Baseball Arbitration

Introduction:

Dispute resolution in Esports is a prominent issue, given the lack of an accepted and globally recognised sanctioning body. Currently, Esports has no court of final appeal such as the Court of Arbitration for Sport that is accepted by all stakeholders. Whilst there are some bodies that seek to apply regulatory relief, such as the Esports Integrity Commission[1], in practicality, parties often decide matters internally, without the utmost transparency.[2] This leads one to ponder as to whether the colloquially referred ‘baseball arbitration’ would be a suitable method of dispute resolution within the Esports industry.

‘Baseball arbitration’, or ‘final-offer arbitration’, is a form of arbitration wherein the Arbitrator is limited to choosing a final offer made by the parties involved in the arbitration proceeding.[3] The parties of a dispute each prepare and submit a proposed ‘final offer’ at the outset of the proceeding to the Arbitrator. The Arbitrator shall then conduct a full hearing wherein the parties’ arguments will be heard, and subsequently, will choose one of the parties’ proposed offers.

This form of arbitration is non-conforming to traditional arbitration, wherein the Arbitrator renders an award created and curated by themselves, based on the arguments heard and evidence presented by both parties.[4]

The nexus with baseball is the fact that this form of arbitration is most commonly used in Major League Baseball (“MLB”) salary negotiations. In the context of the MLB, this form of arbitration is often referred to as ‘salary arbitration’. MLB players use this form of arbitration to negotiate their salary with their respective teams when traditional negotiations have failed.[5] Thus, this type of arbitration is commonly known as baseball arbitration.

History of Baseball Arbitration:

Before the introduction of baseball arbitration, players had limited leverage and bargaining power in contract / salary negotiations against teams. Teams and owners often reserved the upper hand in determining player’s salaries based on their own evaluations of a player’s worth rather than their actual market value. In addition, any efforts made by players to increase their rights were immediately refused by the owners.[6]

The power dynamic between owners and players in baseball, prior to the introduction of baseball arbitration is akin to the current circumstances surrounding Esports. Without a globally acknowledged and accepted international federation or dispute resolution mechanism, the teams and publishers have significant leverage over the players. In-house resolution of disputes by publishers and owners leads to a suppression of player rights and a determination of disputes based on the publisher’s or owner’s own evaluations.

In 1968, the MLB Players’ Association (“MLBPA”) achieved a breakthrough by negotiating and securing the existence of ‘grievance arbitration’. This was a procedure wherein players could attempt to resolve and address their issues against teams. Whilst this form of dispute resolution was a marked improvement, it was a short-lived success as the MLB commissioner served as the Sole Arbitrator and was extremely favourable towards the owners and teams.[7]

In 1973, following a heavily contested battle between the owners of teams and the players, the owners made the first proposal to introduce ‘salary arbitration’ as a method to determine the salary of players, and the two sides agreed to the same.[8] Subsequently, in 2012, the players and owners agreed upon the 2012 Basic Agreement, which established the rules and regulations surrounding baseball arbitration.

Salary arbitration, or baseball arbitration, as established in 1973, has remained largely unchanged except for modifications on player eligibility and thresholds on the number of arbitrators to hear each case.[9] Over the many years of its existence, baseball arbitration has served as a key component of the MLB and to this day, has a major impact on team, league and player finances.

The Baseball Arbitration Process & Mechanics

Prior to submitting oneself to baseball arbitration, a player must determine if they are eligible to enter the process. In order for a player to be eligible for the baseball arbitration process, they must have between three (3) to six (6) years of Major League Service Time (“MLST”) or fit into the Super Two category.[10]

The Super Two category is a designation that allows a select group of players to be eligible for baseball arbitration prior to attaining three (3) years of MLST.[11] In order to qualify for the Super Two designation, a player must rank within the top twenty-two percent (22%) of all players who serviced between two (2) to three (3) years in the MLB and also must have at least eighty-six (86) days of service accumulated in the immediately preceding season.[12]

Having established the eligibility requirements to utilise baseball arbitration, we may now outline the process of baseball arbitration, which is as follows:

1. The 2012 Basic Agreement sets out the timeline for baseball arbitration, as well as the deadlines by which a player or a team must submit to arbitration.[13] The 2012 Basic Agreement sets out the procedures for notice of submission, withdrawal from arbitration, form of submission, selection of arbitrators, location and conduct of hearings, and numerous other considerations.[14] These timelines and deadlines are to be strictly adhered to by both teams and players;

