At the time salary arbitration was first implemented in 1973, Charlie Finley, a former owner of the Oakland A’s, said: “We’ll be the nation’s biggest assholes if we do this.” Citing Charlie Finley’s disapproval and the massive pay increases of first-year salary arbitration eligible players, many sports writers, such as Maury Brown, the founder and president of the Business of Sports Network, have concluded that “salary arbitration almost exclusively benefits the players.” See Breaking Down How Salary Arbitration Functions in MLB.

In his recent blog entry, Debunking Salary Arbitration Myths – Part 1, Jay Reisinger, a partner at Farrell, Reisinger & Stallings and manager of the firm’s sports law practice, discredited the notion that MLB’s salary arbitration system favors players and hurts owners. Mr. Reisinger revealed that, by focusing on the huge raises of first-year salary arbitration eligible players, that position is misleading. According to Mr. Reisinger, an accurate understanding of the salary arbitration system also acknowledges the equally significant benefits conferred upon clubs.

For instance, clubs exercise a certain amount of control over arbitration eligible players. Clubs can tender or non-tender the player, at their discretion, depending on the player’s expected salary in the arbitration system. If the player’s expected salary in arbitration is higher than his value to the club, the club can non-tender the player and make him a free-agent. If, on the other hand, the player’s expected salary in arbitration is roughly equal or lower than his value to the club, the club can tender the player a contract. If the player is unsatisfied with the offer, his only recourse is to submit his salary to final and binding arbitration. Basically, from a club’s perspective, arbitration is a low risk affair because the club has already determined that the player’s expected salary in arbitration is roughly equal or lower than his value to the club.

Another major benefit discussed by Mr. Reisinger is that clubs are protected. The key criterion in salary arbitration proceedings is the comparative baseball salaries of players “with Major League service not exceeding one annual service group” above that of the player going to arbitration. In essence, the arbitration panel tries to determine where the particular player fits within a very narrow market of players which does not include players who have accrued significant raises through free agency. Clubs, therefore, are shielded from free market forces and their inflationary effect.

Rather than a system that benefits players and hurts owners, Mr. Reisinger sees the arbitration system as a necessary compromise between two parties pursuing divergent interests through collective bargaining. Generally clubs want competitive balance and bargain for a protectionist regime that includes more restrictions on player mobility and player compensation. Players want to increase their earning capacity and bargain for a laissez faire approach. Ultimately, how good or bad the salary arbitration system is depends on your point of view, and on how well you deem the system to be protecting your specific interests as a club owner or a player. As a baseball fan, one can only hope the league and the players union avoid a strike or lockout by reaching an agreement once the current CBA expires.

In order to truly understand the salary arbitration system, it helps to look at its role as part of MLB’s larger monetary structure. Ed Edmonds, the Associate Dean for Library and Information Technology at Notre Dame Law School, explains the impact of salary arbitration on a MLB player’s salary life cycle and, consequently, on a team’s roster in his Marquette Sports Law Review article A Most Interesting Part of Baseball’s Monetary Structure – Salary Arbitration in its Thirty-Fifth Year (Fall 2009 Volume).

As Mr. Edmonds points out, the current CBA divides all players into three groups: 1) players controlled under the reserve clause, 2) players eligible for salary arbitration prior to free agency, and 3) free agents. What sets each group apart is the amount of leverage each group has with respect to their employer or potential employers. Players controlled under the reserve clause have no leverage. They are bound to one team and play for around the league minimum. That player’s salary bears no resemblance to the player’s market value. Mr. Edmonds offers Tim Lincecum as an example. Lincecum received $405,000 in 2008, his first year in the majors (the league minimum was $390,000). After putting up dazzling numbers (18-5 record with a 2.62 ERA and 265 strikeouts in 227 innings pitched), Lincecum only managed to increase his salary to $650,000 in 2009.

Free agents are on the opposite side of the spectrum. Being able to consider multiple offers gives free agents substantial leverage, which they can use to drive up their price tag. To illustrate the effect of free agency status on a player’s salary, Mr. Reisinger compares C.C. Sabathia to Tim Lincecum in his blog entry. Even though Lincecum is statistically similar to Sabathia, Lincecum recently signed a two-year, $23 million contract that will cover his first two arbitration eligible years, meanwhile Sabathia will make $23 million in the 2010 season alone.

Salary arbitration eligible players “occupy the middle group between players with no leverage and those . . . with substantial leverage.” The arbitration process offers them an opportunity to earn a significant raise yet their compensation remains below market value. One example Mr. Edmonds uses is Prince Fielder. In 2007, his second year of Major League service, Fielder was 3rd in the MVP race. Fielder earned salary of $670,000 in 2008. After another outstanding campaign in 2008 and armed with the leverage of salary arbitration, Fielder signed an $18 million, two-year contract prior to the 2009 season.

