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A closer look at the arbitration process

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*Patrick (Tigerdog1) wrote this piece over the weekend. MLB Trade Rumors broke the news this morning that Rick Porcello and the Tigers have agreed on a $3.1 million contract. The Tigers announced Phil Coke has signed too, but no figures have been reported. So this isn't as timely now, but I'm going to run it in full still -- Kurt

On Jan. 18 at midnight, major league clubs and players who are eligible for arbitration this year will have to submit proposed salary figures to an arbitration panel. The Tigers have five such players; pitchers Rick Porcello, Max Scherzer and Phil Coke, outfielder Delmon Young, and utility man Don Kelly.

Young is eligible for arbitration for the third and final time this winter, and is eligible for free agency after the 2012 season unless he signs a contract extension. (Don't bet on it.) The other four players will be eligible for arbitration for the first year in their careers. For Porcello and Kelly, this is the first four possible years of arbitration eligibility. For Scherzer and Coke, this is their first of three possible years.

Pursuant to the terms of the new collective bargaining agreement, there will be no free agent players going through the arbitration process after this year. Arbitration is now a procedure that is used for those players who have at least two years and 142 days of major league experience, but less than the six years of service time required for free agency.

Following is a look at the arbitration process as it impacts the Tigers, including an estimate of how much we can expect the Tigers to pay them over the next few seasons.

The Criteria: I don’t have the exact language from the new collective bargaining agreement, but all reports suggest that the terms for arbitration, other than relaxing the threshold for Super Two status by a few days, remain the same as in the CBA that recently expired.

These are the criteria to be considered:

  • Quality of play in the previous season, including leadership and popularity
  • Length and consistency of career contributions
  • Record of past compensation
  • Comparative salaries of others at the same position, experience and performance level
  • Record of any physical or mental defects
  • Recent record of the club including attendance
  • Particular weight is given to the salaries of players with the same or one more year of service time.

Excluded from consideration are the financial status of the player or the club, salaries in other sports, or comments in the media or other testimonials, other than notable achievement awards.

When you add it all up, you’ll find that there will be a salary range for each arbitration eligible player based on his years of experience and position, with adjustments made within that range based upon performance in games and other popular statistics, barring any exceptional achievements, such as Ryan Howard’s MVP award, or Tim Lincecum’s two Cy Young awards when they were eligible for arbitration for the first time.

The fact that Porcello and Kelly are eligible as "Super Two" players (more than two years, 142 days, but less than three years) should not have a major impact on their salaries as opposed to Scherzer and Coke, who are also first time eligible but have a full three years of service time. Scherzer and Coke will be rewarded for their extra time when they are eligible for free agency after the 2014 season, while Porcello and Kelly will have an extra season of club control and a fourth season of arbitration eligibility.

The process, barring any agreement reached in the next several hours, begins with an exchange of salary figures. Hearings will be tentatively scheduled some time Feb. 1-21. Pitchers and catchers typically are scheduled first. The vast majority of cases, all but two or three each year, are settled, because both clubs and agents are able to calculate the salary range for the player based on the above criteria.

If the parties do not come to an agreement, they will conduct a hearing on the player’s value, and a panel of three arbitrators will choose one figure or the other, and the player will be paid that salary on a one-year term. The player is required to be present at the hearing to listen to all the reasons that his club feels that his value is not what he thinks it is. Very distasteful experience.

Now, let’s take the cases of Porcello and Scherzer and try to put a value on their services. As indicated above, both are first time arbitration eligibles, and both are starting pitchers, so they will be compared to other starting pitchers and should receive a salary that is similar to what other starting pitchers of similar experience and performance level have received recently.

These are the starting pitchers that were eligible for the first time priot to the 2011 season, with their years of experience. Set aside performance levels for the moment. Maury Brown has the complete data chart for all players in this article.

