Organizational meetings: offering arbitration

A Doomsday scenario
Ajax, Miranda pound Mesa

The Yankees brass are in Tampa today, solidifying their strategy heading into the off-season. While they’ll talk about which players they want to target in free agency and trades, there’s not much they can act on at this point. They’ll probably go hard after CC and kick the tires on Jake Peavy, but nothing can happen on that front for a bit. The first issue they can control in the here and now is Damaso Marte‘s option. The other issue is of whether to offer arbitration to pending free agents.

The following players will be eligible to file for free agency after the World Series: Ivan Rodriguez, Jason Giambi, Bobby Abreu, Mike Mussina, Andy Pettite, Carl Pavano, and possibly Marte. The Yankees have the option of offering each one of them arbitration prior to the December 1 deadline. Here’s a quick rundown of the process.

If the Yankees decide to offer arbitration, the player has the option to accept or decline. They must make this decision by December 7, a day ahead of the Winter Meetings. If they accept, the teams can hammer out a deal, or they can go to an arbitration hearing. Same deal as players with three to five years of service time; each side submits their offer, presents their case, and the judge picks one. In this case, the contract is non-guaranteed. The Yankees have the option to release the player in Spring Training and will only be liable for 30 to 45 days of service pay, according to Brian Cashman.

If the player declines arbitration, he can sign with any team he wishes. However, with the declining of arbitration comes compensation for the Yankees. If the player is judged as a Type A free agent, in the top 20 percent of his position, then the Yankees are entitled to the first round pick of the team that signs him. That is, unless they finished in the bottom 15 of the league. Those picks are protected. In that case, the Yankees would get the team’s second round pick. In any case, the Yankees would get a supplemental first round pick as well. If the player is classified as Type B, top 21 to 40 percent at his position, the Yankees would get a first round supplemental pick and nothing from the acquiring team.

If a player signs with another team prior to the December 1 deadline, it is assumed that the team offered him arbitration and he declined, meaning the team is entitled to the corresponding picks. This happened last year with Tom Glavine. The Braves signed him prior to December 1, and therefore had to surrender their first rounder to the Mets.

There are downsides to offering a player arbitration. As we’ve mentioned before, no player’s salary can be reduced by more than 20 percent in an arbitration hearing. This is the reason why the Yankees will not offer Jason Giambi arbitration, unless there is a handshake agreement, which we will discuss in a second. Giambi made $21 million in 2008, so his salary cannot fall below $16.8 million. If they offered him arbitration, he would probably accept. Remember, though, that the Yankees still owe Giambi $5 million as a buyout of his 2009 option for $22 million. That in essence puts the option at $17 million. So if the Yankees intended to keep Giambi, they’d simply pick it up, rather than go through the arbitration process.

Update: I was just reading through the CBA and came across this paragraph, under the rules for free agency. Emphasis mine.

If the Player accepts the offer to arbitrate, he shall be a signed player for the next season and the parties will conduct a salary arbitration proceeding under Article VI; provided, however, that the rules concerning maximum salary reduction set forth in Article VI shall be inapplicable and the parties shall be required to exchange figures on the last day established for the exchange of salary arbitration figures under Article VI.

So I’ve been wrong all this time. There are no rules for salary reduction for players with more than six years of service time.

The handshake agreement was common under the old collective bargaining agreement. This was more for utility than compensation, though. If a team failed to offer one of its own free agents arbitration, they had a deadline on negotiations, usually in mid-December. After that, the team could not re-open negotiations until May of the following year. If they did offer arbitration, however, they would have a early- to mid-January deadline to negotiate. The Yankees did this following the 2005 season with Bernie Williams. While there’s nothing to say the Yankees couldn’t work out a handshake agreement for Giambi to decline arbitration, I don’t see why he would do it. Bernie did because it gave him more time to work out a deal to return to the Yanks. For Giambi, it would be the final indicator of his exit from the Bronx.

