On Saturday, a baseball arbitrator announced that setup reliever Dellin Betances lost his case with the Yankees. Betances had asked for $5 million and the Yankees’ offer was $3 million. After the case was decided, Yankee president Randy Levine created a stir by taking the unusual step of criticizing Betances’ filing as a “half-baked attempt” to “change a well established market” for setup relievers.
The Betances decision spurred a justified uproar against the Yankee president and a less-justified furor against the arbitration process itself.
Arbitrators are not judges. The judicial system is crafted for judges to follow a series of established laws and precedents that bind future decision makers. While there are norms which arbitrators look at to guide their decisions, there is no way to ‘overrule’ an arbitrator because s/he did not follow the precedent of another arbitration hearing.
There are two limitations on how arbitrators can rule: First, their power in a case is defined by a labor contract. In MLB, the contract outlines what are admissible criteria for the arbitrators (broadly defining total performance, public relations, and others) and inadmissible criteria (past offers by both teams, comparisons to athletes in other sports, etc.). The contract also specifies panels of three arbitrators, no award needs to be written, and that the arbitrators must select one of the two parties positions in full. In other words, the arbitrators cannot “split the difference” and select the middle number then call it a day.
There is plenty of academic research on “final offer arbitration,” but the majority suggests that a final offer model pushes parties towards the middle and settling. More than 90% of cases resolve prior to arbitration. That’s pretty good evidence the system is not delaying settlements by offering the possibility of dragging a dispute to an arbitration hearing.
Less important for this discussion are the public policy limitations on arbitrators: An arbitrator’s award can be overruled if there is evident bias, is repugnant to public policy, or violates the Collective Bargaining Agreement (see: Goodell, Roger).
Now onto the thornier issue: the Saves situation. It is reported that the panel (it is hard to tell because there is no written opinion) evaluated Betances based on his role as a setup reliever and therefore would not award him ‘closer’ money. A closer with Betances’ underlying stats would have earned far above the $5 million mark (Doug Gray provided the best evidence of this), while setup guys earn considerably less as of now.
Baseball analysts were outraged by an arbitration panel making a decision based on Saves, a statistic seen by many as a product of an outdated way of evaluating pitchers.
But it is unrealistic to ask an arbitrator to do what baseball executives are unwilling to do. While this may be changing, closers are paid more than setup guys in the free agent market.
For decades, GMs, radio personalities and coaches have told us about the importance of saves. But last post-season, we saw the largest defection from ‘established closer rules’ yet – and this trend will likely continue.
A first principle for arbitrators is to do no harm to the parties’ relationship. Without compelling evidence the market has shifted away from saves, it is highly unlikely that a neutral person will substitute her/his judgment.
As the market for elite setup guys becomes more established and closers are used in nontraditional roles more regularly, the arbitration process will follow. Arbitrators don’t try to say what the market should be, they evaluate what is consistent with the past behavior of the parties.
Ken Rosenthal, a prominent baseball analyst with Fox Sports, says the Betances arbitration ruling proves the system is broken. His solution is to replace the arbitration process with a statistical model in the CBA that sets guidelines for the value of player.
Of course, any agent and team worth their salt already does this. That’s why 92% of cases do not proceed to arbitration. For the vast majority of players there are reasonable comps and the two sides can agree on a number.
The problem is sometimes the sides disagree about important variables, for example the importance of roles vs. ‘advanced’ stats, or precedent, such as when Tim Lincecum won two Cy Young Awards while he was under team control. Another exception is when confounding variables are difficult to model, such as a player struggling with a physical or psychological illness. For the fifteen or so players a year who are imperfect fits, baseball has chosen to let a neutral third party decide.
Rosenthal’s overarching point has a grain of truth. Neutral arbitrators have varying levels of knowledge regarding player evaluation. Some may be statistical wizards who could help the parties troubleshoot a model. Others may be wondering why walks are so important nowadays. The only criterion for sitting in that chair is being selected by the parties.
But here’s another solution: Following the lead of many other industries, MLB and the Players Association could collectively bargain the establishment of a permanent arbitrator for all salary disputes.
The permanent arbitrator would become familiar with the baseball market, previous arbitration decisions and the changing nature of player evaluation.
I expect the establishment of a permanent arbitrator over time would decrease the number of cases that go all the way to an arbitration hearing. The sides would become familiar with how the neutral person sees different arguments and evaluation methods.
It’s unclear that MLB would be willing to take on the cost of a permanent arbitrator. But it would be one way to ensure the selected neutral is sufficiently informed on different evaluation metrics while at the same time preserving the ability to have a flexible response to outlying cases.
[Editors Note: Mike Maffie is a PhD candidate at Cornell studying labor relations.]