Economics of Baseball: Arbitration observations

Every year the Elias Sports Bureau computes a rating for every impending free agent, either "Type A", "Type B", or none. Clubs have the option of offering any of their impending free agents arbitration, which the free agents can accept or decline. If a player accepts arbitration he agrees to a 1-year, non-guaranteed contract at a salary to be determined later either by mutual agreement or by an arbitration committee. Otherwise the player hits the open market.

If the player is a Type B free agent and he declines an arbitration offer to sign a big-league contract elsewhere, the club that offered arbitration receives a 1st supplemental round pick in the following Rule IV draft. If the player is a Type A free agent and he declines an arbitration offer to sign a big-league contract elsewhere, the club that offered arbitration receives a 1st supplemental round pick and the club that signs the players’ 1st or 2nd round pick in the following Rule IV draft, depending on where the player's new club is scheduled to pick in the 1st round.

This year thirty five of the players that were rated Type A or Type B by the Elias Sports Bureau were extended arbitration offers. Some assorted observations about the decisions below.

Give me some relief

Only two of the thirty five arbitration offers were accepted: that of Frank Francisco and Jason Frasor, two relief pitchers. Both players were Type A free agents, meaning their new club would have had to part with a draft pick to acquire their services had they declined the offer to sign elsewhere. Frank Francisco provided the Rangers 1.0 fWAR for $3,265,000 in 2010 and since they're flush with cash behind their World Series run, they probably won't regret having Francisco back, even after the raise he'll get through the arbitration proccess. Jason Frasor provided the Blue Jays 0.9 fWAR for $2,650,000 in 2010. While one might argue the Blue Jays would be better served to allocate the $3.5 million or so Frasor will likely receive through the arbitration process elsewhere, it was probably a gamble worth taking. In both instances the player's value on the open market would've taken a hit with a draft pick attached to their price tag, and they probably couldn't do much better on the open market.

The market for relief is flush this year, but Scott Downs, Grant Balfour, and Rafael Soriano will cost a draft pick to sign. That trio, along with the ten Type B free agents that were offered arbitration, declined their arbitration offer.

Pick hogs

The Rays cleaned up, adding 9 potential draft picks by offering arbitration to their potential free agents. Carl Crawford (Type A), Grant Balfour (A), Rafael Soriano (A), Randy Choate (Type B), Brad Hawpe (B), and Chad Qualls (B) all declined their arbitration offers. Joaquin Benoit signed with the Tigers before November 23rd, netting the Rays another draft pick without requiring them to "risk" an arbitration offer, giving them ten potential draft picks as compensation for departing free agents. The Red Sox netted five potential draft picks--two from Adrian Beltre, one from Felipe Lopez, and two from Victor Martinez--as did the Blue Jays--two from Scott Downs, one from John Buck, one from Kevin Gregg, and one from Miguel Olivo. Like Joaquin Benoit, John Buck signed before November 23rd, meaning the Blue Jays didn't have to risk an arbitration offer to acquire the pick.

Taking candy from a baby

On November 4th the Blue Jays acquired Miguel Olivo from the Rockies for cash considerations or a player to be named later. Rather than exercising his $2.5 million option, the Blue Jays elected to buy him out for $500,000. Why would they trade a player to be named later or cash just to pay a player more cash to hit the open market, you ask? Because he was a Type B free agent, and after risking an arbitration offer and seeing Olivo decline, the Blue Jays, not the Rockies, will receive an additional draft pick if Miguel Olivo signs a big-league deal before the Rule IV draft, even though Miguel Olivo has never played for Toronto!  Operating under the assumption that the player to be named later or amount of cash will be inconsequential, the Blue Jays essentially bought a draft pick for $500,000. Was it worth it? You bet.