The baseball arbitration process is governed by Article VI(E)(10)(a)–(c) of the 2022–2026 MLB Collective Bargaining Agreement (CBA). In pertinent part, Article VI(E)(10)(a) of the CBA, discussing the criteria for determining compensation for the upcoming season, reads:
(10) Criteria
(a) The criteria will be the quality of the Player’s contributions to his Club during the past season (including but not limited to his overall performance, special qualities of leadership and public appeal), the length and consistency of his career contributions, the record of the Player’s past compensation, comparative baseball salaries [], the existence of any physical or mental defects on the part of the Player, and the recent performance record of the Club including but not limited to its League standing and attendance as an indication of public acceptance[.]
(Emphasis added.) The “quality of the Player’s contributions to his Club during the past season,” commonly referred to as the “platform year,” and the “comparative baseball salaries” hold the most weight in determining an arbitration-eligible player’s salary for the upcoming season. Generally, both parties will provide their analysis of that player’s platform year and offer examples of what they deem as comparable players (“player comps”) who recently went through the arbitration process, essentially pointing to what those player comps were awarded to support their salary offer for the current player. Naturally, depending on the strength of the player’s platform year and the accuracy of the player comps each side utilizes, they can work for and against the player. The “winner” is typically the party who offers the most comprehensive and compelling argument.
The “File and Trial” Method
“File and trial” is an informal term that refers to a specific strategy utilized by the vast majority of MLB clubs today. When a team adopts the file and trial method, the team considers the arbitration salary offer exchange as a hard deadline. What this means is that if the club and player (“the parties”) are unable to reach an agreement by this deadline, the club becomes no longer willing to negotiate one-year deals with that player, and the parties prepare for arbitration. Nevertheless, this stance is not binding, and the parties are still permitted to amend their positions and resume negotiations. However, this does not happen often because conceding will undermine the power and pressure clubs utilize when they identify as a file and trial club. If teams retreat from their initial position too frequently, players will eventually start to call their bluff, and the power of being a file and trial club will lose its intended effect.
Ideally, the parties will reach an agreement before the filing deadline and avoid arbitration. This happens the majority of the time, but there are plenty of instances where the parties find themselves unsuccessful in reaching an agreement prior to the deadline, therefore proceeding to arbitration.
The Salary Arbitration Hearing: How It Works
In a typical baseball arbitration hearing, the parties submit their proposed final offers to a panel of arbitrators. Each represented by counsel, the parties present their case before the panel and advocate for why their submitted salary figure is appropriate for that player. Analogous to oral arguments in the litigation setting, each party delivers an opening statement, followed by rebuttals. The parties’ proposed salaries create an artificial midpoint used as the foundation for determining which party prevails. The further the offer is from what the market reasonably dictates, the higher or lower the midpoint will likely be as a result.
For example, let’s say Player A submits a rather ambitious proposal of $16 million, while Team B offers what is objectively a more reasonable proposal of $10 million. This creates a midpoint of $13 million, and that midpoint becomes the locus for the panel’s consideration. Player A will assert that he is, at a minimum, worth $1 more than $13 million, and Team B will assert that he is, at most, worth $1 below $13 million. Realistically, the panel does not apply quite this much scrutiny, but it illustrates the point: Make sure you file a number that does not overly inflate or reduce the midpoint because the party who drastically strays from what the market reasonably dictates for that player has a greater chance of being disadvantaged by the midpoint created.
If the comparable player market for Player A suggests a range anywhere from $9 million to $14 million, Player A is generally better off filing a number closer to the average of the upper and lower bounds rather than further away, which likely lowers the midpoint and creates a narrower gap between the filed salaries. With a lower midpoint, the player ideally increases his likelihood of prevailing. By contrast, with an elevated midpoint, it becomes more challenging for a player to demonstrate why he is worth a salary above that midpoint, thus placing the club at an advantage entering the arbitration hearing.
