Team Finances and Arbitration

Baseball teams (and most professional sports teams) take measures to keep their financial condition secret. The rules that govern baseball’s arbitration system, defined in Article VI Section F of baseball’s collective bargaining agreement (CBA), are a case in point.

If a case reaches a hearing, the CBA directs the arbitrators on the criteria they can consider when rendering a decision. Since players and teams in negotiations will consider what they expect to get in the event they can’t reach a settlement, these criteria strongly influence negotiated settlements too. There are 6 criteria:

1. The contribution of the player during the previous season

2. The length and consistency of the player’s career

3. The record of the player’s previous compensation

4. The performance of the player’s club during the previous season

5. Any physical or mental defects the player may have

6. Comparable baseball salaries

One item that is specifically ruled out is team financial condition, including the revenue-generating capability of the club. The arbitrators can look at things that will be correlated with team revenue (team performance, attendance, etc.), but they cannot consider revenues per-se. I’ve got a paper in revision that looks at this question and my regressions suggest that team-specific revenues do not affect the final offers, at least for players who file for arbitration (which is a subset of the players who are eligible for arbitration).

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Author: Phil Miller

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