Arbitration

From Wiki Gonzalez

Since the 1970s, arbitration has been an off-season baseball practice for determining the yearly salaries of baseball players not yet eligible for free agency under baseball's Reserve System.

The arbitration system depends on accurately calculating the service time of the player in Major League Baseball. The time is measured in years.

For players with fewer than three years of service, salary is set unilaterally by the team, constrained only by the minimum salary. The players are ineligible for arbitration. (Exceptions are made for certain players known as "Super 2's" who have at least two years and 86 days of service and are in the top 17% of seniority for their year; they are given arbitration rights.)

Teams can choose to tender contracts to any arbitration-eligible player whose contract has expired. If a player is tendered a contract, the parties effectively agree to a one-year contract, with the salary to be decided by a neutral arbitrator, unless the parties come to terms beforehand. If the team does not tender a contract, the player becomes a free agent. The player's six-year reservation rights transfer to the signing club.

After 6 full years of service in MLB, players gain the right to become a free agent when their contracts expire. In the event a player's initial team offers him arbitration, that team receives draft pick compensation should the player sign elsewhere. The position of the draft pick is determined by the various free agent classes the player falls into: Type A, B, or C.

Once an arbitration offer has been accepted, the player and the team exchange salary proposals for the upcoming year. If the proposals don't match, both sides prepare for a hearing before an arbitration panel made up of the player's representative, the team's representative, and the neutral arbitrator. In the hearing, both sides argue why their offer is the fairer one, basing their argument on the salaries of comparable players.

The panel (in reality, the neutral arbitrator) then picks one of the proposals as the player's salary for the upcoming year. The arbitrator must choose either the player's demand or the team's offer -- he cannot split the difference or pick a number other than the choices put forth to him.

At any time during the process, the sides can settle before an arbitrator can rule. Also, both sides can agree on a multiyear contract, short-circuiting the yearly arbitration process.

As a little bit of trivia, noted sabermetrician Bill James got his first taste of the baseball world preparing arbitration cases for players, most notably George Bell.