At the close of case presentations, the panel will determine which side of the midpoint they believe the player’s salary appropriately falls on. However, the panel will choose only one number; they do not award a salary in between each party’s proposal. The panel does not “split the baby.” Accordingly, if a player successfully convinces the panel that he is worth more than the midpoint, he will be awarded the full salary of the proposal submitted, usually a generous amount above the midpoint. Alternatively, if the panel determines the appropriate salary for that player to fall below the midpoint, the player will be awarded the club’s proposal, which is often considerably below the midpoint.
Illustrations from the “Field”
Vladimir Guerrero Jr.
In Toronto Blue Jays slugger Vladimir Guerrero Jr.’s (“Vlad”) arbitration hearing, Vlad filed for $19.9 million, while the Blue Jays offered $18.05 million (creating a midpoint of $18.975 million). Vlad ultimately prevailed, winning a 2024 salary of $19.9 million and making history as the highest salary awarded from a salary arbitration hearing. Regardless of whether the panel actually believed that Vlad was worth that much, they were at least convinced he was worth above the $18.975 million midpoint.
Corbin Burnes
Conversely, looking at the 2023 arbitration case of ace right-hander Corbin Burnes of the Milwaukee Brewers, the club prevailed. Burnes filed for $10.75 million, and the Brewers filed for $10.01 million, creating a midpoint of $10.38 million. After Burnes and the Brewers presented their cases, the panel was not convinced that Burnes’s salary landed above the midpoint. Accordingly, Burnes was awarded $10.01 million for the upcoming season.
Strengths of Baseball Arbitration
Increased Chances for Reasonable Proposals
The driving idea behind baseball arbitration is that it should incentivize both parties to submit a more reasonable and realistic proposal, as opposed to “lowballing” or exaggerating their offer. There is no middle ground. The panel must pick only one number. Accordingly, the parties submitting offers are encouraged to submit a carefully measured proposal, conscious of the risk associated with the panel selecting the opposing party’s offer.
Greater Likelihood of Settlement
For the approximately 20-year period from 1974 to 1993, only 9 percent of eligible players proceeded to arbitrate their salaries at a hearing. In 2024, this percentage remained low, roughly around 20 percent—the increase likely equated to inflated player salaries and increased bargaining power of players resulting in the modern era. This speaks to the success of the baseball arbitration process. Neither party necessarily desires to resort to arbitration, similar to litigation where parties most often would prefer to settle prior to trial. By offering a mechanism to reach an agreement before the more formal process of arbitration, the chances of settlement drastically increase.
Having a True “Winner”
Another benefit of baseball arbitration is that it provides the most convincing party with a desired result. Were the arbitrator to simply pick a salary number in the middle of those offered by the parties, both parties may walk away dissatisfied. Sometimes, the middle ground “solution” helps no one. By selecting only one of the offers and refusing to select a salary figure in between, the process ensures that at least one party walks away with true satisfaction. There is one true “winner.”
Weaknesses of Baseball Arbitration
Unpredictability
While baseball arbitration offers many favorable benefits, like most remedies, it is not absent of fault. As briefly alluded to when referencing how parties in the MLB test their fate when deciding to proceed with an arbitration hearing, by doing so, they invite elements of unpredictability into the outcome. Once pre-arbitration negotiations fail, the power is placed solely in the hands of the panel. Despite the most well-crafted argument, ultimately, the arbitration panel decides the final outcome. While the panel may be familiar with the MLB and some of its players, they are typically not as well-acquainted with the player’s specific performance attributes as the team or player representative is. The panel only can consider what they are provided during the hearing, which naturally welcomes tinges of unpredictability in the outcome when compared to how the average, more engaged MLB fan would likely decide.
Lack of a Written Opinion
In the MLB salary arbitration process, arbitrators are constrained to a 24-hour window in reaching a decision. Concluding the panel’s final decision, no written opinion is rendered. Consequently, no analytical precedent is created—at least not one that is public, like a published judicial opinion. Parties are left to speculate as to why and how the panel reached the decision they did.
