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May|June 2003
Lowball By David Newman
Political Capital By Brian Montopoli
Justice, Interrupted By Siddhartha Deb
Access Malibu By Benjamin Nugent
A Tree Grows in the Hamptons By Kim Lemon


By David Newman

SEATTLE MARINERS SOUTHPAW JOHN HALAMA had the kind of season last year that makes baseball teams want to keep a player around. Shuttling between the starting rotation and the bullpen, he compiled a 3.56 ERA and helped to round out the fifth-best pitching staff in the American League. But at season's end, the Mariners let the 30-year-old pitcher go elsewhere rather than renewing his contract. According to The Seattle Post-Intelligencer, the Mariners' management decided that a contract offer—which would have entailed submitting Halama to arbitration—was too costly for a franchise already preparing to do likewise with its ace, Freddy Garcia, and its starting shortstop, Carlos Guillen. Seattle promoted a rookie instead.

Not surprisingly, Halama landed on his feet. In January, he signed with the Oakland Athletics and became the newest addition to the talent stable of G.M. Billy Beane. But for Seattle fans and those elsewhere, the episode was the latest indictment of baseball's arbitration process, which also brought about the departure of Robert Fick, the lone all-star representative of the Detroit Tigers, and Jose Cruz, a power-hitting center fielder from the Toronto Blue Jays. Once the crowning achievement of the players union, arbitration now brings out the worst of baseball economics. Its idiosyncratic rules result in some players getting large raises and others, like Halama, being forced out unnecessarily. The owners never wanted arbitration, but in the past few years it has given them an easy way to make their dubious claim that players' greed is ruining baseball. Players, meanwhile, must be concerned with the way arbitration is deepening the trend toward a structure in which superstars are richly rewarded and everyone else gets salaries that are paltry by comparison.

AT THE END OF LAST SEASON, TWO-THIRDS OF THE 895 PLAYERS on the rosters of major league teams were in an odd legal category unique to Major League Baseball. Franchise players like the Mariners' Garcia were not permitted to file for free agency even though they didn't have a contract. Only if their current team decided to pass on offering them a new deal—unthinkable for a star like Garcia—could they sign with another club.

Garcia, at least, was eligible for arbitration. For less experienced players, teams are permitted to offer contracts that can't be refused, leading to some truly one-sided affairs. Consider Alfonso Soriano of the Yankees, who last year turned in one of the best seasons ever recorded by a second baseman: 39 homers, 41 stolen bases, and a .300 average. The team rewarded Soriano at season's end with a 2003 contract worth $800,000. Though the Yankees billed the contract as the largest one-year offer ever made to a second-year player, Soriano could be forgiven for not feeling pampered. The deal totaled slightly less than the amount his all-star colleague at shortstop, Alex Rodriguez, makes in a week's worth of work—and wasn't within shouting distance of the average major league salary of $2.3 million. Barred from signing with another team, Soriano had no choice but to accept the deal.

Soriano shares the fate of nearly all of the 365 players with less than three years worth of service in the major leagues. They have no control over the terms of their employment and are stuck with any contract from their team that meets the major league minimum salary of $300,000.

This was once the way it worked for all major league ballplayers. Between 1903 and 1975, baseball teams abided by a "reserve clause" system insisted on by the owners. Teams were barred from bidding for one another's players—meaning each team enjoyed the exclusive right to re-sign their own players. Those who refused to return to their teams were blacklisted from baseball.

IF THIS SYSTEM HAD BEEN DEVISED BY AIRLINES to manage the nation's pilots, it would have been an obvious violation of the Sherman Antitrust Act, instituted in 1890 to forbid collusion in the marketplace. But owing to a controversial Supreme Court ruling in 1922, baseball, alone among American professional sports, enjoyed immunity from antitrust prosecution. Writing for his fellow justices, Oliver Wendell Holmes Jr. dismissed the notion that baseball operates like a national business, saying that it involved "personal effort" but not "production" or "commerce." When the issue of baseball's exemption was revisited by the court in 1953 for a minor leaguer named George Toolson and again in 1972 over the status of the outfielder Curt Flood, the justices took issue with Holmes's logic but continued to uphold the exemption. Considering the time that had passed since the 1922 decision, they found that only Congress could change baseball's status—and it hadn't.