It’s true, the salary arbitration process usually results in substantial raises for first year eligible players (e.g., Fielder received $6.5 million in 2009 – a 870% raise). However, the substantial raise a player experiences once he is eligible for salary arbitration is a function of the suppressed salaries he received in his first 3 seasons without leverage. In 1973, Charlie Finley and other owners enjoyed considerable restraints on player mobility and player compensation. Then the time to compromise arrived. The current arbitration system is a result of that compromise.

Armando Velasco is a second year law student at Tulane Law School, where he is pursuing a certificate of specialization in sports law and serves as the Chair of the Sports Law Society’s National Baseball Arbitration Competition.

Understanding Major League Baseball’s Salary Arbitration System from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Since free agency began in the 1970′s, the trend for rising contracts has skyrocketed.  In addition, there has been a continuous push towards defining sports as big business.  Just think about the deals we’ve witnessed in this past year.  C.C. Sabathia signed a 7-year, $161 million contract with the New York Yankees, who also opened their new $1.5 billion stadium in the Bronx.  This latter fact wouldn’t be as disheartening, until you remember that the New York taxpayers are picking up the tab during one of the worst recessions in American history.  A year ago we saw the Dolphins give their #1 draft pick Jake Long a 5-year, $57.75 million contract.  A player who had never stepped foot on a pro field became the highest paid offensive linemen in the NFL.  No need for more examples of the huge deals that have already been made amidst this economic crisis.

So where does this bring us?  What’s the state of affairs now?  Both the New York Yankees and the New York Mets overestimated their ability to sell high-priced seats in the newly christened Yankee Stadium and Citi Field.  Keep in mind that some of the seats in the New Yankee Stadium exceed $2,500, so who’s surprised that they aren’t filled for every game?  Both owners have now decided that they will review their ticket prices and possibly make changes.  Likewise, ticket sales are down in many places, and many teams are coming up with new, creative ways to sell seats.  The Detroit Pistons are clearly feeling the wrath of the economy, as they struggled to sell tickets for Friday night’s playoff game against the Cleveland Cavaliers.  Tickets were found on Stubhub for as low as $11, and the team’s front office even sent e-mails to Cavs season ticket holders offering tickets to those who want to make the 4 hour drive.  But the business of sports is not in a complete decline; in fact, it’s becoming increasingly impossible to make a general statement about the effect of this economic downturn on the industry.  Don Garber, MLS commissioner, said that the league’s law firm had canceled its season tickets at Yankee Stadium.  However, the large sports law firm Proskaeur Rose actually upgraded from a 20-game package to a full season ticket package in the new stadium.  Furthermore, while the housing construction industry may be in utter disarray, the Florida Marlins plan for a new $600 million stadium was just approved.

And what about the players that make these games possible?  The week leading up to this past weekend’s NFL draft hasn’t shown us that spending is down.  The Detroit Lions and the agents for Georgia QB Matthew Stafford were in talks all week to reach a deal before the draft.  Stafford was inked to a 6-year $72 million ($47 million guaranteed) which greatly exceeds Jake Long’s contract.  So the money may be getting out of hand, especially considering we are in an economic crisis.  As a future agent, these probably aren’t the words I should be saying, but it’s probably true.  But where do we place the blame?  Jeff MacGregor, senior writer for ESPN.com and ESPN the Magazine, infers that the fans are just as, if not more, responsible than those within the industry:

“Most of the men and women I’ve met over the years in professional sports would gladly go on playing their games for much less than they’re being paid now…Rather it is the market, reflecting the madness of the individuals who constitute it, that determines the relative value of that calling, whether to be a linebacker or golfer or shortstop. The athlete (and the agent and the owner) just operate within the market we allow them to create.”

At least we know that many players will take less money if the economy forces teams to do so, but probably not without a fight.  We have seen previous examples of extremely unselfish players who opted for lower contracts, despite the current trend for ever-increasing contracts.  Before the 2007 NBA season, Tim Duncan took less money so that the Spurs could create a winning team.  So maybe there’s some hope.  At least we can sleep knowing that not all athletes are only in it for the money.  For most great athletes, it’s about the game…they’ve already made enough money.  As fans we should feel lucky that it hasn’t reached the point where the money is the only factor for most players.  Imagine if the USA basketball team had to revert to using college players for the next Olympics competition.  As for sports in general, this industry may be feeling the effects of the economic crisis, but you can count on it returning to its normal form when the economy rebounds.  The Yankees will continue spending, the Marlins will still probably offer two-fer ticket deals in their new stadium, and most fans will watch ESPN waiting to hear about that next big contract with a mixed response of amazement, excitement, and disgust.  Hopefully I will be negotiating it.

