Tarik Skubal is perhaps the best pitcher in baseball right now. He has won back-to-back Cy Young Awards, winning the pitching triple crown (wins, ERA, strikeouts) in 2024. The Detroit Tigers have offered
him $19 million to pitch for them this year, less money than Nathan Eovaldi, Robbie Ray, Luis Severino, Eduardo Rodriguez, or Sean Manaea will make, and less than half what the top-paid pitcher – Zach Wheeler – will make.
Their offer is so far under market value because Skubal is not eligible for free agency, and must go through the arbitration system. He has countered with a salary of $32 million, and if he wins his case that would be the largest arbitration salary ever awarded, although he would still be just the fifth-highest paid pitcher in baseball. Vinnie Pasquantino and Kris Bubic have also both filed for arbitration after failing to reach agreement with the Royals on a salary for next year. Pasquantino and the Royals are only $500,000 apart in their filings, while Bubic and the Royals are $1 million apart.
The arbitration system was devised by owners after a work stoppage cancelled spring training in 1973 as a means of settling player grievances. Players would not win the right to free agency until a few years later. The arbitration system, coupled with free agency, has generally been quite lucrative for players overall. From 1979 to 1996, average arbitration awards rose more than thirty-threefold, jumping from $68,000 to $2.3 million.
The system overall has been beneficial for players, but the wealth has not been spread evenly. Players with more service time make substantially more than players in their first year of service time. This is because players are compared to other players with their amount of service time. Here are the criteria to be used in determining arbitration awards, according to the current Collective Bargaining Agreement.
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….
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 is why Mookie Betts was awarded just $10.5 million in his first year of arbitration in 2018, fresh off finishing sixth in MVP voting, while Hunter Renfroe won $11.9 million in 2023, his final year of arbitration after an okay 2.5 rWAR season with the Brewers. It is why Jonathan India received a salary increase despite a replacement-level season.
There are a few problems with the current system. The first is that it completely excludes players who have not accrued the requisite amount of service time to qualify for arbitration. Players are eligible when they accrue three years of service time, or qualify as a “Super Two” player by being in the top 22 percent of total service time for players with at least two years of service time. For a long time, those players received salaries very near the league minimum, regardless of their true value. In 2022, MLB instituted a pre-arbitration bonus pool to compensate such players based on their performance, as determined by a WAR metric negotiated between MLB and the union.
Still, these players are paid far less than lesser players with more service time. For those who value merit-based pay, this seems unfair. But even beyond that, it ends up skewing the market for player services. Player rosters are getting younger and younger as teams rely more on players whose salaries are depressed. Teams end up cutting perfectly valuable veterans because their value doesn’t quite match the compensation they would get through arbitration.
The current system also creates an adversarial system where teams are incentivized to argue that their player really isn’t all that valuable. The Red Sox tried to prove that Mookie Betts was not as good as other stars in the game. The Dodgers argued that plodding baserunning Mike Scioscia was hurting the team by getting on base too much. Corbin Burnes explained how the arbitration process hurt his relations with the Brewers.
“Obviously, it’s tough to hear. It’s tough to take. They’re trying to do what they can to win a hearing,” Burnes told reporters at spring training in Phoenix. “There’s no denying that the relationship is definitely hurt from what [transpired] over the last couple weeks. There’s really no way of getting around that.”
Even Vinnie Pasquantino, who is headed to an arbitration hearing with the Royals, tweeted, “I’m about to go into a room and hear how awful I am….”
The current system also incentivizes teams to manipulate service time, by not calling up minor leaguers so they will not be eligible for Super Two status. MLB mitigated this somewhat with the Prospect Promotion Incentive program, but this only applies to players who are consensus top 100 prospects, not players like Noah Cameron, who had a terrific rookie season and seems headed to a nice career, but was not considered a top prospect before the year.
The alternative to an arbitration system could be a system that rewards players based on performance. The pre-arbitration bonus pool has been a success so far, giving top players like Paul Skenes $3.4 million when he would otherwise be earning close to the league minimum. The pool could be significantly increased and expanded to cover all pre-free agent players not under contract. Players would have base salaries – perhaps depending on their service time, although this may lead to some of the same problems under the current system – but the pay would be supplemented through the bonus pool based on the WAR formula negotiated by MLB and the union. The amount of the bonus pool would have to be negotiated as well – the amount of money paid out to current arbitration-eligible players should be included. But allocating the funds based on performance rather than service-time-based adversarial hearings could be a more equitable way of determining compensation.
Players could, of course, decide to sign long-term contracts and avoid this system entirely. This system could give them more leverage in those negotiations. Players with high upside could earn very lucrative salaries even in the first three years of their career. Teams may look to hedge against that by offering a long-term deal that offers security over high spikes in compensation and ensuring cost certainty.
This proposal is not without its flaws, however. A WAR-based compensation system could also skew incentives. Players may be more reluctant to move down the defensive spectrum, as first basemen take a rather large hit in defensive value under WAR. Players may be less willing to bunt or move runners over, things that don’t get valued much in WAR calculations. Injuries could be devastating to a player’s earnings.
This system also takes control out of the hands of players. The arbitration hearing is their chance to make a case for a pay raise. Every win for players sets a new precedent that helps another player down the line. Moving to a bonus pool gives owners more say over the allocation of funds, although the union would also have a had in determining the pool size. Players would basically have no say in their salary until they hit free agency – which could be ten years or more into their professional career. Owners could offer a year or two of restricted free agency for players before they become eligible for free agency – they unilaterally implemented restricted free agency in the work stoppage in 1994-95, so they should be open to the idea.
The arbitration system has been very lucrative for players, and they’re not likely to want to give that up. Owners are expected to push for a system that eliminates arbitration in favor of a performance-based compensation system, so it is wise for players to be skeptical. But if they can negotiate such a system that benefits all players, not just those at the top, it could lead to a more equitable system that does not create such market inefficiencies.
