On Saturday, newly-acquired Toronto Blue Jays third baseman Josh Donaldson lost his first arbitration hearing. Being a Super Two, Donaldson will have at maximum three more attempts through the arbitration process — barring an extension, of course. The salary Donaldson will receive through the arbitration process for the 2015 season is now disparaging lower than one might think. But how did the Blue Jays pull off such a win that will not only help them now, but set up a scenario that could save the team millions through the process?

The answer to that question is because, plain and simply put, the arbitrators in this case were left with almost no other choice but to side with the Blue Jays.

However, in order to understand why it was essentially a slam-dunk for the Blue Jays side in retrospect, one first has to understand how the arbitration process works.

For readers that don’t know, salary arbitration is when a team and a player cannot agree on the amount the player should be paid for the upcoming season. As a result, a panel of three arbitrators — who represent an unbiased, third party used to mediate the dispute — are assigned to each individual case in order to decide what the player’s salary should be for the upcoming season.

If the two sides are still unable to agree on a salary for the upcoming season, they are expected to submit a dollar figure that they feel is an accurate representation of what the players should earn for the upcoming season on a set date, which is usually around mid-January. The actual hearings themselves take place in February to determine the player’s salary.

In the hearings, the team’s side and player’s side each state their case as for why the player should receive the dollar figure given by their side. After each side makes their final argument, the panel then decides whether the player’s side or team’s side has a closer representation to what the salary should be for the player in question. The panel is not allowed to dictate a salary they feel is fair, yet instead only allowed to choose one of the figures that each side submitted. For this reason, it is important that each side submits the most accurate representation of what the player wants because a bid too high for on the players’ side will likely result in the team winning easily and getting a player for a financial steal, while a bid too low by the team will obviously result in the player getting more money than they might deserve.

As for eligibly for this process, a player is first eligible for arbitration after accruing three years of MLB service time, or being what is called a Super Two. A Super Two is when a player has less than three years of service time and is in the top 22% of players with greater than two years of service time. The eligibility is also capped, as a player cannot go through arbitration with more than six years of service time.

(FanGraphs offers a great description of salary arbitration here, as well as a description of what a Super Two is here.)

As FanGraphs describes, these panels are “notoriously old school and tend to make their decisions based on player comparisons and traditional statistics like RBIs and Wins.” Because of this, it’s imperative that each side has a good feel for not only where the player stands historically in terms of previous players who have gone through this process by way of comparisons.

This is where Donaldson’s side faltered.

The amount submitted by Donaldson’s side was $5.75 million while the Blue Jays submitted the winning amount of a substantially lower $4.3 million. With a $1.45 million dollar difference, the middle ground between each side stood at $5.1 million. However, by comparison there had been no recent third baseman that had made anywhere near $5.75 million in their first year of arbitration through either an extension or the actual arbitration process itself. In order to explain why, we need to travel down the path of comparisons.

Because the panels are more old school, we have to find other means of comparison than just WAR. Meaning home run totals, RBIs, batting average, OBP,and slugging are more likely to be used in the actual hearing by the court.

There are four players that are seemingly comparable to Donaldson:

 Player Service Time  PA  HR  RBI  AVG OBP  SLG OPS
 Player W  3.033  1908  68  280  .285 .358 .466 .825
 Player X  3.060  1728  60  208 .272 .352 .471 .824
 Player Y  2.168  1827  71  215 .254 .345 .450 .794
 Player Z  3.085  2201  70  264 .262 .328 .429 .757
 Donaldson  2.158  1691  63  228 .268 .347 .458 .805

 

The numbers reflected in the chart above represent each player’s total numbers before their first shot at the arbitration process.

While only Player Z is a third baseman, each player is a power-hitting threat much like Donaldson.

Let’s start with Player W, who had better numbers comparative to Donaldson. This then 24-year-old player got paid $5.125 million for his first season of arbitration but never went to a hearing. Instead, this player signed an extension with his team for his remaining arbitration years and a few of his first free agent seasons. It might better to consider this player to be Donaldson’s ceiling. Who is this player? None other than Atlanta Braves first baseman Freddie Freeman.

As for Player Z, it could be argued that he had a lower output than Donaldson, yet still close enough for a good comparison. Essentially, he is Donaldson’s floor as far as salary comparison goes. This then-27 year old player, like Freeman, signed an extension before ever going to a hearing and received $4.5 million for his first arbitration eligible season. A third baseman like Donaldson himself, he one of the better third base comps able to be found.  Who is he? He is Seattle Mariners third baseman Kyle Seager.

