Wednesday, January 21, 2009

Money for Arbitration, but not for Free Agents

I was talking to David Pinto last night (stay tuned for an interview with him at the end of the week!) and he posed a question that I am not sure anyone else has considered just yet:

Why is it that there is (seemingly) no money for the remaining free agents , but arbitration numbers are way, way up ?

I can't presume to offer a straight answer. I don't know nearly enough about the business of arbitration or what teams need or, most importantly, the state of teams' finances to do more than speculate.

However, given that the Hot Stove League is its own sport, speculate we will.

There are two reasons that immediately came to mind last night when the question was posed to me:

1) the caliber and positions played of arbitration-eligible players versus the caliber and positions played of remaining free agents

2) the fact that arbitration-eligible players are still under team control while free agents are not, thus making it a game of leverage.

To look at the first reason--

One has to remember that the top free agents--CC Sabathia, AJ Burnett and Mark Teixiera--all did sign, and sign for large, long-term deals as well. The fact that they all signed for the same team might throw you, but they did, in fact, sign. They played positions that the Yankees needed to fill, are young enough to be able to sign the long-term deals, and with the exception of Burnett, are historically healthy.

If you look at some of the remaining free agents, however, you see names like Ben Sheets, Manny Ramirez, Ken Griffey Jr. and Braden Looper (there are lots of others; these are just the first four that come to mind).

With each of these, there's a decent reason for not signing them--Sheets, though good, is never healthy, Ramirez is up there in age and likely looking for more than a one or two year deal, Griffey hasn't been truly healthy since he left Seattle and Looper is just not that good (as I've learned the hard way).

In all or at least most these cases (and again, the list above is not extensive by any means), the players are (likely) looking for deals at a minimum of three years, and for many teams, the risk is simply not worth the signing.

If we look at players who have submitted arbitration figures , however, we see players like Ryan Howard, Dan Uggla, Jason Werth, Ryan Ludwick, Justin Verlander and John Maine. Again, this is not an extensive list, just a sampling.

However, some of the things you notice is that the players on the list are that 1) the players are mostly young, and 2) they are mostly healthy. Heading to arbitration means that the length of the players' contracts are not really up for question; in the case of the best players, teams will often sign them to an extension to avoid arbitration altogether. Many of the players listed would have become free agents at the end of this season or next, so while there may very well be questions about how good a player is, teams aren't risking long-term harm by having to sign them to a long term deal.

Arbitration itself is a somewhat arbitrary process (I know, I know); by its very nature players that accept it, especially those on the downswing of their career, will likely get more money than through free agency alone. Had Bobby Abreu, for example, accepted arbitration, he'd likely be looking at a salary of $16-$18 million.

Free Agency, and this goes into reason number two listed above, is by its very nature much more dependent on the market and market conditions.

As with any basic market, there are two main factors in play: supply and demand, and risk.

For a team to sign a player that's a free agent, the player must satisfy a demand of the team and not possess a risk greater than the possible outcome.

Mark Teixiera satisfied the Yankees' need for a first baseman, and he doesn't, health-wise or age-wise, possess an obvious risk that he won't be able to play most of his eight-year contract.

In one instance where there seems to be an overwhelming supply available, one can look at the available free agent catchers, who include Pudge Rodriguez, Jason Varitek and Brad Ausmus. In that group alone, you've got former all-stars--though the 'former' is perhaps more relevant than the 'all-star'. Teams want catchers that, even if they can't hit like Mike Piazza or Jorge Posada, will at least not be an automatic out. Yankees fans should be wary enough of this--for all the great defense Jose Molina provided, a line up combination last year of Cano, Molina and Cabrera was a recipe for a 1-2-3 inning.

So, the question--why are arbitration numbers way, way up and free agent numbers down--we can speculate has a three-part answer:

1) Numbers for the biggest free agent signings were not, in fact, down;

2) the corps of players accepting arbitration this year, as a whole, tend to be younger and healthier than the remaining free agents, and since most will become free agents in a year or two don't present the time-commitment risks a big free agent signing would, and,

3) the free agent market operates in an open market system (or something that closely resembles it), while arbitration is much more artificial. In a down market, like our current recession, all open markets will suffer, but arbitration can offer players some protection, even if it is artificial.

1 comment:

  1. I was under the impression that arbitration was FOR younger players. S'far as I know, you have to have a certain number of years of MLB service (6 years I think) in order to be eligible for free agency. Before then, if your contract runs out, you go to arbitration unless a team refuses to offer it to you. Afterwards, it's not available and you have to become a free agent (for example, I don't think Abreu or Griffey Jr. were arbitration eligible).

    Why is the money still way up for arbitration? Well, once offered arbitration, teams will HAVE to sign that player. So if they offer a ridiculously low amount, they will lose their case and have to pay the high amount the player requested. And since, as you mentioned before, a lot of the arbitration eligible players are younger and better than the remaining free agents, the money amounts will be higher.

    Feel free to correct me if I'm wrong about that rule.