Deterioration of Relationship with Player
One major incentive for reaching an agreement by filing day and avoiding arbitration is preserving the relationship with the player. As previously discussed, in a salary arbitration hearing, the player presents his case for why he is worth $X. Conversely, the club will present their case for why the player is valuable, just not that valuable, and is therefore worth $Y. As one might imagine, this can be a tenuous line to navigate, especially from a club’s perspective. Ideally, the club illustrates why their salary figure is equitable and proper without insulting or belittling the player.
There are times when clubs execute this craft successfully and other instances where players leave the arbitration proceeding feeling dejected, even resentful toward the club. Baseball is very much a mental game. If a player is left ruminating on the criticisms from the club after an arbitration hearing, that player’s on-field performance can suffer tremendously. Moreover, regardless of whether the club “wins” the arbitration hearing, they ultimately lose if their player’s on-field production falters on account of being mentally rattled from exposure to the club’s unfiltered perceptions.
Derek Jeter
As one of the most distinguished and renowned shortstops once elucidated following his arbitration hearing, “I wouldn’t say it was ugly, but nobody wants to sit here and be told how bad you are.” While baseball is certainly a game, the MLB is still very much a business. This notion is perhaps best illustrated during the salary arbitration process. The “nice guy” goes away, and the teeth come out. The club is there for one reason and one reason only: to spend as little money as reasonably prudent, considering what they deem as the player’s fair market value. As Jeter additionally provided, “You have to look at it as a business. You can’t sit around and dwell on it.”
Josh Hader
Josh Hader, one of the prominent closing pitchers in today’s game, lost in a rather nasty arbitration proceeding back in 2019. Hader filed for $6.4 million, and the Milwaukee Brewers offered $4.1 million (creating a midpoint of $5.25 million). During the season, the Brewers manipulated his usage on the mound, depriving him of save opportunities, on which the arbitration process places a remarkable value for relief pitchers. During the hearing, the Brewers pointed to Hader’s lack of saves accrued during the season as to why they felt he was worth below the midpoint.
The relationship soured as a result, and Hader did not shy in voicing his sentiments, stating, “When I was told to my face that [multiple innings] are not worth anything, it’s about saves . . . that’s where I was like, I’m not gonna [sic] blow my arm out if you’re not gonna [sic] invest in me.” Not only did Hader express his frustrations verbally, but he also began to limit his usage on the mound in retaliation to what he felt was an unfair relationship between him and the club.
Baseball Arbitration, or FOA, in Other Settings
As we have alluded to earlier, baseball arbitration (or FOA) is not solely unique to the MLB. This ADR is also utilized in various contexts outside of determining MLB player salaries, particularly in scenarios where a swift and conclusive resolution is desired. Commonly, the scenarios best suited for FOA involve disputes regarding pricing/valuation or where the parties are seeking only monetary relief. However, nonmonetary awards along the lines of specific performance and declaratory or injunctive relief are also good candidates. Just to name a few, FOA is employed in other contexts, such as construction, corporate disputes, employment, tort litigation, education, and even divorces.
Tort Litigation
“Mass tort litigation places significant burdens on the judicial system as well as the litigants in terms of cost, duplication of effort, and [the] potential for inconsistent proceedings.” For instances where there is minimal or no dispute regarding liability, but the parties disagree about proper damages, FOA serves as an efficient and less costly remedy compared to litigation. If the sole or primary issue is the amount in damages a party is due, FOA is a perfect candidate for preserving the courts’ time and the parties’ money.