• Each side must submit to the arbitrators a proposed salary for the upcoming season. Although the parties may continue to negotiate subsequent to submitting their proposed offers, some parties choose to cut off negotiations after the initial submission of offers and commit to a hearing process.[15] For example, the Florida Marlins and the Tampa Bay Rays are two teams that often employ this strategy.[16]

• Once the offers have been submitted, a three (3) member panel shall preside over the hearing. The panel members are selected by the MLBPA, representing the players, as well as the MLB Labour Relations Department, representing the owners and teams.[17]

• During the hearing, each party is allowed one (1) hour to present their case, and thirty (30) minutes for rebuttal. The Arbitrators make every effort to issue a decision within twenty-four (24) hours of the hearing, and they are limited to choosing only one of the two offers submitted as an award.[18]

The 2012 Basic Agreement also outlines the factors that a panel may take into consideration when making their decision over a player’s value. Some of the factors include the player’s performance and contribution to his club in the previous season, the player’s career contribution, the player’s previous compensation, the salaries of comparable or similar players, and the recent performance of the team[19] On the other hand, there are certain considerations that the panel must not take into account, such as media commentary, cost of representation, salaries in other sports or occupations, and prior offers made by either side.[20]

The pre-arbitration proceedings and arbitration hearing itself are not necessarily different in Baseball Arbitration as compared to traditional arbitration. However, the key distinguishing factor lies in the fact that each party must submit a proposed award to the Arbitrator prior to the hearing and that the Arbitrator is then limited to only selecting one of those two offers. Baseball Arbitration does not offer the crutch of a ‘middle ground’, as the Arbitrator is required to strictly select only one of the proposed awards that they believe is the most justified, reasonable, and beneficial.

The requirement of the Arbitrator to mandatorily select only one of the available two options raises an interesting dynamic for the parties to consider. The parties are placed under intensified pressure to analyse their position, understand their limitations, provide as reasonable a settlement offer as possible, and be able to provide valid reasoning for their offer.[21]

Benefits of Baseball Arbitration

The introduction and usage of baseball arbitration have resulted in a significant increase in player compensation. Players nearly always receive substantial raises through this process.[22] This form of arbitration allows, for those eligible players, to have leverage in negotiating against teams for the first time.

The beneficial impact of baseball arbitration can be observed through a comparison of Ryan Howard, first baseman for the Philadelphia Phillies and Prince Fielder, first baseman for the Milwaukee Brewers.[23] Howard made his MLB debut in 2005, and had an immediate impact on the league, winning Rookie of the Year and the League’s Most Valuable Player award in his first year.[24] He was eligible for baseball arbitration under the Super Two criteria after his first two years in the MLB. Fielder made his MLB debut in 2005 as well, but did not fulfil the requirements for the Super Two criteria in 2007 and so, was not eligible for baseball arbitration.[25]

As a result, Howard went before arbitration in 2007, and won against the Phillies, earning him USD 10,000,000.00 (Ten Million US Dollars) for the 2008 season.[26] Meanwhile, Fielder was paid a salary of USD 670,000.00 (Six Hundred and Seventy Thousand US Dollars) set by the Brewers for the 2008 season.[27] Thus, the impact of baseball arbitration in raising player’s value is evident.

When analysing the benefits of baseball arbitration as opposed to traditional arbitration, we may enumerate some of them as follows:

Such benefits as highlighted herein may be translated to Esports as well were these proceedings to be implemented. Baseball arbitration offers a customised proceeding, speed and effectiveness, cost-efficiency and legal surety, all of which are suitable to the Esports industry.[33] Moreover, the implementation of such a mechanism would cause a significant shift in the landscape of Esports, similar to the impact it had on baseball, and may result in an increase in player’s rights and a reflection of the player’s worth in their salaries paid.

Challenges Surrounding Baseball Arbitration

While Baseball Arbitration presents multiple benefits, it also has certain disadvantages compared to traditional arbitration. Critics of baseball arbitration focus mainly on distributional issues and procedural issues.

