Tuesday, November 17, 2009

Arbitration For Damon?

Good morning Fackers. We're more than halfway through November. The free agency signing period opens in full this Friday. However, since the deadline for teams to offer their own free agents arbitration isn't until December 1st, it's unlikely that we'll see any signings before then. Teams that lose free agents prior to the arbitration deadline are automatically entitled to the appropriate draft pick compensation.

We may see a few unclassified free agents sign since they carry no compensation, or a few Type B free agents sign since the signing team does not surrender a draft pick of their own. Generally speaking though, it's the Type A free agents that set the market, and since draft pick compensation for a Type A free agent requires the signing team to surrender their first round draft pick (or second round pick for the teams with the top fifteen picks), it's unlikely that we'll see any Type A's sign - and therefore unlikely that we'll see the market set - until after December 1st.

In baseball's changing economic landscape, extending an arbitration offer isn't the no-brainer it once was. As the U.S. economy nosedived last fall, so too did the market for free agents. The Yankees rightly decided not extend arbitration offers to the likes of Jason Giambi, Bobby Abreu, and even Andy Pettitte, as they stood to earn more in arbitration than they would on the open market. In a similar vein, this fall, baseball insiders - notably Buster Olney - are predicting widespread non-tendering of arbitration eligible players whose likely arbitration raises exceed their value to their club. Such situations have already precipitated the trades of J.J. Hardy by the Brewers and Jeremy Hermida by the Marlins this off-season.

As far as the Yankees are concerned, they have three arbitration decisions to make on their own free agents this year: Type B free agents Xavier Nady and Andy Pettitte, and Type A free agent Johnny Damon.

While Andy Pettitte is almost assured to return and Xavier Nady offers a high risk, high reward proposition at a reasonable price tag, Johnny Damon presents the most interesting case of the three. While Damon has stated his desire to return to the Yankees since early in the season, there have also been rumblings of his wanting a multiyear contract and not affording the Yankees a "hometown discount". How much of that is posturing by Damon and agent Scott Boras remains to be seen.

Ideally, the Yankees would want to sign Damon for a single year, maybe two, at a salary comparable to the two year, $19M extension Bobby Abreu signed with the Angels earlier this month. However, Damon is coming off a outstanding season. There are teams out there with need (Giants) a player like Damon and GM's without the acumen (Brian Sabean) who might offer Damon what he wants both in terms of years and dollars.

By no means should the Yankees cave to such demands on the part of Damon. However, without resigning Damon on their terms, the Yankees are left with a series of less favorable options: play some combination of Cabrera/Gardner/Jackson in LF/CF, make a potentially costly trade for Curtis Granderson or another outfielder, or pursue a big ticket free agent such as Jason Bay or Matt Holiday, both of whom would require a major commitment in terms of both dollars and years.

Thus, it might be a calculated risk for the Yankees to indeed offer arbitration to Damon. While this would be a departure from the tact they took with Abreu last off-season, the Yankees have a need for Damon, whereas last year Abreu would have been a superfluous and expensive part in addition to Damon, Nady, Swisher, and Matsui. Worst case scenario, Damon would accept. This would ensure him a raise on the $13M he made last year, likely leaving him in the neighborhood of $15M-$16M on a one year deal.

This would certainly be more than Damon could get on the open market and likely more than he is worth - but not by much. Fangraphs.com places Damon's value at $13.6M this past season and $16.4M in 2008. Offering him arbitration might force them to pay a small premium for his services, but it's a premium the Yankees could likely afford to absorb. Further, it would assure that they keep Damon's services for a time frame of their choosing, and would give them the added safety net of an additional first round and supplemental round pick should Damon find his multiyear deal elsewhere.

So what do you think? Should the Yankees offer arbitration to Johnny Damon?


  1. independent of the economy, wouldn't aging players with big contracts always stand to make more from arbitration than they would on the open market? Giambi made $21M in 2008, and even in the best of times he would never have gotten anything close to that. Even if the economy is better than it ever was at the end of the 2014 season, I would be stunned if the Jays offered arbitration to Vernon Wells.

    That said, I think you do offer arbitration to Damon. If he walks, you get type A compensation (which is how they landed Hughes, Kennedy, and Chamberlain in recent years) and go after Mike Cameron, who offers a good bat and a much better glove than Damon's. If he accepts, you get one more year of Johnny Damon which is hardly the end of the world.

