Yankees-Betances Clash Highlights Arbitration’s Flaws in Efficiently Compensating Players

Disclaimer: I previously served as an intern with Dellin Betances’s agency, Excel Sports Management, discussed in the article.

Introduction

Arbitration may theoretically be a form of alternative dispute resolution (“ADR”), but sometimes it becomes the very sword that parties seek to shield themselves from when electing to avoid a more contentious formal litigation.

After an arbitration panel ruled in favor of the New York Yankees against their reliever Dellin Betances on February 18 regarding the pitcher’s salary for the 2017 season, Yankees’ President Randy Levine unleashed against the three-time All-Star for filing a sum that “had no bearings in reality.” Betances, who sought a $5 million salary commensurate with “closers” in their first foray into arbitration, will instead earn $3 million next year, New York’s submitted value for an elite “set-up man” lacking a gaudy save total. Given Betances’s limited save opportunities behind Aroldis Chapman and Andrew Miller in New York during the young pitcher’s career, Levine characterized the figure argued by the pitcher’s agents at Excel Sports Management as a “half-baked attempt” to “use a player to change a well-established market.” Advanced statistics, however, suggest that Betances was one of the most effective relief pitchers in the game since his full season debut in 2014 and deserved a greater sum.

Naturally, the MLBPA’s Rick Shapiro and Betances’s agent Jim Murray took exception to Levine’s public comments in the wake of the arbitration, calling them an “absolute disgrace” and “reprehensible,” respectively. More importantly, Betances, a Bronx native, suggested that Levine’s comments may make leaving the team “a little easier when the time comes” as a free agent following the 2019 season.

The public spat between the Yankees and Betances not only epitomizes the issue of relying on arbitration to peacefully resolve a conflict in a relationship intended to survive the dispute, but the details at the heart of the Betances case also suggest that the current arbitration system is ill-equipped to handle modern determinations of player value. Advanced baseball statistics since the dawn of the “Moneyball” era in the 21st century continue to outpace the courts in isolating the value of certain player outputs. Despite a better understanding of how certain statistical attributes contribute to team success, baseball’s arbitration system continues to rely on traditional numbers to determine salary figures. The doctrine of stare decisis – respecting and honoring legal precedent – serves as a vital tool ensuring stability and predictability in our legal and business system, but it can fall victim to both changing societal attitudes and scientific understanding. In baseball’s current system, adherence to precedent in trusting traditional statistics without placing significant weight on new age metrics does not efficiently allocate arbitration awards. The MLB and MLBPA should consider modifying its arbitration process to better incorporate modern statistics into determining player salaries.

History of MLB Salary Arbitration

In 2017, even the casual fan is well-aware of the role of arbitration in ameliorating sports disputes. The NFL’s utilization of the ADR method gained infamy in the wake of the “Deflategate” scandal given Commissioner Roger Goodell’s role as the “judge, jury, and executioner” in issuing and upholding a four-game punishment to New England Patriots quarterback Tom Brady. Of course, Brady and the NFLPA challenged the scope of Goodell’s collectively bargained power in court, but ultimately lost on appeal in the Second Circuit.

For decades though, arbitration has served as the bargained for dispute resolution approach between leagues and players for addressing a variety of conflicts. While most high-profile sports arbitration cases involve performance enhancing drug use and player discipline, Major League Baseball also utilizes binding arbitration to adjudicate the salaries of a select class of players.

This was not always the case, however. For the first century of professional baseball, players and teams operated without a major labor agreement providing for basic player protections. Prior to the formation of the MLB Players’ Association (“MLBPA”) in 1953, players maintained little bargaining power to combat the league’s antitrust exemption. While the first Collective Bargaining Agreement (“CBA”) between the owners and players in 1968 introduced new benefits, including minimum salaries, team-covered expenses, travel requirements, and, importantly, an independent arbitrator to decide labor disputes, it failed to eliminate the controversial “reserve” clause in player contracts. The “reserve” clause, which enabled teams to employ a player indefinitely with annual renewals, profoundly limited player freedom; while the team could trade the player to any other franchise, the player remained obligated to play for their contracted team to continue earning a living playing professional baseball.

