Tommy Bennett writes for Beyond the Boxscore. Today, he joins us to take a look at the Red Sox and their history with arbitration.

The Red Sox have a strong track record at arbitration. In recent years, they have avoided the process altogether with players like Jon Lester and Dustin Pedroia, both of whom were signed to long-term deals before they became eligible. In dealing with those players that have actually filed for arbitration, however, the Red Sox have managed to limit costs and maintain a surplus of player value.

First, some background.

Baseball’s style of arbitration was, at the time of its inception, a novel type of hearing. Arbitration dates back to the 1972-73 offseason. In 1972, the players had successfully organized their first strike (it lasted less than two weeks). In the wake of their strike, they extracted the arbitration process as a concession from the owners. The system implemented that year is the system that remains for pre-free-agency players.

All players with between three and six years of major league service time, and the 17% of players with between two and three years that have the most service time, are automatically eligible for arbitration. (This year, the cutoff for these so-called “super two” players was two years, 139 days.)

An eligible player must submit to arbitration by informing baseball’s union, the MLBPA, that he intends to proceed with arbitration. He provides MLBPA with a salary figure that he is seeking, which effectively becomes the upper limit on the salary he will receive. Similarly, teams submit a salary number to MLB’s Labor Relations Department, and this number effectively becomes the floor of what the player’s salary will be.

Note that the club’s offer may not be less than 80% of what the player made in the previous year or less than 70% of what they player made two years ago, unless the player had a more than 50% raise through arbitration victory the year before. Pretty arcane, right?

The exchange of salary figures must be completed by mid-January. Once exchanged, arbitration hearings are set, and take place between February 1 and February 20, usually in LA, Tampa/Orlando, or Phoenix (life is tough, right?). The hearings take place in front of an arbitration panel selected by MLB and the MLBPA. The team and player have an equal amount of time to make their case to the panel, although they may not make reference to the financial status of the team.

What makes baseball’s arbitration style unique (and in fact has led to it being known as “baseball-style arbitration”) is that the arbitration panel is limited in its ruling: it may only choose the number offered by the player or the number offered by the club. The arbitrators may not split the difference.

So how does this work in practice?

Teams and players both tend to do their best to avoid going to the arbitration hearing. It can be costly and time-consuming for both sides. The team and player may reach a deal and avoid arbitration at any point in the process described above. In many cases they strike a deal before they even exchange figures.

Of the cases that make it to the figure-exchange step, most of THOSE will settle before reaching the arbitration hearing. Only a small fraction go on to reach a full hearing.

How have the Red Sox done?

I have calculated, with the aid of Cot’s Baseball Contracts, SoxProspects.com, and contemporary news reports archived online, the arbitration outcomes for all eligible players since Theo Epstein became the GM of the Red Sox. I have disregarded long-term deals negotiated after reaching a deal to avoid arbitration (essentially, I have chosen to treat these as separate deals). I have also ignored incentives in the one-year deals.

There have been 24 such cases since the 2002-2003 offseason. Of those, one (Brendan Donnelly in 2008) was non-tendered, which means the Red Sox released him to free agency. 13 reached contracts before exchanging numbers with the team. The remaining 10 reached contracts after numbers were exchanged but before the arbitration hearing.

Notably, the Red Sox have not had an actual arbitration hearing with a player since Theo Epstein took over. Not even one. That also includes free agent arbitration, which is a different but related process.

Now, I should note that arbitration hearings are relatively rare in baseball overall. Before the 2009 season, only three players (Dan Uggla and Shawn Hill, winning, and Dioner Navarro, losing) out of 151 went all the way to arbitration. In 2008, however, eight players out of 178 made it to arbitration (two won, six lost).

But in the seven years that Theo has been the Red Sox’ GM, not one case has made it all the way to arbitration. That suggests efficient bargaining and good business, even if it is not unique among baseball teams.

Are they overpaying just to avoid arbitration?