    They also don't want to lock up left field long term. No one wants to talk about it yet, but I can't see Derek Jeter landing anywhere else once he can't play short anymore (and this year's defensive rennaissance notwithstanding, that will happen someday)

  2. I think that in most cases aging players would stand to make more via arbitration. Giambi and Wells are outlier cases I think though, as their one year arbitration figure would exceed the value of a potential multi-year deal on the open market, which neither had/has any chance of getting anyway.

    Damon is a different case. Like Abreu last year, he has value left - but his arbitration figure likely exceeds his fair market value.

    Damon would assuredly get more in arbitration than on the open market. But, on the open market he may be able to win himself say a three year deal worth $25-30M. So does he roll the dice, take the one year pay day, and gamble that he can put up the numbers to make the extra $10-15M over the next two years or does he take the security of one last multi-year deal and a fairly sizeable payday to close out his career?

    I'd lean towards offering him arbitration. Fangraphs pegs him at an AAV of $15M over the last two years, which is about what he'd win in arbitration. I'd take the risk that he can replicate something close to that value in 2010, and pay the premium over fair market value to ensure that 1). they keep him for a timetable of their choosing rather than 2-3 years 2). they're not forced to wade into a free agent OF/DH pool that isn't particularly appealing to their current needs or make a costly trade, 3). they don't have to play one of their young CFers in LF and 4). they ensure high quality draft pick compensation if he leaves.

  3. Another thing that clubs should be considering at this point is frontloading the contracts of players in their 30's if at all possible. As steroid use has declined, we are beginning to see more natural decline phases and thus player's value's decreasing more predictably as they age.

    All things being equal, clubs should try to appropriate the highest AAVs in the contract where the highest value is likely to be. As an offshoot, players would be taking a lower and more reasonable salary into potential arbitration hearings and clubs would be more likely to offer it to them and end up with draft picks if they decline.

  4. Jay - Don't you think player's agents realize that this would have a negative effect on what they are likely to get in their arbitration hearings and try to avoid those kinds of deals? The one example of a contract that goes down in value over the term is A-Rod's and I highly doubt he's going to arbitration after it's over. (And if he does, he really shouldn't be concerned about a couple million bucks after having made over a half of a billion already).

  5. Fair point, Steve. I'm sure most agents are wary of that prospect. It's a zero sum game and the more likely a player is to decline arbitration, not only are they going to make less if they take it, they will be less appealing to other teams if they are classified as Type-A free agents.

    Perhaps teams could offer incentives in the final year(s) of the deal that reward performance above expectations with a high salary (perhaps higher than previous years) but don't affect the number that's taken to arbitration. That would seem to be fair to both sides.

  6. Jay -

    I think such incentives or performance bonuses are taken into account. For example, if the Yankees go to arbitration with Pettitte before next season his arbitration figure will be based on his final 2009 bonus included salary of $10 or $10.5 million, whichever it was, not his base salary of $5M.

    In the A-Rod example I wonder if his "historic achievement" bonuses would figure into his arbitration number - but I doubt will ever find out. I highly doubt he signs another contract beyond this one.

    The front loaded contract proposal is interesting one. Steve points out some potential flaws in it, but it's still an interesting proposition for both sides. Players may be more inclined to take a front loaded contract if it offers greater total value or an additional year as it's guaranteed money in the bank - and who knows when a career ending injury or general ineffectiveness will strike. Plus, as Jay mentions, it may prevent players from pricing themselves out of a job at the conclusion of their deals. Teams would likely favor this as it increases the chances of having an ROI in each year of the deal.

    The NHL is seeing a similar trend right now as a way of skirting the salary cap. Teams are signing players approaching their mid thirties (Marion Hossa, Chris Pronger) to eight or ten year contracts that are heavily front loaded. The cap hit is spread out over the life of the contract at the AAV. So in the early years players are getting $8 or $10 million in salary with just a $6 or $7M cap hit. Then they retire before the contract expires leaving only a small fraction of the contract's total value on the table, but affording the club a sizeable cap savings in the remaining years of the contract. This loop hole will likely be closed very soon.

    All of this points to a larger issue: the U.S. is built upon being a free market economy. In professional sports, no matter what financial restrictions are put in place in attempt to level the playing field between the have and have nots, the thrifty and the spendthrifts, the shrewd and the stupid, someone is always going to exploit a crack in the system to gain an advantage. This is something to bear in mind when the current CBA expires in 2011. MLB's current system is broken. Usable players are finding themselves out of work because the system overvalues them either in terms of dollars or draft pick compensation. This is not what the MLBPA wants. It will be extremely interesting to see what's up for negotiation next time around: the draft, free agency, arbitration, etc. It could get very very interesting.