A business primer

For some of you, this may be completely uninteresting, or it may be all stuff you already know. But I got a lot of mailbag questions, so I wanted to offer a little further illumination on how some of the business end of things works with regard to contracts and service time and whatnot.

First an important fundamental concept:

Service time determines a LOT. That’s why Prince Fielder is making $670,000 while Ryan Howard is making $10 million. And it’s why Pujols’ contract, though it’s worth an average of $14.3 million a year, guaranteed him $7 million in the first year. Up until a player reaches free agency eligibility, his salary is determined by a combination of service time and performance.

Comparable players are also important. This is tied in. Albert Pujols set a precedent for Ryan Howard, who set a precedent for Prince Fielder. This is a big part of why Rick Ankiel’s situation was so hard for both sides to read — good luck finding a comparable player.

Now, on to the details…

Players with up to about 2 2/3 years of Major League service time have basically no leverage. All players with zero years, one year or two years fall into this category. Then there’s a cutoff each year for what makes a player a "Super Two" — that is, a player with fewer than three years’ service time who is still arbitration-eligible. Brad Thompson, with two years plus 110 days, fell short this year. These players, not yet eligible for arbitration, are commonly called "zero-to-three" players. They are COMPLETELY cost-controlled, and therefore highly desirable if they can play.

Up until a certain point of the spring — this year it’s today — these players can negotiate with the team. Ideally, they reach an agreement on a salary, sign a deal and move on. If they DON’T agree, however, the team is fully within its rights to do what’s called renewing the contract, and simply assign a dollar figure to the player. In some cases, it’s right around what they were offering in the first place. In some cases, it’s less — almost as a punitive measure to the player for being difficult, or to make a point, or simply to save some cash. My understanding is that in Adam Wainwright’s case, the club did NOT do this.

Pujols made $900,000 in his final zero-to-three year. Ryan Howard also made $900,000 in his final year before arbitration. But it’s based on performance AND service time. Pujols didn’t necessarily perform any better in 2002 than he did in 2001, but he got more money after 2002 because he had more service time.

OK. That basically wraps the zero-to-threes.

Then you have arbitration-eligible players. Every player from "Super Twos" up to — but not including — six full years of Major League service time is considered arbitration-eligible. This year, the Cards’ group included So Taguchi, Aaron Miles, Todd Wellemeyer, Yadier Molina and Rick Ankiel.

Again, a combination of service time and performance determines salaries, so once the season ends, it’s possible to begin guessing what a player is likely to make. Based on these guesses, you get the first step of the arbitration process — tendering, or non-tendering, the player a contract. If the team tenders the player a contract offer, then the player will be back for the following year. If the team chooses to non-tender the player, the player becomes a free agent. It doesn’t mean he can’t return. It simply means that the club has no desire to allow the arbitration process to determine the salary. This happened with Miles this year. The Cards released Taguchi before the time came, because they wanted to draft Brian Barton.

Once players are tendered contracts, they can negotiate with the team. At a certain point in
the winter, as arbitration gets closer, the teams and players exchange figures. Often, this jump-starts the bargaining process, and many times the team and player come to an agreement at roughly the midpoint between their stances. A deal can be struck, for one year or multiple years, at any point up to the hearing.

However, once there’s a hearing, an arbitrator determines the player’s salary. And there is NO middle ground. Each side makes its case, and the arbitrator picks a winner. That is the player’s salary for the year. And I emphasize again, it’s largely determined by service time. Andruw Jones made $3.7 million in his first arbitration season and $8.2 million in the next. Then he signed a new deal, paying him $9.5 million for what would have been his third arbitration season, escalating to $11.5 million the following year and eventually to $13.5 million. Miguel Cabrera made $7.4 million in his first arbitration-eligible year, and he’ll make $11.3 million this year, his second.

The player and the team are subject to this process up until the winter finally comes that the player has six FULL seasons of service time. Not five years and 170 days, but six full seasons. There is no rounding up, as with the Super Twos.

At that point, the player is on the open market, where the whole equation changes. He has multiple bidders and is no longer cost controlled.

Anyway, hope this helps some people understand the process, and why Adam Wainwright is making less than $500,000 while Todd Wellemeyer is making $1 million.

-M.

(currently playing on the iPod: Drive-By Truckers, Brighter Than Creation’s Dark)

7 Comments

Nice post, M. Very informative. You must have received some very interesting email. I’d love to see your inbox.

Clear as mud, Dude. I wish MLB would ALWAYS base a player’s salary on performance from year to year.

Thanks Dude, nice to have this explained in layman’s terms.

Why should it just be based on performance? Service time should have something to do with it cause it gives you a clearer picture of the player. Had Howard only hit 13 HR in 2007 after 58 in 2006, do we have a clear view of what type of player he is? Not quite. The more years he has, the better view of what type of player he is. Of course, after about 4 or 5 years, service time and performance become inseparable. For the truly high caliber players, the more years they have the better their numbers tend to look.

This is a comment to the article on Tyler Johnson. In it you said that “Randy Flores remains the primary lefty” My question is why? He has not been particularly effective against lefthanders or righthanders. I cringe whenever I see him enter a game.

Um… where did I write that?
-M.

Dude-

Sorry I must have mixed up the article/author. Here’s to hoping Flores will NOT be the primary LH bullpen option.

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