The other downside to arbitration is that even though you can release a player in Spring Training and only be responsible for a small portion of his salary, he still takes up a 40-man roster spot all winter. This can be critical for teams with players eligible for the Rule 5 draft. You don’t want to lose a player like, say, Alan Horne, because you didn’t have enough 40-man spots on account of offering Pudge arbitration. The Yanks could use some 40-man spots to protect the likes of J.B. Cox, Horne, and Chris Garcia. Chad Jennings breaks down the Rule-5 eligible guys.

Let’s go through the crop of free agents and speculate on the best course of action.

Ivan Rodriguez: Offer. It’s unknown whether he’ll be a Type A or Type B, though it might be better if he’s a B. That way, there’s no disincentive for another team to sign him. In any event, it’s unlikely that Pudge wants to return. All current signs indicate that Jorge will be ready to go by Opening Day. Why would Pudge want to spend the last few years of his career backing up Jorge when he can get a starting gig elsewhere? Plus, there’s probably a multiyear deal waiting for him somewhere. Chances are he declines. Yet even if he accepts, the Yankees could carry him through the winter and see if there’s a deal to be made. Otherwise, they could just axe him in Spring Training.

Bobby Abreu: Offer. There are worse things than Bobby Abreu on a one-year deal. It might get a bit pricey — he made $16 million in 2008. He’s a Type A, though, and is seeking a multiyear deal. The Yanks won’t give it to him, or at least that’s what they’re indicating. Best to get compensation in that scenario. Bonus: If he signs with the Mets, we’d nab their first rounder, which is one ahead of us. So when we sign our own Type A, it actually works in our favor.

Mike Mussina: Offer. No brainer. Despite reports that Mussina thinks he’d have a better chance elsewhere to get his 300th win, all other indications are that Mussina is Yankees or bust for 2009. He made just $12 million in 2008, so you clearly offer him arbitration. If he accepts, good. If he declines, at least you get something if he does sign elsewhere.

Andy Pettitte: Don’t offer. The man made $16 million last year and didn’t live up to his contract. While I feel he can still be an effective pitcher in 2009, there’s just no need to offer him arbitration. He’s expressed his interest in coming back, and has said he won’t play for another team. Best to just hammer this one out if they’re going to do it.

Carl Pavano: Don’t offer. He has a $13 million option for 2009, which will likely be declined. It’s not like they can pull a Sheffield with him, since in this case they’d have to eat most of not all of his 2009 salary. They’ll take the $1.95 million buyout, the last few million he’ll steal from the Yankees. He made $11 million in 2008, so you can’t take a chance on arbitration. Just let him walk and become someone else’s problem.

Damaso Marte: Offer. If they decline his option, which I still think they should not do, you have to offer him arbitration. He’ll be 34 on Opening Day, and is likely looking for a multiyear deal, so there’s little chance of him accepting. Even if he does, he made $2 million in 2008, so the team could get away with a deal in the case.

Update 2: Radnom asked a good question about the termination pay, which Cashman addressed yesterday. This is the best I’ve been able to come up with from the CBA:

A Player who is tendered a Uniform Player’s Contract which is subsequently terminated by a Club during the period between the end of the championship season and the beginning of the next succeeding spring training under paragraph 7(b)(2) of the Uniform Player’s Contract for failure to exhibit sufficient skill or competitive ability shall be entitled to receive termination pay from the Club in an amount equal to thirty (30) days’ payment at the rate stipulated in paragraph 2 of (1) his Contract for the next succeeding championship season, or (2) if he has no contract for the next succeeding championship season, in an amount equal to thirty (30) days’ payment at the rate stipulated in paragraph 2 of the Contract tendered to him by his Club for the next succeeding championship season.

A Player whose Contract is terminated by a Club under paragraph 7(b)(2) of the Uniform Player’s Contract for failure to exhibit sufficient skill or competitive ability shall be entitled to receive termination pay from the Club in an amount equal to thirty (30) days’ payment at the rate stipulated in paragraph 2 of his Contract, if the termination occurs during spring training but on or before the 16th day prior to the start of the championship season. If the termination occurs during spring training, but subsequent to the 16th day prior to the start of the championship season, the Player’s termination pay shall be in an amount equal to forty-five (45) days’ payment at the rate stipulated in paragraph 2 of his Contract.