In 1972, outfielder Curt Flood challenged the league’s antitrust exemption after the St. Louis Cardinals, his club for twelve years, traded him to the Philadelphia Phillies. Although the Supreme Court ultimately deferred to the league’s exemption in Flood v. Kuhn, the owners anchored their argument in the reserve clause as a collectively bargained benefit in the CBA, providing players the impetus to attack the clause in subsequent negotiations. In 1975, the players earned a crucial legal victory when arbitrator Peter Seitz determined that the reserve clause only allowed a team to renew a player’s contract once, rather than in perpetuity. Between the Flood case and Seitz’s arbitration ruling, the MLBPA garnered ammunition to continue chipping away at employment restrictions. After a lockout from spring training by the owners in 1976, the MLB and MLBPA agreed to grant veterans access to free agency.

While the players and owners continue to bicker over various labor provisions, the structure of the 1976 CBA remains largely intact. Today, players with more than six years of Major League experience maintain access to an uninhibited open market. Players with less than six years, however, cannot freely negotiate with other teams unless their parent club releases them from their contract. During a player’s first three seasons, except certain “Super Two” players between two and three years’ experience, teams unilaterally control compensation under the same reserve clause concept, awarding either league minimum or close to league minimum figures. “Super Two” players and Major Leaguers with three to six years’ experience, however, are subject to salary arbitration.

Unlike conventional arbitration, which invites arbitrators to independently determine an appropriate award within a range of submitted values, the MLB’s Collective Bargaining Agreement requires teams and players to submit “final offers” to a panel of three mutually agreed upon American Arbitration Association approved arbitrators who must choose between the two figures. Article VI, Section E, Part 10 (a) & (b) of the 2012-16 CBA provides the types of evidence that may be introduced by either party:

(a) The criteria will be the quality of the Player’s contribution to his Club during the past season (including but not limited to his overall performance, special qualities of leadership and public appeal), the length and consistency of his career contribution, the record of the Player’s past compensation, comparative baseball salaries, the existence of any physical or mental defects on the part of the Player, and the recent performance record of the Club including but not limited to its League standing and attendance as an indication of public acceptance (subject to the exclusion stated in subparagraph (b)(i) below). Any evidence may be submitted which is relevant to the above criteria, and the arbitration panel shall assign such weight to the evidence as shall appear appropriate under the circumstances. The arbitration panel shall, except for a Player with five or more years of Major League service, give particular attention, for comparative salary purposes, to the contracts of Players with Major League service not exceeding one annual service group above the Player’s annual service group. This shall not limit the ability of a Player or his representative, because of special accomplishment, to argue the equal relevance of salaries of Players without regard to service, and the arbitration panel shall give whatever weight to such argument as is deemed appropriate.
(b) Evidence of the following shall not be admissible: (i) The financial position of the Player and the Club; (ii) Press comments, testimonials or similar material bearing on the performance of either the Player or the Club, except that recognized annual Player awards for playing excellence shall not be excluded; (iii) Offers made by either Player or Club prior to arbitration; (iv) The cost to the parties of their representatives, attorneys, etc.; (v) Salaries in other sports or occupations.

Although long-winded, the process essentially involves comparing the player’s present case with previously adjudicated disputes, considering the player’s position, Major League service time, and statistical output. Given the zero-sum nature of baseball’s approach, the system actually succeeds in encouraging settlement between most players and teams subject to arbitration. Often, teams and players settle at or close to the mid-point between the submitted figures. Resolving a case like Dellin Betances’s, however, remained close to impossible given wildly divergent views on the value of the player and the role of precedent.

Yankees v. Betances: Exhibition in Miscalculated Player Value

Although Levine and the Yankees versus Shapiro, Excel, and Betances made for a compelling story-line, the case itself presented an opportunity for a seismic shift in arbitration player valuation. To a certain extent, Levine’s criticism of Excel “us[ing] a player to change a well-established market” has some validity (ignoring that arbitration is not actually a “market,” but rather a restriction on a free market). The statistics at the heart of arbitration disputes have remained static for four decades, with “saves” the primary driver of compensation for relief pitchers (conveniently, the statistic’s origin aligns with the advent of salary arbitration in 1969).