You may be wondering if the reason why the Red Sox have been so successful at avoiding arbitration is because they accede to the players’ demands. While this might be justifiable in the name of cost certainty, it might not represent the best value. However, it does not appear that this is true of the Red Sox in recent years.

Using the same data as above, I have calculated the percentage of the settlement figure in relation to the figure offered by the club and player to the arbitrators in advance of the hearing.

For example, imagine a player submitted a figure of $2 million, the team submitted a figure of $1 million, and they agreed to a contract of $1.5 million. I calculated where along the zone of disagreement the team and player agreed. In this case, I would take (1.5 – 1)/(2-1) = .5 or 50%. So in this case, the team (obviously) split the difference.

Of the 10 players who actually exchanged numbers, one settled with the club by reaching a long-term deal (Bronson Arroyo in 2006). He was excluded. Here are the remaining players and the percentage of the deal they struck:

Of these nine cases, two signed at exactly the midpoint (Beckett in ’06 and Donnelly in ’07). Two signed well below the midpoint (Pena in ’07 and Snyder in ’08). The remaining five signed between 55 and 63 percent. The average percentage value of the deal struck was 51%, suggesting that the Red Sox have not overpaid in the aggregate.

Here’s one quick final note on incentives. You might think that the player should give the biggest number possible to influence the mid-point, and that teams should give the smallest number possible to do the same. However, remember that the team and player are bargaining in the shadow of arbitration. The possibility of a hearing hangs above their head, and the fact that an inflated (or deflated) figure would probably not be selected at arbitration imposes a check on the numbers exchanged.

The 2010 cases

Going into the 2010 season, the following players are eligible for arbitration (service time, rounded down, in parentheses):

• Manny Delcarmen (3)
• Jonathan Papelbon (4)
• Hideki Okajima (3)
• Ramon Ramirez (3)
• Brian Anderson (3)
• Casey Kotchman (4)
• Jeremy Hermida (4)

However, given the Red Sox prior history, it is unlikely that any of these cases will make it all the way to arbitration. Rather, they will either be non-tendered or sign a deal avoiding arbitration.

Here is the full spreadsheet for those who are interested:

Year	ST	Name	Outcome	Club	Player	Contract	Spectrum
2003	3	Benny Agbayani	Avoided Before		$0.61
2003	3	Lou Merloni	Avoided After	$0.45	$0.63	$0.56	63%
2003	4	Doug Mirabelli	Avoided After	$0.66	$0.91	$0.81	59%
2003	4	Trot Nixon	Avoided Before		$4.00
2004	4	Byung-Hyun Kim	Avoided Before		$3.43
2004	5	Trot Nixon	Avoided Before		$3.00
2004	5	David Ortiz	Avoided After	$5.00	$4.25	$4.59	55%
2004	5	Scott Williamson	Avoided Before		$3.18
2005	2	Bronson Arroyo	Avoided Before		$1.85
2005	4	Mark Bellhorn	Avoided Before		$2.75
2006	2	Coco Crisp	Avoided After	$2.35	$3.05	$2.75	57%
2006	4	Josh Beckett	Avoided After	$3.75	$4.90	$4.33	50%
2006	3	Bronson Arroyo	Avoided After	$2.95	$4.20	Long term
2006	5	Guillermo Mota	Avoided Before		$3.00
2007	4	Brendan Donnelly	Avoided After	$1.15	$1.65	$1.40	50%
2007	4	Wily Mo Pena	Avoided After	$1.73	$2.20	$1.88	32%
2007	3	Kyle Snyder	Avoided Before		$0.54
2008	5	Brendan Donnelly	NT
2008	3	Javier Lopez	Avoided Before		$0.86
2008	4	Kyle Snyder	Avoided After	$0.73	$1.03	$0.84	37%
2008	3	Kevin Youkilis	Avoided After	$3.70	$2.53	$3.00	60%
2009	4	Javier Lopez	Avoided Before		$1.35
2009	3	Jonathan Papelbon	Avoided Before		$6.25
2009	4	Kevin Youkilis	Avoided Before		Long term