Clarifying things a bit more is the section on in-season terminations:

A Player whose Contract is terminated by a Club during the championship season under paragraph 7(b)(2) of the Uniform Player’s Contract for failure to exhibit sufficient skill or competitive ability shall be entitled to receive termination pay from the Club in an amount equal to the unpaid balance of the full salary stipulated in paragraph 2 of his Contract for that season.

So perhaps this does give players a disincentive to accept arbitration.

A Doomsday scenario
Ajax, Miranda pound Mesa
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  • Brian

    I needed this. Well said, Joe. And while it’s definitely too bad Pudge didn’t play halfway decently the last couple months, the “Type B may be better than A” logic is sound.

    I have a hard time seeing us losing more Type A’s than signing, though. If we offer to four of them as you suggest, we probably retain two, lose two, and sign two more. Just speculating, but that scenario would leave us with our first pick (shifted in the order possibly) and the protected Cole/second-round Bittle picks, right?

    Given that our Type A acquisitions are likely to be better quality players (Tex, CC, et al), that would be pretty good news all the same.

    • Chris

      The picks gained from losing your type-A free agents are protected. So in the scenario you identified, we would end up with 3 first round picks (two from the type-As we lose, and one as compensation for the Cole pick). Of the teams that we signed type-As from, the one with the worse record gets the first round pick. I’m not sure if the other team would get a second round pick from us, or just the sandwich pick.

      • Mike A.

        Of the teams that we signed type-As from, the one with the worse record gets the first round pick.

        The first round pick goes to the team that lost the higher ranked free agent according to Elias. So if the Yanks sign Mark Teixeira and Derek Lowe, the Angels will get their first round pick because Tex will rank higher according to Elias; it won’t matter that they had a better record than the Dodgers.

  • Rebecca-Optimist Prime

    Agree with all of these.

  • Bruno

    Perfectly put Joe. Especially the Abreu/Mets scenario. He would fit well in Queens. Reyes, Murphy, Abreu, Wright, Beltran looks quite nice. However: Damon, Jeter, A-Rod, Tex, Nady looks better! :)

  • radnom

    “The other downside to arbitration is that even though you can release a player in Spring Training and only be responsible for a small portion of his salary, he still takes up a 40-man roster spot all winter.”

    I saw this on Luhud a few days ago, and was waiting for a thread like this to ask about clarification. Does this apply to ALL potential free agents, or just ones with 3-4 years service time?

    For example, if the Yankees offered Giambi arbitration, and he accepted, is it possible that they could just release him in Spring Training, and only pay him for 30 days?

    If you are Giambi in this case, and hypothetically, the Yankees came out upfront and said they were going to release you during Spring Training, then why would he ever accept arbitration?
    His benefits
    – 30 days pay
    His loses
    – Inability to negotiate a new contract during the offseason when teams are still looking to fill holes.
    – Does not get spring training to become accustomed to his new team.

    Surely I’m just confused on how this whole release thing works, otherwise wouldn’t players never accept arbitration if they know the team does not plan to keep them? Shouldnt they be able to offer it to Giambi, warn him this is what they will do, and then if he has any sense he would decline, no?

    • radnom

      Looking over my post I see had trouble articulating my thoughts, but my point was this:

      In my hypothetical situation, Giambi only hurts himself by accepting arbitration, why would he do it?

      Is there something I am forgetting, or do the rules not work this way? The first time I ever heard of the ‘release in ST’ aspect of arbitration was a few days ago when Cashman said it.

      • jsbrendog

        thats a good question….anyone who knows mroe than us?

        • Joseph P.

          I’m asking around. I’ve been searching through the CBA, but can’t find anythign quite yet.

  • DonnieBaseballHallofFame

    Great stuff guys. I needed some clarification on some of these rules. Thank you.

  • Guest

    “The club’s salary offer to a player under its control (pre-free agency players) may not be less than 80% of the player’s salary and performance bonuses the previous year or less than 70% of his salary and performance bonuses from 2 years earlier. (Exception: If a player won an arbitration award the previous year increasing his salary 50% or more, the 80% requirement does not apply.) The 80% rule does not apply to free agents who are offered arbitration.”