Edinson Volquez: 3 years, received $1.625 million for one year
Johnny Cueto: 3.12 (read 3 years, 12 days service time), got $ 27 million over four years
Jason Hammel: 3.157, got $7.75 mil over two years
Kevin Slowey: 3.063, got $2.7 mil for one year
Ross Ohlendorf: 2.139, got $2.025 million in a hearing

Noteworthy in these numbers is that when a player agrees to a multi-year contract, the latter years when he should be getting higher salary become guaranteed, so the average annual value of the contract does not make for good measure of what a first year eligible player should receive. Ohlendorf and Volquez spent time as a starter and in the bullpen, so their numbers will be lower than if they were full time starting pitchers.

Now, the numbers for a year earlier, prior to the 2010 season:

Jeremy Guthrie- 3.130, one year for $ 3 million
Justin Verlander- 4 years service, got $ 80 million for five years
Joe Saunders, 3.013, got $ 3.7 million for one year
Tim Lincecum, 2.148, signed for two years, $ 37 million
Matt Garza, 2.149, 3.35 million for one year
Scott Feldman, 3.091, 2.425 million for one year.

In this group, Lincecum stands out, but his numbers are first based on a two year contract and secondly based on being the best pitcher in the league having won two consecutive Cy Young awards. Clayton Kershaw’s agent will be justified in using those numbers for comparison purposes, but Scherzer and Porcello could hardly claim to be in this class.

Verlander really is not in the same service class, as he was second year arbitration eligible, but I included his numbers as a matter of interest, in case anyone is thinking that the Tigers should sign long term extensions this winter. Feldman is another that was not a full time starter, but the others in this group make for good comparisons.

One more year of comps, using the pre 2009 season’s data.

Edwin Jackson, 3.070, signed one year for $ 2.2 million
Justin Verlander, 3.002, one year, 3.675 million
Ricky Nolasco, 2.142, one year, $ 2.4 million
Wandy Rodriguez, 3.105, one year, $ 2.6 million
Ervin Santana, 3.105, signed four years, $ 30 million
Cole Hamels, 2.148, signed three years, $ 30,5 million
Zach Duke, 3.094, one year, $ 2.2 million
Paul Maholm, 3.037, signed three years, $14,5 million

So there are three seasons worth of data. Just focusing on the players that agreed to one-year contracts that were eligible for arbitration for the first time, and after removing those that were not full time starters, the salary range is between $ 2.4 million on the low end and $ 3.7 million on the high end. Note that Verlander did not have a good season in 2008, going 11- 17 with an ERA of 4.84 and a WHIP of 1.40. (Editor's note: Porcello signed at $3.1 million.)

I believe that both Scherzer and Porcello will come in at the high end of this scale, primarily because they have managed to rack up double digit wins consistently over the past three seasons, and each has averaged 30 starts for the past three seasons. Porcello may get a bit more than Scherzer because, while both were first round draft picks, Porcello signed a major league contract that has paid him over $1 million in his first few seasons, so he has a higher salary history going into his arbitration years.

Matt Swartz has a model for forecasting arbitration salaries, and his work is published by in this feature. There are links to the articles explaining the science in the projections in that post. Matt projects the following for the Tigers this season.

Delmon Young: $6.3M
Rick Porcello: $4.2M
Max Scherzer: $3.9M
Phil Coke: $1.3M
Don Kelly: $800K

I had forecast very similar numbers in projecting the total team payroll last November in this article. The Tigers' opening day payroll, barring any late off season acquisitions, figures to add up to a few million dollars less than what they started the season with in 2011.

One final item worth noting on the subject of salary arbitration, is that Dombrowski has a perfect track record of reaching agreement with every player that has been eligible for arbitration during his tenure with the Tigers. Not a single case has gone to a contested arbitration hearing. Credit this to good negotiating skills, as well as a sincere effort on the part of Tiger management to take care of their players. The smart money says that Dombrowski’s perfect record will remain intact.