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Understanding how sports contract arbitration works

By Bill Sayer  June 08. 2012 1:00PM - Last modified: June 08. 2012 1:32PM

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Imagine that your employment contract is up, but you're subject to a pretty serious noncompete, so you want to stay with your company. Your company doesn't want to lose you, but unfortunately, you can't agree with them on a new contract. After about a month of back and forth, you exercise your right to meet in front of an arbitrator.


For 90 minutes, your company goes on about how your performance isn't as good as you say, you miss work, your contribution isn't critical to the company (or any company), and you don't really have any special qualities.

You prepare a 90-minute case for why the company is lowballing you and how other companies would pay much more.

A couple of days later, the arbitrator rules. You like the money, but either work for a company that just disparaged you at length, or it walks away and you're left with nothing after a long painful process.

That's pro sports salary arbitration. An option in pro hockey and baseball, it's another example of why pro sports is a business above any romantic notions of fan favorites or franchise faces. If you ever wonder why any player would walk away from any team, or vice versa, it's because they're willing to get this cold when negotiating contracts.

If a team still owns the rights to a player, but the compensation part of a contract has expired and the sides can't agree, you go to the arbitrator. Usually this happens to "restricted free agents," or RFAs, who can leave to go to another team —

but only if their new team wants to give up draft picks.

Check out this list of what arbitrators consider, and imagine your own performance being described and debated in these terms:

• The player's "overall performance," including statistics in all previous seasons.

• Injuries, illnesses and the number of games played.

• The player's length of service with the team and in the NHL.

• The player's "overall contribution" to the team's success or failure.

• The player's "special qualities of leadership or public appeal."

• The performance and salary of any player alleged to be "comparable" to the player in the dispute.

In the NHL, the team and the player meet at a hearing, each having 90 minutes to present their cases to the arbitrator, as well as two rounds of rebuttals. Forty-eight hours after the hearing, the arbitrator releases a decision. If the award comes in under a certain amount, called the "walk-away number," the team must accept it. Otherwise, it has the option to accept the award or walk away.

Arbitration is obviously an ugly process. Both sides recognize this is unfavorable, and most avoid it. Last year, 24 players filed for salary arbitration. Twenty-two of them agreed to contracts before the arbitration hearing.

The MLB is similar, except for the determination of the award amount, and in a very interesting way. The arbitrators can only pick from either the amount submitted by the player or the team. This is how Ryan Howard was awarded a $10 million ruling in 2008, a record at the time for a player that young. The Phillies offered $7 million. Check out this analysis of why the arbitrators might have felt $7.4 million was comparable but $7 million was too low. If a team and player are far apart, one of them is going to be really surprised by what the arbitrator rules.

In the next couple of weeks, we'll see the list of players requesting arbitration. The Flyers have one RFA this year in Jakub Voracek, who after an 18-goal season at $2.25 million, could be a potential arbitration target.


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