    From Cot’s. Note that last part. The reduction in salary prevention is only for the ones covered by the 3-6 year requirement, not free agents to be.

  • A.D.

    With regard to the 40 man bit:

    The shame could be in the 40 man spots I could see Hacker, Cox, Claggett, Jackson, Jones, Garcia all being picked if left unprotected.

    Cox is a no brainer to protect, he will probably be brought up at some point next year

    Garcia & Hacker if healthy should be at AA & AAA, making Hacker a potential back-up starter if 08 goes anything like ’07 plus I could see a team throwing either of these guys at a back of the pen

    I don’t see Horne as an issue, since he’s hurt and a player must be active for a large % of games to be kept

    De La Rosa pitched well last year, but is someone going to keep him in the pen for a year, that would be tough from A ball to the bigs in your 3rd year pitching

    Jackson & Jones are nice guys to have, but lower on the yankees pecking order at their positions, and their upside isnt that great.

    Usually this stuff works out, after all there aren’t that many times the rule 5 draft has seen a important player change hands.

    • Bruno

      If by Jackson, you mean Austin Jackson, I beg to differ. He MUST be protected, he’s our 1 postion player in the pipeline at a PREMIUM position.

      • Joseph P.

        I think he means Stephen.

        • A.D.

          Yeah, AJAx is projected

          • Mike A.

            He doesn’t need to be protected until next offseason. There’s a good chance he’ll be on the 40-man by them anyway.

            • A.D.

              Yeah, by protected I was thinking not eligible for rule 5

  • Tim

    I followed the link to Chad Jennings site and he had some great material. However, under the Rule V outfielder analysis he stated that it would be tough to keep guys becuase Shelly Duncan was holding one of the 40 man spots. Can someone please explain to me why Shelly Duncan is blocking the Yanks from keeping another player that may be valuable at some point? Does anyone expect to see Shelly making a contribution in the Bronx some day?

    • Mike A.

      They can DFA him to open a spot, and I’m sure he’ll be one of the first to go.

      • troy

        Trade him to the Cardinals for Pujols!

        • jsbrendog

          and rasmus!


    Some of yall would have said don’t offer Mussina a one year deal last year.

    Pettite had a rough year. I believe he will bounce back( he has always striked me as a every other year guy) and can net us two draft picks if he declines the offer. I say go for it. We don’t need to take a four year plunge just based on whats out there. Plus remember Lowe and Pettite are the same age and Pettite was better in the NL than Lowe was. Gives us one more year to make up our mind about Hughes Kennedy Joba. And to make up our mind if anyone * man can thrive while pitching in “NY” (With no true plus defenders on the field).

    * Mo don’t count…..

    • A.D.

      Mussina was on a 2 yr contract, thats why he was a Yankee this year. Pettite won’t net any draft picks, unless another team signs him, and he has said its Yanks or bust.

  • troy

    If I remember correctly 40 man rosters are due Dec. 1. So if you offer artbitration to a FA (by Dec. 1) do they need to be put on the roster at the offer point (prior to Dec. 1)? Probably not because after all they are still FAs at that point. From the CBA blurb above if the player accepts arbitration (by Dec. 7) then they are considered a “signed player” so I’m guessing they would then have to be put on the roster at that point probably bumping someone else off. And I think the Rule V draft is Dec. 8 or 9th. So it seems like the Yankees might have to do some tricky manuevering here. Did I get this right?

    • Kay Sturns

      you are correct, I remember after Arod opted out and before we offered him arbitration, he was off of the 40man on

  • dan

    Longest. Post. Ever.

    Very good job though, I feel well informed now.

  • Bo

    I’ll be shocked if Marte isn’t it in pinstripes opening day. They traded for him for a reason.

  • Slugger27

    joe im glad to see u dont advocate offering pavano… god i hate that guy

  • Andy In Sunny Daytona

    I could see Abreu signing with the Angels.

  • Erick

    Hey remember Clemens saying he only wanted to play for the Yanks, that he was retiring… then comming back and the Yanks getting no compensation?

    I say do a handshake deal with Petite, offer, he declines. He signs somewhere, New York gets the pick.

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