“This is the Business We Chose” from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

“There is a growing feeling within the industry that the nation’s economic struggles are going to have a major impact on the decisions of some teams. Some executives and agents believe a lot of teams might shy away from long-term obligations knowing that the disposable income of many of their fans might disappear —— and disposable income is what the baseball industry relies upon. More clubs may be apt to cut payroll or hold their budgets in place, rather than spend, because of the fiscal uncertainty. Some executives and agents talk about the upcoming off-season and increasingly sound as if they are coastal residents preparing to batten down for an economic hurricane.”

When all is said and done, the current economic climate and its effect on professional sports might be the biggest sports story of the year. While the current recession has not affected the New York Yankees who spent considerable money on free agents C.C. Sabathia, A.J. Burnett, and Mark Teixeira, it clearly has influenced the decision of other organizations to sign big name free agents. Take for example Bobby Abreu. Abreu was looking for a contract somewhere in the ballpark of three years at $15 to $16 million per year. Yet Abreu remains unsigned and it appears that he is looking at offers in the range of one to two years at $8 to $10 million per year. Several other big names such as Adam Dunn, Ben Sheets, Orlando Cabrera, Pedro Martinez, Manny Ramirez and Jim Edmonds remain unsigned. Teams are hesitant in the current economic climate to spend millions of dollars on players who are past their prime or injury prone. Even players like Andy Pettitte and Jason Varitek, who initially turned down offers from the Yankees and Red Sox to look for more money appear to have no other options out there. They will be forced to return to their former teams for a lower salary or to retire (Pettitte has already signed).

It will be interesting to see how this story plays out in 2009. A number of free agents may have to take significant pay cuts or sit out the upcoming season. It will also be interesting to see how the economic climate affects attendance figures. While the big market teams such as the Yankees, Red Sox and Dodgers should have no problem selling tickets, will fans in Pittsburgh or Kansas City want to spend their hard earned money to watch mediocre teams?

The Struggling Economy and its Effect on Free-Agent Signings from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

The Yankees, armed with a phenomenal pitching rotation, have spent $243.5 million on Sabathia and Burnett. Yankees GM Brian Cashman has reportedly made these deals after coming to the reality that the Yankees did not make the playoffs for the first time since ’93.

This past season with Toronto, Burnett went 18-10 with a 4.07 ERA.

Yankees Add Another Stripe from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

As of yesterday, baseball executives and MLBPA agents had crawled up into the Ritz and glitz of Las Vegas, but this trip is not to enjoy the blackjack tables, luxurious pool decks, and clubs that stay open all hours of the night.  The agents and executives are in Vegas for one of the most important baseball events of the year, the Winter Meetings.  Everyone will be “vacationing” in Vegas until Thursday, with many deals going down before that point-in-time.  Before the meetings officially kicked off, there was word of signing talks.  Of the twenty-four players offered arbitration prior to the deadline, only two accepted (David Weathers and Darren Oliver).  You better believe that the other twenty-two players and their agents are on hand in Las Vegas, talking to a variety of GMs and front-office execs.

One guy getting everything comped is the head of Boras Corp., Mr. Scott Boras.  Equipped with an army of aids and a plethora of statistical sheets by his side, he is looking to find over fifteen free-agent clients jobs this offseason.  Derek Lowe believes in Mr. Boras.  But the week is not all about Boras and his legion of clients.  If you are an MLBPA certified agent (meaning you have at least one player on a 40-man roster), it is likely that you have headed to Sin City to partake in the festivities.  The man with the most talked about free-agent player, C.C. Sabathia, is Greg Genske of Legacy Sports Group.  Brad Penny and Pat Burrell are among the other free-agents that Genske is shopping over at the Bellagio.  There has also been a lot of talk about two free-agents managed by the same agent.  Raphael Furcal and Fransisco Rodriguez (K-Rod) are represented by Paul Kinzer.  And as I said, this group makes up a very small portion of the players and agents in attendance.

But the Winter Meetings actually have a purpose besides allowing agents and GMs to meet up to discuss potential deals.  In fact, the original purpose was for it to serve as a yearly meeting for baseball execs to discuss the state of the sport amongst themselves.  One topic for concern this year is the slumping state of the economy.  Minor League teams are especially worried about taking a hit in sponsorship dollars.  I hope that we do not see the economy torment Minor League baseball like it has done to some “minor leagues” in other sports.

Anyway, soon enough, Dynasty will have the chance to show face at the Winter Meetings.  I am told by many agent friends that I should be thankful that I do not have to be a participant yet.  Apparently all agents dread this time of the year.  Drink some coffee and get some rest my boys!