Now onto the two players that offer two of the closer comparisons that one can find for Donaldson, Players X and Y.

Player X has nearly identical home run and RBI totals, as well as owning batting AVG, OBP and SLG percentages only mere points away from Donaldson’s own. Again, like the two previously listed players, the then 22-year-old Player X did not go to arbitration, yet signed an extension that not only covered his remaining arbitration years but also took up one free agent season as well. For this season, Player X received $4,458,333 million for his first arb season. This player is newly-acquired San Diego Padres outfielder Justin Upton.

Finally, Player Y might be the best comparison to offer for Donaldson. This player, like Donaldson, would have been a Super Two himself. Unlike Donaldson, he signed a contract extension that resulted in a $5 million salary for his first arb-eligible season. Player Y also put up numbers eerily similar to Donaldson, as he only put up an OPS that was 11 points lower, as well as owning an OBP and SLG that were only .002 points lower than Donaldson’s. This player is Chicago Cubs first baseman Anthony Rizzo, who would’ve gone through this process at the age of 25.

Two things stick out here.

The first is that all of these players who put up similar numbers to Donaldson in their seasons leading up to their first arbitration year got paid no more than $5.1 million — which was the midpoint of Donaldson’s arbitration hearing. This means that while the mid to upper $4 million range was a rational salary for Donaldson, by asking for $5.75 million he left the panel with little choice but to side with the team. There’s more support as far as comparison’s go for a salary below his $5.1 million midpoint than there is for a salary above.

Had Donaldson filed for around $5.4 million, he surely would’ve won, as that would have lowered the midpoint to $4.85 million. It would’ve been easier to convince the panel that he deserved a salary above that midpoint, as there is a greater past precedent. However, they did not. It’s too difficult to argue that Josh Donaldson should have earned almost $600,000 thousand more than players like Mike Trout or David Wright got for their first arbitration years, but easier to argue that Donaldson should earn less than $5.1 million dollars—resulting in the panel agreeing with the team.

The second thing that sticks out is that all four players used in the comparison had one thing in common: they reached extensions buying out their arbitration years. Obviously each team will value a players arb years differently, but they will generally agree with the precedents set by the salary given to comparable players in the past — much like the arbitration process itself. In this way, a team’s evaluation of salary a player should get in their arbitration years might actually be better in an extension as opposed to going through the arbitration process itself.

Take Todd Frazier for example. Frazier asked for $5.7 million while the Cincinnati Reds asked for $3.9 million — resulting in a midpoint of $4.8 million. In retrospect, if Donaldson didn’t win his hearing for $5.75 million, then Frazier had no shot at winning his — as Frazier had better power numbers but a lower slash. Nevertheless, Frazier’s side took a deal that was $300,000 thousand less than the midpoint and agreed to a two-year extension with the Reds — realizing how difficult it would be for them to win this hearing and seeing the opportunity to get relatively close to the midpoint. By getting more money and getting closer to the halfway point between the two sides, however, Frazier also had to sacrifice his second year of arbitration, which the Reds valued at $7.5 million — a 66.7% increase from the previous year and closely resembles the way Seagers’ arbitration years are treated.

Therefore, it’s only logical that there was no way Donaldson’s side would win this hearing, They simply did not have a strong enough argument to make when guys like Justin Upton or Anthony Rizzo made $5 million and lower with similar outputs as Donaldson himself. Compounded by the fact that Mike Trout and David Wright only made $5.2 and $5.1 million, respectively, for their first arbitration seasons.

It also follows that if Donaldson would want to get closer to the amount he truly should be paid — as free agency will surely value Donaldson and his impressive all-around talent much more — he might consider signing an extension. Historically, extensions are actually a safer bet to secure money that is closer to what a player feels they deserve, as teams/owners have won considerably more arbitration hearings than players have, according to Maury Brown’s Historical Scorecard. Although Donaldson would surely want to play a season with Toronto before committing to a long-term extension.

However, as a result of a poor evaluation by Donaldson’s side of where his standing in the eyes of the arbitration panel might be, Donaldson will now earn less in his first time through the process than he truly should.

5 Responses

  1. John Cate

    Like you said, you could see this coming as soon as that went to a hearing. As soon as I saw what Donaldson’s agent was asking for, I knew he’d lose that case. That was reaching just a little too far.

    Reply
    • Shawn Brody

      I did not use Present Value comparisons. As you know, Rizzo, Seager, and Freeman recently signed their extensions. PV would really only change Upton enough to where it would matter, and it would only move him closer to $5 million.

      Reply

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