 2 years of service time. It's amazing to me that this contract is now outdated, and has been replaced by the Tulowitzki contract...

Now we finally come to my point, or rather my thoughts on the subject. I think we will see more and more clubs locking up their players with less and less service time. I don't think we'll see a Tampa Bay/Longoria type deal very much, but the sentiment is the same. While teams or players may give or get a little here and there with deals like this, what it does is give both parties cost certainty, which has a value in and of itself. I often think that the teams get the edge in deals like these, especially the contracts with club options through free agency years. If you're a stud player, you can make serious money in arbitration, and set a huge standard for your first free agency contract. This is evident in cases like Miguel Cabrera, who had he reached free agency, likely would have been MLB's next $200 dollar man. He's now passed that crown on to former teammate Hanley Ramirez. The reason I think we will continue to see this type of contract is because while the team may benefit from getting the free agency years at a discounted price, they avoid arbitration which can occasionally get ugly, AND the players are earning so much money through these contracts that they may be willing to give up a few million dollars here or there for a little certainty both in terms of getting paid, and living in a certain place. I think it's nice when players consider their happiness over making a few extra (million) bucks, and I'm hoping that's part of the case with some of these contracts, at least from the players ends.

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