Before the first pitch is thrown on Opening Day each year since 1973, Major League Baseball has played another game that has a profound effect on the season. “Salary Arbitration,” usually played every February, pits certain eligible players who believe they are underplayed against team management in a contest to wrangle out their new wages.
Teams must ante up to get these athletes to batter up. How the salary is determined is where it gets interesting and instructive for settling labor disputes in other industries, says Ed Edmonds, Notre Dame Law School associate dean for library and information technology. The professor teaches sports law and has made an extensive study of Major League Baseball’s unique salary arbitration process.
Baseball’s single-offer scheme is key to the arbitration’s success, Edmonds argues. “Basically the arbitrators have only the two contracts to consider, the player’s proposal and the team’s offer. They accept one and tear up the other. They don’t offer their own solutions, don’t write an opinion, don’t explain their decision, and there is no appeal. The issue is decided and that’s the end of it. The system has huge incentives for both player and team to be realistic in setting their number because if they are wildly off, they will lose.”
Of 2,900 arbitration cases from 1973 to 2007, only 476 went as far as the hearing stage. Of that number, the teams won 273 times and the players 203. Since there is such a strong reality incentive, the head of Notre Dame’s Kresge Law Library says the player and the team usually settle at or near the midpoint before the dispute goes to hearing.
The case of Chris Capuano of the Milwaukee Brewers is typical. When Capuano applied for arbitration he was making $450,000, just above the league minimum salary, Edmonds says. The Milwaukee pitcher asked for $3.7 million, the Brewers offered $2.8 million and they settled for $3.25 million.
Edmonds argues that because the baseball arbitration system encourages most teams and players to settle at market value without the acrimony of hearings it is successful and, therefore, with appropriate modification, may be a useful tool in other industries.
John Monczunsk is an associate editor of this magazine. Email him at email@example.com.