Construction Industry
Analogous to its operation in tort litigation, FOA works best in the construction industry when the dispute is between two parties and is reduced to competing claims for payment. Many of the disputes that arise in this industry are ideal suitors for FOA, particularly due to their time-sensitive nature and the elevated consequences that may result without swift resolution. For example, in a disagreement between a general contractor and an owner concerning the alleged nonpayment owed from change orders, the general contractor may be handicapped in facilitating the business until some sort of resolution is achieved. Additionally, the owner does not want to be sued. If the general contractor sets FOA as the precedent for handling disagreements in payment amounts, the parties are compelled to appropriately weigh the value of the services, which incentivizes more level-headed approaches to resolution. By each party appropriately weighing the amount of hassle they are willing to endure, the likeliness of a more pragmatic proposal increases, which in turn will encourage settlement.
Divorce Proceedings
As apparent to anyone who watches the news or stays engaged in current societal trends, the divorce rates in America are alarmingly high, one occurring approximately every 13 seconds—amounting to 6,646 divorces per day, 46,523 divorces per week, and 2,419,196 divorces per year. Like many negotiations, divorce proceedings operate by both parties submitting offers—frequently manifesting more as demands—with the often inauspicious expectation of eventually reaching some semblance of compromise. Furthermore, like MLB salary arbitration, the more extreme the parties’ initial stipulations are, the more lengthy and exhaustive the process becomes. While mediation and more conventional arbitration approaches are already being utilized in divorce proceedings, introducing the FOA framework has the ability to prevent excessive temporal and financial burdens, as well as incentivize the likely disgruntled parties to consider placing their bitterness aside and embrace a more rational approach.
Will Baseball Arbitration Reach Collegiate Athletics?
In the past decade, and especially within the past year, collegiate athletics have been in the middle of myriad disputes and legal challenges regarding athlete compensation. Prior to the introduction of name, image, and likeness in collegiate athletics, college athletes were restricted from receiving any form of monetary compensation beyond the scope of their scholarships. However, compensation opportunities have evolved rather drastically within the past year, and college athletes can now legally profit from endorsements, sponsorships, commercial activities, and, in some cases, even direct compensation. Naturally, this extreme pivot has led to a complicated net of regulations and disputes over equitable compensation, promoting a need for fair and robust mechanisms to resolve these disputes.
Baseball Arbitration for College Athlete “Employees”
Just within the past year, two prominent cases have suggested an unprecedented reclassification for college athletes as employees of their universities: Johnson v. NCAA and Trustees of Dartmouth College. Both cases held that college athletes could be deemed employees of their private universities, provided certain requirements were met—Johnson under the Fair Labor Standards Act and Dartmouth under the National Labor Relations Act. As this develops, doors will open for considering the best methods for determining the amount and means for which these athlete-employees should be compensated. Naturally, this invites opportunities for negotiation strategies and creative mechanisms for determining just compensation.
For the major players in this space—the Power Four football schools—universities and/or the National Collegiate Athletic Association (NCAA) will have to establish a practical and consistent structure for determining athlete compensation. Should the long snapper be compensated the same as the starting quarterback? Should an athlete receive a “raise” for the following season after an unprecedentedly remarkable year of production on the field? These are just some of the inquiries that arise as this reclassification continues to develop. Not to mention, many of these athletes, especially with respect to football and basketball, are enrolled in school for only two to three years. For this reason, it is likely advantageous for both parties to negotiate salaries on a year-to-year basis, as opposed to engaging in multiyear deals. Enter the solution of baseball arbitration.
Conclusion
As featured by the MLB’s usage of FOA, there lies an abundance of value in this nuanced form of ADR beyond mere functionality and purpose. Risk aversion is certainly a driving force behind this process, which is a foundational component in many areas of legal practice. All things considered, perhaps the most germane takeaway is that it incentivizes parties to act with prudence and integrity when submitting offers, promoting a more efficient and less burdensome process. And ideally, the FOA framework will drive parties to reach an agreement at some stage in the process before even having to proceed with arbitration. Legal professionals—especially those operating in the dispute resolution areas—can incorporate various elements from FOA to assist their clients in achieving a more favorable outcome without having to engage in time-draining and financially burdensome processes akin to litigation.