Since a team’s best relief pitcher has traditionally served as its “closer,” saves have served as a proxy of a reliever’s value. Large save totals, however, are dependent on opportunity; to record a significant number of saves, a pitcher not only relies on his teammates to consistently provide leads, but he also needs his manager to elect for him to end the game. Fostering a compensation system reliant on saves penalizes players who have quality teammates who may usurp save opportunities. In New York, Betances suffered from sharing a bullpen with Aroldis Chapman and Andrew Miller, who, with Betances, paced the league in Fangraphs’ Wins Above Replacement (“WAR”) all-encompassing context-neutral value metric over the past three seasons. Betances only received regular save opportunities after the Yankees traded Chapman and Miller to the Cubs and Indians, respectively, at last summer’s trade deadline.

Further, teams no longer prioritize closers in the free agent or trade market. During the 2014-15 offseason, the Yankees signed Miller to a four-year, $36 million deal, despite recording only one save in his career. Miller’s $36 million guarantee ranked second among all free agent relievers that offseason, eclipsing the years, average salary, and total guarantee given to established closers Koji Uehara, Francisco Rodriguez, Sergio Romo, Jason Grilli, and Huston Street. After earning 36 saves with New York in 2015, Miller, like Betances, deferred to Chapman for save opportunities in 2016 yet nevertheless brought the Yankees a significant trade package. This offseason, fellow non-closer Brett Cecil (11 career saves, none in 2016), received a four-year, $30.5 million contract from the St. Louis Cardinals. Cecil’s $7.75 million 2017 salary places him eleventh among all relief pitchers. Teams continue to invest significant resources into relievers with limited closing experience.

The market reflects a changing consensus in how teams consider utilizing their best relief pitchers. After acquiring Miller, Cleveland Indians manager Terry Francona prioritized using his new reliever in higher leverage situations as early as the fifth inning during the 2016 postseason. Expecting teams to radically depart from standard roles remains less likely over the course of a long season and Miller’s experience in several roles with both the Yankees and Indians may prove to be an exception. Nevertheless, managers have been increasingly more efficient in placing their better pitchers in more important situations. Change in baseball remains notoriously slow, but bullpen use and the market for relievers’ services continues to trend away from the save.

As an elite “set-up” man, Betances represented the ideal plaintiff to challenge arbitration’s archaic reliance on saves to dictate relief pitcher compensation. New York, who signed Miller to a lucrative deal with only a single save to his name, appeared particularly ripe for a challenge; Betances and his agents at Excel could frame the Yankees’ saves-based argument as hypocritical. In siding with New York, however, the arbitration panel maintained antiquated precedent despite other metrics indicating that Betances deserved his petitioned for salary. In addition to leading the league in WAR over the previous three seasons, Betances outpaced every other relief pitcher in the context-based Win Probability Added (“WPA”) statistic since his debut. Ironically, Betances’s Yankees teammate Chapman earned a $5 million arbitration settlement after his third season in 2014, despite pitching fewer innings (Chapman’s 198 2/3 to Betances’s 254 2/3), recording fewer strikeouts (324 to 404), earning a higher earned run average (“ERA”) (2.40 to 2.16), recording a higher walks and hits per innings pitched average (“WHIP”) (1.02 to 1.00), and a higher fielding independent pitching (“FIP”) average (2.27 to 2.06) compared to Betances over their first three years in the Majors. Chapman only materially edged Betances in saves (77 to 22). Without saves driving arbitration awards for relief pitchers, Betances would have earned a far superior sum.

Considering Alternatives to the Current System

Betances’s loss highlights the current arbitration system’s inefficiency in appropriately rewarding players in tune with modern valuation methods. While the save has largely been dismissed as an effective evaluative tool, it nevertheless remains highly dispositive in the arbitration setting. In order to properly align performance and compensation, Major League Baseball and the MLBPA should consider modifying its dispute resolution approach for players ineligible for free agency.

Among possible options, the MLB and MLBPA could consider adopting a new approach, such as traditional litigation or mediation, or modify the current arbitration method. In a disagreement over a player’s salary, however, litigation makes little sense. A jury trial not only increases costs for both parties, but the threat of litigation may force players to settle for smaller figures. Teams maintain deeper pockets to stomach legal costs and thus retain greater leverage over players if the league transferred to a formal litigation approach. Salary disputes also fail to present a novel legal question that traditionally benefit from civil litigation; disagreements instead remain premised in the importance of certain facts and statistics, which can be argued in an arbitration in front of experienced judges. Mediation also offers limited value since it fails to provide parties finality. While mediation encourages settlement, the current system already incentivizes compromise.