GMs, Agents, Welcome To Las Vegas from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

As hard as it is to believe, it’s not all about the money. For some players, staying on their current team, or going to play for their hometown team is worth taking a pay cut (see Darren’s most recent post for a good example). Let’s not forget that regardless where C.C signs, he’s going to sign for a ton of money. I understand $140 million is an extraordinary amount of cash, but $100 million and playing on the team of your choice is a pretty good gig also.

Furthermore, let’s not forget what happened to other big name players that came to New York for the money. Randy Johnson, Carl Pavano, Giambi, A-Rod, Kevin Brown…none of these players had, or in A-Rod’s case have, a smooth, successful duration in pinstripes. New York is a different beast and for some, something they don’t want to deal with.

While I believe it’s way out of bounds for the MLBPA to try and dictate where a player should play, it’s even more egregious that it would suggest money is the end all for the American Pastime.

STAY OUT OF IT!!! from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

If Sabathia’s offer is indeed more money than Santana’s, CC will be the highest paid pitcher ever. Yankees’ chairman Hank Steinbrenner confirmed Friday night that an offer was extended to Sabathia and offers will be on their way for pitchers A.J. Burnett and Derek Lowe.  Burnett already has an offer from Toronto which is for 4-years, $54 million.  After being traded from Cleveland on July 7th, Sabathia went 11-2 with a 1.65 ERA while with the “Brew Crew.”

Yankees Make Offer to CC, Offers Coming For Burnett and Lowe from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Sports Business

• Think you have what it takes to run Darren Rovell’s blog over at CNBC? [Write My Blog Contest--Your Chance To Blog Right Here!]
• Divorced athletes and their child support options [Negotiating The Professional Athlete’s Child Support Obligations].
• Something makes me think endorsers are just going to love this new column…[Endorsement "Fraud" Central].
• Peyton Manning, Derek Jeter, and Dell Computers? [CAA hired to upgrade Dell].

NFL

• They want $100 million collectively for the use of their likeness [More than 2,000 former players sue NFLPA].

NBA

• After all the Redick speculation, he remains a part of the Magic [Magic pick up option on guard Redick].
• No matter where you go overseas, the people sweat Kobe [Dwyane Wade’s jersey drops in popularity in Europe].

MLB

• Michael Brantley was recently acquired by the Cleveland Indians in the C.C. Sabathia trade.  His agent, Josh Kusnnick spoke about the trade and life as an agent in a recent radio interview [Smoke Signals].

Shabbat Shalom: Friday Wrap-Up from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Since getting traded to the Milwaukee Brewers, CC Sabathia has gone 4-0 with a 1.36 ERA and pitched 3 complete games.  The Brewers have been streaking forward to claim the top spot since acquiring Sabathia.  Seems like a great trade for Milwaukee even if it is only a three-month, million dollar rental.

Peters and CC are entitled to $11 million this year from his contract with the Indians that Milwaukee took over not long ago.  He only signed a contract until the end of the 2008 season and will be on the open market again after the Brewers finish the season.  For the Brew Crew, it could be a short rental to help them get to the playoffs for the first time since 1983.

Sabathia has been playing great since his trade and has shown teams why they need to pick him up next year.  Leading Milwaukee to the post season for the first time in a long time would make Brewers fans happy enough, but a great showing in the post season would make CC and his agent a lot more money in next year’s contract.

Johan Santana could be considered an equally important pitcher to his team.  CC’s agent, Brian Peters should be in the position to ask for at least as much as Santana signed for this past season with the Mets ($137.5 million in six years).  CC did win the CY Young last season and is also a great hitter at the pitcher position.  Before he was traded to Milwaukee, he was leading all NL pitchers in RBIs (7), hits (12), batting average (.300, minimum 25 plate appearances), and slugging percentage (.475).  Whatever team is fortunate enough to pick up CC should be thinking about paying him in the range of $140 million plus for about 4/5 years.

The Indians offered him a 4-year extension worth $72 million that he turned down.  He is obviously going to get more than that now; maybe even double after his play the past two years.  Ryan Braun and others are hot right now, and the Brewers look like serious contenders.  Sabathia and Ben Sheets are a solid pitching duo and the team knows how to hit. If Sabathia wins another CY Young and Milwaukee wins the World Series, imagine the hand that Peters could be playing with in front of MLB owners and GMs.

The only thing his agent could be worried about is that he is throwing a lot of pitches lately (3 complete games), and might get tired towards the end of the season. On the other hand, Sabathia is looking very tough right now and will be earning the big bucks no matter what. As I said in the title, who wouldn’t want to be CC Sabathia’s agent at this great time?

Who Wouldn’t Want To Be CC Sabathia’s Agent? from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules