30 Years of Salary Arbitration

2003 marks the thirtieth anniversary of two of Major League Baseball's most controversial innovations: the designated hitter and salary arbitration. While fans continue debating the DH -- is there any other sport in which a 30-year-old rules change still provokes such heated arguments? -- arbitration has become an accepted part of the baseball landscape.

Salary arbitration came to baseball in the 1973 Collective Bargaining Agreement between the owners and players. This was the first CBA negotiated after the Supreme Court rejected Curt Flood's challenge to baseball's antitrust exemption. Under the circumstances, the players knew the owners weren't about to grant them meaningful free agency, so they proposed salary arbitration as an alternative. Salary arbitration couldn't stop the owners from paying all the players submarket wages, but it could at least prevent some owners from underpaying their players relative to the others.

Most of the owners reacted positively. In fact, according to MLB historian Jerome Holtzman, the only two clubs to object were St. Louis, whose hard-line owner Gussie Busch opposed anything that resembled a concession to the players, and Oakland, owned by Charles O. Finley, who despite strong competition had earned the title of MLB's cheapest owner. Finley had reason to worry: his talented roster, then in the middle of winning three World Series in a row, hated him and knew they were underpaid. For years thereafter Oakland had the most, and the nastiest, salary arbitrations.

As the parties prepared for the first arbitration hearings in the spring of 1974, no one was sure how it would affect MLB's salary system, which heretofore had been based largely on seniority. One of the worst predictions came from John Harrington, then treasurer of the Red Sox, who forecast that salaries would soon be determined by position. Harrington told The Sporting News in March 1974 that "salaries will level off for each position. It may be that each outfielder, for instance, will make $80,000, each shortstop $85,000, etc."

Both sides were satisfied with the 1974 arbitrations. The owners won 16 of the 29 cases, while all the players involved received no less than the club would have offered them under the old system. The 1974 results set a pattern for future seasons: the owners usually win most of the cases that go to hearing, but even the "losing" players receive significant raises.

The original salary arbitration system lasted only two seasons before it was overtaken by events. After Andy Messersmith and Dave McNally won their grievances and were awarded free agency, suddenly arbitration didn't seem like such a wonderful deal for the players. For the owners, though, arbitration afforded a way to control of their players for longer. The 1976 CBA eliminated salary arbitration for 1976 and 1977 while the free agent market took hold, then established the three-tiered system which continues today.

Under this system, players with at least six years' salary are eligible for free agency. Players with between three and six years in the majors, plus the most senior 17% of those with between two and three years of service, go to arbitration. A more junior player must ultimately either accept the club's last offer or have his contract renewed at whatever salary the club specifies.

One quirk in this system rose to prominence in 2002. Although a free agent can't be forced to accept arbitration, his former club must offer arbitration in order to receive compensatory draft picks if the player signs with another club. This is usually a formality -- but when free agent Greg Maddux failed to receive the offer he was looking for, he surprised the Braves by accepting salary arbitration. This put Atlanta over its 2003 budget and, according to GM John Schuerholz, effectively forced the Braves to trade Kevin Millwood to the Phillies before he, too, could win a huge salary through arbitration.

In recent years, the owners have come to resent the near-automatic raises earned by players who file for salary arbitration. They occasionally propose eliminating arbitration in return for making players eligible for free agency a year or two sooner. That they never offer to allow all arbitration-eligible players to file for free agency instead is strong evidence that the owners' real objective is to reduce player salaries, not to eliminate any perceived unfairness in the arbitration process.

In fact, arbitration still gives the owner ultimate control of the player's destiny. If he thinks an arbitrator would be too generous, he can release the player outright. If the player develops into a superstar, the owner reaps a windfall. For example, Albert Pujols of the Cardinals is in his third major league season. The 2001 Rookie of the Year, 2002 MVP runner-up and likely 2003 MVP has earned a total of $1.7 million, while rendering performance worth at least $30 million on the open market. Pujols will be eligible for salary arbitration after the 2003 season, but even if he's awarded a $9 million salary (a 1,000% raise), he'll still be underpaid.

The 2003 CBA is the first to make no significant changes in the arbitration process. It won't be the last. For owners and players alike, salary arbitration has proved a happy medium between the reserve clause and free agency.

Copyright © 2003 Doug Pappas. All rights reserved.
Originally published in the July 2003 issue of Boston Baseball.

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