By: Caitlen Moser, Junior Staffer

In December 2023, two-way baseball player Shohei Ohtani and the Los Angeles Dodgers agreed to the largest player contract in sports history, with Ohtani set to earn seven hundred million dollars over the next ten years. Unique in the modern era, Ohtani is both one of the best pitchers and one of the best hitters in the game. This new contract almost doubles Ohtani’s earnings from his first Major League Baseball (“MLB”) contract, a six-year rookie contract with the Los Angeles Angels. Even though he received two unanimous Most Valuable Player (“MVP”) awards while on the Angels, Ohtani could not negotiate this deal until the completion of his rookie MLB contract at the age of twenty-nine due to the unique structure of rookie MLB contracts and salary arbitration.

While National Basketball Association (“NBA”) rookies are around twenty-two years old and National Football League (“NFL”) rookies are about twenty-three years old, the average rookie in the MLB is twenty-four to twenty-five years old. Further, while NBA first-round rookie contracts last for two to four years and NFL rookie contracts last for three to five years, MLB rookies remain under team control during their first six years of service. In the MLB, a player earns a year of service time by remaining on a club’s active roster or injured reserve for one hundred seventy-two days out of the one hundred eighty-seven days of the baseball season. After six years, the player can become eligible for free agency. This means baseball players remain under rookie contracts until they are older than athletes competing in other sports.

Given the older age of MLB rookies and the longer length of team control, the salary arbitration process, approved during the 1973-1974 offseason, allows athletes and clubs to negotiate earnings during players’ first six years of service. The arbitration process has remained the same since its approval, with only minor changes to player eligibility to engage in arbitration. While players typically enter into negotiations to increase their salary, clubs can also decrease salaries by no greater than twenty percent.

During the first three years of a rookie’s contract, the club usually pays the player near the league minimum, set at seven hundred forty-thousand dollars for the upcoming 2024 season. After three years and until their sixth year, players become eligible to negotiate their salary. From 1973 to 1985, these negotiations began after the completion of players’ second season; however, in 1985 the MLB increased the requirement to three years. To loosen the 1985 restrictions, in 1991 the MLB began to allow players within the top twenty-two percent of playing time, known as Super Twos, to negotiate after their second season.

Nevertheless, these eligibility requirements have historically hurt good players. Before the 2022 season, MLB clubs frequently manipulated service time, keeping top prospects in the minor league for the first two and a half weeks of their rookie seasons to prevent players from earning a year of service. By preventing athletes from playing one hundred seventy-two days of their rookie season, clubs could essentially keep the players on rookie contracts for a seventh year. The newest MLB Collective Bargaining Agreement (“CBA”), effective March 10, 2022, attempted to decrease manipulation by requiring clubs to reward rookies with a year of service, regardless of their days of service, if they win or finish second in Rookie of the Year (“ROY”) voting. Further, clubs receive an extra first-round draft pick if they promote a rookie on opening day who finishes in the top three in ROY voting or the top five in MVP and Cy Young voting. While the CBA disincentivizes manipulation, clubs may still use manipulation or other tactics to delay salary arbitration.

After two to three years of service time, players negotiate with their clubs to increase or decrease their pay based on their performance and the salaries of comparable players. Most players settle before arbitration with fewer than twenty percent of arbitration-eligible players passing the mid-January arbitration deadline last year. Nevertheless, if the club and player cannot agree on a salary by the mid-January deadline, each party must exchange a figure for expected pay for the upcoming season.

Clubs take two approaches after exchanging figures: settlement and file-and-go. After the arbitration deadline, but before going before a panel, clubs and players can still settle. For example, last year, four players passed the January deadline but settled before they had to appear before a panel. However, under the more popular approach, file-and-go, or file-and-trial, clubs refuse to negotiate after the parties exchange figures unless filing an extension. This leads to players requesting lower amounts to give themselves a greater chance of winning in front of an arbitration panel.

In recent years, many players have expressed frustration regarding salary arbitration. The process is often contentious, with clubs arguing that extremely valuable players should earn less than players believe they deserve.

Caitlen Moser, Junior Staffer

If the parties do not agree on a figure by a hearing date set for February, a panel of three arbitrators hears both sides. Each side has sixty minutes to present its arguments and thirty minutes for a rebuttal. The panel then chooses either the club’s figure or the player’s figure, but not a number in between. If the panel believes the player proved he is worth more than the midpoint between the player’s figure and the club’s figure, the panel will vote in favor of the player. Meanwhile, if the panel believes the player is worth less than the midpoint, it will vote in favor of the club. Once players are eligible for arbitration, unless their contracts state otherwise, they remain eligible for arbitration until the end of their sixth season, after which they are eligible for free agency.

In recent years, many players have expressed frustration regarding salary arbitration. The process is often contentious, with clubs arguing that extremely valuable players should earn less than players believe they deserve. Last year, only a third of players won their arbitration cases, adding tension to the process. Nevertheless, most players want to keep salary arbitration, as it empowers them to bargain for higher pay. Players worry that eliminating arbitration would impair their earnings and negotiation power long-term. While the process can be contentious, the players’ union has repeatedly rejected alternative proposals set forth by the MLB. For now, players must put their feelings aside and engage in difficult negotiations to earn the money they believe they deserve.