The MLB and MLBPA can modify the arbitration system by either departing from the “final offer” approach and introduce judicial discretion in awarding salaries through “conventional arbitration,” reset the statistical calculus that serves as the foundation for determining awards, or a combination of the two. Conventional arbitration invites greater judicial authority to depart from relying on traditional statistics and give greater deference to modern metrics. Instead of choosing a winner influenced by a wealth of precedent, arbitrators would not be as wedded to their previous decisions. While arbitrators may not be as willing to award a player like Betances an outright victory, they may nevertheless choose a sum closer to his petitioned value than the team’s conservative figure in a conventional arbitration. Over time, new cases may elevate salaries faster and more efficiently than the current zero-sum approach.

Despite its advantages, however, conventional arbitration may reduce settlements and increase costs. Arbitrator discretion may “chill” negotiation and limit compromise if the parties trust that the panel will produce a result at least close to the mid-point. Final offer arbitration, on the other hand, promotes settlements as both parties hope to avoid uncertainty. According to law professor and former baseball arbitrator Roger Abrams, in an arbitration “[w]inning means being more reasonable, which is the key that unlocks the door to settlement.” During the 2016-17 offseason, 189 players were eligible for arbitration with only 29 avoiding settlement before submitting arbitration values. Of those 29, 15 proceeded to arbitration with teams winning eight cases and players prevailing in seven hearings. In the 2015-16 offseason, 34 of 183 eligible players filed arbitration figures with only four hearings.

Although successful at producing settlements, the players nevertheless remain constrained by inefficient precedent that prevents aligning a player’s worth with his salary. Since the mid-point of submitted arbitration salaries drives agreements, settlements remain tied to the same statistical flaws evidenced in the Betances case. Arbitration can also depress the value of long-term extensions for players whose skill-sets traditionally fare poorly in arbitration. While players ultimately agree to such pacts, it is often difficult to resist life-changing money when the arbitration process will not adequately reward them. Teams are also electing to avoid tendering contracts to players who project to earn significant arbitration salaries that the free agent market no longer rewards. Arbitration is not only inefficient in allocating salaries commensurate with player value, but also no longer benefits any class of player. Teams will only tender contracts to players who will provide them surplus value.

The MLBPA thus should fight to re-calibrate the statistical calculus to emphasize modern metrics and ensure that its members are more fairly compensated. A purely formulaic approach reliant on new age statistics may provide greater efficiency in awarding salaries consistent with player values, but it may also resemble an overly rigid approach that fails to incorporate nuance and a player’s intangible value. Players may also oppose being dehumanized and reduced to their statistics. Instead, the MLBPA should seek to amend the CBA to include a comprehensive list of metrics that should be considered by arbitrators in place of traditional statistics. The system should still enable players and teams the opportunity to advance sophisticated arguments and evidence, but any new CBA negotiation must expressly provide arbitrators the authority to base their decisions in statistics such as WAR or WPA and diminish the role of prior precedent reliant on traditional statistics like saves. While changes to arbitration may increase team payroll, owners should agree to such concessions to avoid future contentious labor disputes and to foster good will with their players, which may provide an intangible value in future contract negotiations. At the very least, adopting changes to arbitration will enable teams to avoid a public relations nightmare experienced by Levine and the Yankees.

Conclusion

Despite a game revered for its steep tradition as the “national pastime,” salary arbitration should embrace the statistical revolution. Since the dawn of “Moneyball,” teams and agencies alike have contributed to an arms race of statistical analysis to not only gain a competitive advantage over their respective competitors, but also against each other in contract negotiations. The Yankees’ signing of non-closing relief pitcher Andrew Miller to a lucrative contract demonstrates that teams increasingly value new-age metrics over traditional statistics in the free agent market. To adequately compensate athletes who provide the greatest impact to their teams, the MLB and MLBPA must reconsider their compensation approach for players subject to salary arbitration.

“Final offer arbitration” remains the best method to encourage compromise, but it must be reconfigured to jettison old-school statistics from controlling salary awards. The MLB and MLBPA would mutually benefit from encouraging a system that mirrors the market reality based in advanced metrics. Arbitration remains naturally adversarial, but by tweaking the system, teams and players may be able to enhance their relationships, rather than tarnish them. For the Yankees and their hometown star Dellin Betances, however, the wounds from their public war of words may be beyond repair.

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