Friday, April 25, 2008

The Little Known Rule of Service Time

I'm always amazed at how many people can enjoy baseball without knowing a rule as important as service time. The rule almost single-handedly is the reason baseball has parity without a salary cap. Compared to revenue sharing, the service time rule does a lot more for small-market teams to help them be competitive.

Service time basically allows a team to keep a player for 6 years before they can become a free-agent. Not only does the team get to keep the player, but they get to keep him for a low salary as well. For the first 3 years of non free agent eligibility, the team can pay the player the league minimum regardless of player performance. However after 3 years, the player is eligible for arbitration, a process started in 1973.

Arbitration is a process in which the player and the team both submit a proposed salary to an arbiter, who then decides which salary is more fair based on the relative salaries of other players with similar experience and statistics. Whew. That's a long sentence, re-read it if you have to. Salaries awarded in arbitration are usually very team favored, although Ryan Howard was awarded a ridiculous 10 mil when he beat the Phillies in arbitration this year. In 2006 Alfonso Soriano was awarded 10 mil, and this year K-Rod lost in arbitration but gets a cool 10 mil as well, he was pushing for 12.5 million. So far no one has broken the 10 million mark in arbitration, but obviously it’s bound to happen sometime soon though probably not in the next 2 years.

As you can see from the chart (which i got from Dave Studeman's article on arbitration at the Hardball Times) the average player receives a relatively low salary from arbitration, although like the Earth's temperature, the salaries are rapidly increasing.

Hanley Ramirez will enter arbitration this offseason, and if he gets awarded 10 million in the process, that's ridiculous for the Marlins considering that is half their whole team's salary! (its $ 21,811,500) The awardings in arbitration must be capped somewhere because any higher than 10 million and were talking free agent money. Give those small market teams a break.
After those 3 arbitration years, a player is finally ready to head into free-agency. If you think about it, a player has his salary artificially deflated for his first 6 years in the majors. After those 6 years, what player wouldn't let loose and just take the highest offer. People are always yelling, "Players are so greedy, why wouldn't they take a lower offer and stay with a team that's be so good to them!?!" The reason is they have worked their ass off for the past 6 years and now, finally, they can enjoy the fruits of their success. Doesn't sound so greedy when you think about it from that perspective does it?
The last thing I'm going to take about is long-term contracts before a player is free agent eligible. Why would a team do this when they can just have a nice low 1-year contract with the player. Signing them long-term is risky since, well most of these younger players can be unproven, and any player is always just one injury away from a derailed career. Then the team is stuck with that contract for the next 2-3-4-5-6 years, however long it is. The reason is for the team to be able to keep the player on a relatively low contract for the first one or two years of their free agent eligibility. So when the Rockies sign Troy Tulowitzki to a 6 year 31 mil contract, and you say "5 million a year for such a talented young player!" Understand that the Rockies are playing Tulowitzki more than they have to for the next 5 years, while saving themselves some cash during the first 2 years of his free agent eligibility while he's under contract.
That's it! I hope you now know more about the rules of MLB, maybe I'll make a few more posts like these. I did write one earlier on players to be named later if you missed it click on the link. The service time of every major leaguer can conveniently be found at Cot's Baseball Contracts.
Enjoy the season!


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