Pre-Arb, Super Two, Arbitration eligible, “Under Team Control”, in the baseball world these terms are thrown around very often and many have little understanding of what they mean. Fans often realize that younger players make less money than veterans or free agents, but they do not fully understand the process behind how these salaries are determined.

Let’s start with the basics. Here are some terms and definitions I will use often:

Service Time – A term for the number of days a player is on the active major league 25 man roster (including time on the 15 or 60 day disabled list). 1 year of service time is defined as 172 days on the active major league roster.

Pre-arbitration – A term for players who are not eligible for arbitration with their current team. These players have less than three full season of service time with a major league club and their salaries are set by the club.

Arbitration Eligible – A term for players who have been with the major league club for at least 3 seasons or have reached “Super Two” status. These players are allowed to negotiate their salaries with the club and if no contract can be agreed upon, the two sides will go to an arbiter for final say. Players are arbitration eligible for 3 years, after which they become a free agent.

Super Two – A term for players who have more than 2 but less than 3 years of service time with a major league club and also rank in the top 22% of all 2nd year players in service time. These players are eligible for arbitration prior to having 3 full years of service time. You can read more information about Super Two status here: Super Two

Pre-arbitration players, as explained above, are players with less than 3 years of service time with a major league team. These players are not eligible to negotiate their salaries with the team and thus the team can set the players salary at whatever they please. Usually teams will give pre-arbitration players incremental raises each year to keep a good relationship with the player and his agent. When a pre-arbitration player has an outstanding season, the team usually will give a larger raise as the Atlanta Braves have done recently with their All-Star closer, Craig Kimbrel. Note that teams are not required to do this however and the Los Angeles Angels of Anaheim have been a little stingy with All-Star Outfielder Mike Trout (you know, the guy who probably should have won the last two AL MVPs). Trout’s agent reportedly asked for a raise close to $1 million after his rookie season in which he finished 2nd in MVP voting, but the Angels declined and simply gave him a small incremental raise from $482,500 to $510,000. Kimbrel on the other hand has gone from $416,000 to $590,000 to $655,000 in this 3 pre-arbitration years.

Arbitration eligible players are able to negotiate their upcoming salaries with the club. However, just because a player is arbitration eligible does not mean that the player has to go through arbitration. Often teams and players will avoid arbitration by settling on a new contract before the mid-January deadline. Arbitration eligible players have 3 options regarding their contract:

Agree to a new, 1 year contract with the club Agree to a multi-year extension with the club, that could cover all or some of the arbitration years Take their case to an arbitration hearing, in which the player and his agent will submit what they believe is a fair salary and the team will submit what they believe is a fair salary. The arbiter will then decide which salary request is more appropriate for the players salary for the upcoming year

The arbiters in this process notoriously rely on “traditional” stats when deciding on a players salary. These stats include batting average, home runs and RBIs. This process has caused players who have abnormally high batting averages or RBI numbers to cost a team more than many would argue they are worth. Now, I’m sure many of you realize that RBIs are not a very good indicator of a single player’s ability and obviously a bad indicator of what a player is worth, but at this time your traditional and power-oriented stats will cause a player to make more through arbitration than someone who plays exceptional defense, has a high OBP and happens to bat near the bottom of the order. To illustrate this process I’ll look at the following case from 2012:

Player A is more of your traditional player, #3 hitter, high RBIs, and 25+ HR per year. His triple slash stats thru 2011 were .311/.366/.541. In 2011, Player A was worth 4.0 fWAR and was a 3rd year arbitration player in 2012. He made $13.7M in 2012

Player B is a less traditional player. He hits at the top of the lineup with very few RBIs, very few HR but plays fantastic defense and runs the bases incredibly well. His triple slash stats thru 2012 were .272/.336/.359. In 2011 Player B was worth 3.7 fWAR and was also a 3rd year arbitration player. He made $6.8M in 2012

As you can see above, the arbitration process clearly favors the more “traditional” statistics category. Even though Player A was only worth 0.3 more wins over the course of the season, he was “worth” an additional $6.9M to the baseball world. In percentages, Player A was worth 7.5% more wins but cost 101.5% more in salary the next year. For reference, Player A is Josh Hamilton and Player B is Michael Bourn.

I believe that there should be reform to the arbitration process for a number of reasons that I won’t go into detail here, but in a later post. Hopefully the above paragraphs have helped you understand some finance-related baseball terms that are widely used throughout the baseball community. I believe finance and money are very strong forces in the baseball world and believe the way a MLB franchise spends their money, not how much they spend, means more to the overall success of the franchise.