The 40-60-80 Arbitration Rule
Over the last few days I’ve been looking at the possible benefit of being a Super Two eligible player. It started when I noticed that Andrew McCutchen was at risk of being a Super Two player following the 2011 season, which I speculated could add $10 M to his potential earnings. Matt Bandi at Pittsburgh Lumber Company followed up by pointing out that Super Two players received 21.8% of their free agent values during the 2008/2009 off-season.
This was significant, as it is assumed that players go on a 40/60/80 scale for arbitration, which means they earn 40% of their free agent values in year one of arbitration, 60% in year two, and 80% in year three (free agent value can be found by multiplying the player’s WAR by $4 M). If Super Two players received close to 20%, then that meant they went on a 20/40/60/80 scale, which means that someone like McCutchen would only get an additional $3 M by being a Super Two, since the only difference between being a Super Two and a regular scale would be that you get a year with 20% of your free agent value, rather than going on some sort of 40/60/80/100 scale.
After seeing Matt’s research, I had one problem: how accurate is the 40/60/80 scale? I looked at this yesterday, and noticed that first year arbitration eligible players in the 2008/2009 off-season (the same that Matt looked at), received around 26.49% of their free agent value. That was closer to the 21.8% that Super Two players received than it was to the assumed 40% that first year arbitration eligible players should have received. From there, I wanted to study that off-season group to see what second and third year arbitration eligible players received.
After figuring out that players made 26.49% of their free agent value in year one of a normal arbitration scale, I proceeded to year two. I looked at all of the players who had 4.000-4.171 years of service time in the 2008/2009 off-season, as well as what they received through arbitration. Just like my original study, I excluded the following:
-Super Two players in their third arbitration years
-Closers (the value of saves in the arbitration process really changes the results for closers)
-Players with less than a 0.5 fWAR (FanGraphs WAR) in 2008
Here are the results (click on the image to enlarge):
In year one of a normal arbitration scale, I found that players received 26.49% of their free agent value, rather than the 40% assumption. The above chart shows that year two arbitration eligible players received 48.09% of their free agent value, rather than the assumed 60%. Year one was a difference by about 13.5%, while year two was a different by about 12%, both lower than the assumed values. What’s even more interesting is that I went back to look at the Super Two players who were in their second year of arbitration:
The Super Two players in the 2008/2009 off-season received 21.8% of their free agent value, according to Matt. The players in that same off-season who were previously Super Two players, and in their second arbitration year received 49.07% of their free agent value. So far we have the following from the 2008/2009 off-season:
Super Two Players, 1st Year: 21.8%
Normal Arbitration Players, 1st Year: 26.49%
Super Two Players, 2nd Year: 49.07%
Normal Arbitration Players, 2nd Year: 48.09%
That’s much different from the 40/60/80 scale so far. As of now, it’s looking like a 25/50 scale for the first two years of arbitration under a normal scale. However, the third year is where I ran in to a problem.
This can’t make sense. Players in the 08/09 off-season received 48.09% of their free agent value during their second year of arbitration. There’s no way that the standard can be 47.34% of free agent value in the third and final year of arbitration. The problem I see here is very simple. The free agent value that we’ve been using is based on the 2008 fWAR numbers, and the 2009 salaries. Let’s think about the arbitration process for a second.
Arbitration values aren’t just based on what the player did during the previous season. They’re based on the career body of work by the player. Take Adam LaRoche, for example. LaRoche received 103.68% of his 2008 value, with an fWAR of 1.7. However, LaRoche put up a 2.5 and a 2.6 fWAR in his previous two seasons (he also proceeded to put up a 2.6 fWAR in 2009). With a 2.5-2.6 fWAR, LaRoche’s value goes from 103.68% to around 70%.
There’s also the flip side. Marlon Byrd received 25.5% of his value. In 2008, Byrd had an fWAR of 3.0. He had a 2.1 fWAR in 2007, but prior to that he was under 1.0 for the previous three seasons, including a negative in 2004. Byrd’s average fWAR through the 2008 season was closer to a 1.0 than a 3.0. Using a 1.0 as his fWAR, we see that he received a 76.5% value, rather than the extremely low 25.5% value.
Obviously to form a better conclusion, more samples are needed. We would have to look at several years, not just the 2008/2009 off-season. The same goes for all of the other research done on this topic, not just the third year of arbitration. One issue that has gone unaddressed so far is just how many players actually reach their third year of arbitration? Players get non-tendered, they sign extensions, or they just never reach that third arbitration year. The players who actually do reach their third year of arbitration seem to be special cases. Perhaps they have a big boost in value, which keeps them alive in the arbitration process for another year. Maybe they’re in a situation like LaRoche, where they’re unlikely to sign a multi-year deal to remain with the Pirates.
This all started by looking at the value of Andrew McCutchen possibly being a Super Two player. We’ve seen that Super Two players can receive 21.8%/49.07% in their first two years of arbitration. Like the third year arbitration players, the sample of Super Two players in their third and fourth year of arbitration is small. That’s because most players either sign extensions before they reach those years, or they get non-tendered because they’re not deserving of the salaries during those years.
This was all brought up to see what the difference was between Super Two players and regular players in the arbitration process. The final years are inconclusive, but the first two years are similar for Super Two/normal players, with the scale being closer to 25/50 than 40/60. The 40/60/80 scale seems like a good guide to use to get the player’s maximum value, although as shown, the actual contract can be lower.
The important thing here is to find the values of the early years of arbitration. If the player is worth the price, he’s going to get a raise each year. The important question is, where do you start? As seen above, the first two years are similar, regardless of whether the player is Super Two eligible or not. While the third year’s value isn’t conclusive, we can assume that every player would receive the same value in their third year, regardless of Super Two status. The Super Two eligible player would see a benefit in the fourth year by getting a raise over his third year, which could mean a big raise for McCutchen if he does reach Super Two status next off-season.