Ultimately, baseball unions were able to navigate a course to higher salaries without help from the courts. A player strike in 1972 led owners to grant players the right to bring grievances to a three-person panel of arbitrators, two of whom were in effect named by the owners. In 1975, two pitchers, Andy Messersmith of the Los Angeles Dodgers and Dave McNally of the Montreal Expos, challenged the right of their respective teams to renew their contracts year after year. In a 2-1 decision, Peter Seitz, an arbitrator appointed by the owners, voted to limit the reserve clause to a single one-year renewal. Though promptly fired, Seitz had gutted the reserve system that bound players to teams. He set the stage for the modern era of players unions in baseball.

In 1976, the players union used the end of the reserve clause and the threat of a strike to lay the groundwork for a new, three-tiered salary system. Under the agreement, since refined, players with fewer than two seasons worth of major league experience remained, as before, the property of their club, to be offered contracts under terms dictated by the team. Players with more than six years of service were eligible to file for free agency and reap the benefits of the open market. And players in between were eligible for the quirky institution known as arbitration.

ARBITRATION IS AN AWKWARD COMPROMISE between the reserve system and outright free agency. It gives teams a way to retain their young players but at a greater cost than a league minimum salary. A team that offers one of its players arbitration is committed to paying the player whatever salary a third-party arbitrator selects. Arbitrators, in turn, can only base their decision on the salaries of players with equivalent years of service.

On a specified date in January, the player and his team make a one-time exchange of proposed salaries. Assuming a compromise isn't worked out before the hearing, the arbitrator must choose either the salary submitted by the player or that of the owner; he can't split the difference. It's a process that invites bad feelings, but encourages moderation.

The decision rests chiefly on the player's on-field performance, but allows for other considerations. It is legitimate to factor in a player's "mental makeup," but not the needs of the team. Players can offer evidence they've brought fans to the ballpark, but are forbidden from discussing their team's wealth. All evidence is presented at the hearing. Players who attend frequently find themselves miffed by the ordeal.

To avoid this kind of confrontation, owners and players often try to settle their disputes before the hearing. In the past two years, only 12 players went to arbitration hearings at all. Still, in instances where a pre-arbitration settlement is reached, arbitration is nearly always used as leverage to negotiate a deal.

IN 1980, ARBITRATION WAS BROADENED TO INCLUDE ANOTHER CATEGORY of players as well. Teams with veterans poised to become free agents—those with over six years in service and with expiring contracts—had to offer these players the chance at arbitration (a way of demonstrating their importance to the team) in order to be compensated with draft picks should the players sign elsewhere. When it came to the marquee free agents, offers tended to be perfunctory; most players felt that a chance to sign a long-term deal on the open market was more attractive than a one-year arbitration signing. But two years ago, with the market for big salaries in free fall, things started to change.

After the 2001 season, Barry Bonds, a free-agent-to-be, stunned the Giants when he accepted their offer of arbitration rather than go on the open market. Worried about the price tag that an arbitrator might place on Bonds's 73-home-run season, the Giants avoided a hearing by giving the 37-year-old outfielder a five-year deal no one else would have given him. Last year, the four-time Cy Young Award winner Greg Maddux pulled a similar surprise on the Atlanta Braves, who were forced to give away pitcher Kevin Millwood to the rival Philadelphia Phillies to accommodate the unexpected increase in Maddux's salary.

Star players are accepting arbitration because arbitration settlements don't seem to have been affected by the deflation that has swept across baseball. The New York Mets chose not to offer arbitration to Edgardo Alfonzo, their free-agent third baseman, forfeiting their chance to receive draft picks as compensation when another team signed him. According to the team's general manager, the Mets felt that arbitration would pay Alfonzo a higher salary than the market, and the team preferred to look elsewhere for a player who could meet its third-base needs.

For well-heeled teams like the Mets, giving up the chance to be compensated with draft picks is a sacrifice they can afford. But for smaller-market teams that rely on the draft, it's another matter. In March, the owner of the Oakland Athletics announced that his team would not be able to re-sign shortstop Miguel Tejada, last year's MVP, after this season. It remains to be seen whether Oakland will risk offering Tejada arbitration.

The lack of parity among teams is too big a problem to be blamed on arbitration alone. But arbitration can be faulted for failing to provide an adequate safety net for those most in need of protection—the less experienced players, who constitute an overwhelming majority of all ballplayers. When the market is high, as it was in the late 1990s, owners use arbitration to retain their fringe players at modest salaries. When the market falls, as it did the past two seasons, they dump their journeyman stalwarts, flooding the market with John Halamas. In taking the fate of players out of the hands of the marketplace, baseball is trusting itself to keep the rules fair for its poorest players. Anyone familiar with the sport's history knows why that's a bad idea.

David Newman is an assistant editor of Legal Affairs.

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