The distributional critique is that baseball arbitration creates a scenario of no-loss to the player and results in a substantial raise for players. However, this is precisely the purpose of baseball arbitration as prior to becoming eligible, players are underpaid and only make the minimum league salary. During the first three (3) years of their service in the league, players are majorly underpaid and so there is no surprise that they would receive a raise in salary upon submitting to the arbitration process.[34]

Furthermore, the distributional critique states that baseball arbitration results in salaries that the player would not attain in an open market scenario. However, baseball arbitration allows players to attain higher salaries without depressing the market, it is beneficial for the league overall and thus offsets the player’s increased salary with the owner’s increased revenue, and finally, teams always have the option to decline an offer made by the player and make him a free agent should they not wish to pay a salary that is in their view, more than the player’s worth.[35]

Coming to the critique on procedural issues, they may be outlined as follows:

1. Single Choice Arbitration – The nature of baseball arbitration is such that the Arbitrator is constrained to make a single choice between two offers. There may come scenarios wherein the parties submit vastly different offers, which may both be unreasonable. In this scenario, the Arbitrator is forced to choose between two incredibly varying options, resulting in a decision that does not accurately reflect the merit of each parties’ position. One side by reap a windfall while the other suffers a substantial loss.[36]

• Multi-issue matters – Baseball arbitration would not be suited for those matters wherein there are multiple / complex legal and factual issues. In such cases, the limited discretion of the Arbitrator results in an inability to curate a decision that addresses all facets of the dispute appropriately.

•  Lack of written opinions – Arbitrators in baseball arbitration are required to provide a decision within twenty-four (24) hours. As per the 2012 Basic Agreement, Arbitrators are to only select one of the offers and there shall be no written opinion on the decision.[37] Nevertheless, these decisions may have precedential value for future cases and so providing written opinions may result in increased transparency for the involved parties. The argument against providing written opinions is that it would overcomplicate a process that is to be simple, and resolved within twenty-four hours.[38] Moreover, due to the nature of baseball arbitration in that players and teams would ideally submit reasonable figures, there would be an equal number of wins and losses for teams and players over time. For example, the Washington Nationals have a total of six (6) wins, and two (2) losses in arbitration over eight (8) years, while the Tampa Bay Rays have won all five (5) of their matters in the same time period. On the other side, the Miami Marlins have one (1) win and five (5) losses in the same period.[39]

• Potential for Dissatisfaction – The inherent inflexibility of Baseball Arbitration may result in one of the parties being dissatisfied with the final outcome, especially if they consider the decision to be unfair. The relationship between the player and the team may carry on for numerous years after the arbitration process, and such a relationship may be harmed when teams are forced to submit information on player performance, or information that may even humiliate a player.[40]

• Considerations of the Panel – The final critique of baseball arbitration is the factors that Arbitrators take into account when choosing an offer. Critics of baseball arbitration state that more weightage should be given to the team’s profitability, rather than the player’s comparable salary. However, this criticism is one that does not affect the process of the baseball arbitration system, but rather the Arbitrator’s determinations.[41]

Thus, it is clear that baseball arbitration is not without fault and there are certain drawbacks to the proceedings. However, one can argue that the benefits that baseball arbitration offers to the MLB, and could offer to Esports, far outweigh any of the challenges highlighted herein.

Conclusion

Efficiency, cost-effectiveness, and party autonomy are concepts that are highly regarded and sought after in dispute resolution. Baseball arbitration offers these facets and is a compelling alternative to traditional arbitration. By empowering the parties to present their respective final offers and entrusting an arbitrator to choose between the two, baseball arbitration aims to strike a balance between expediency and fairness in resolutions.  This approach makes sense within the current, fragmented environment of esports around the world; particularly where the majority of engagements that lead to disputes are not especially high value.  Therefore, speed and cost-effectiveness have even more pertinence.

Esports is a growing and maturing industry, with an increasing and apparent need for efficient and equitable dispute resolution mechanisms. Baseball arbitration presents a compelling solution to address these needs through its various benefits. The positive impact that baseball arbitration has had on the MLB makes for a strong argument for its implementation in Esports, particularly due to the lack of a centrally recognised international body or dispute mechanism.

The effectiveness of baseball arbitration is seen mainly in scenarios such as labour disputes, commercial contracts, insurance claims, and construction disputes, wherein there is no plethora of legal and factual complexities involved. However, especially in salary negotiations in the MLB, baseball arbitration has proven its effectiveness. In Esports, baseball arbitration offers a simple solution to monetary disputes wherein each of the parties is on equal footing and is allowed the opportunity to have control over the outcome of the decision.

Therefore, while Baseball Arbitration is not suitable for all disputes and every scenario, it serves as a valuable tool in the form of a streamlined and efficient alternative method of dispute resolution when dealing with certain scenarios. A tool that can be utilised effectively in the Esports industry or elements within the Esports industry; especially when the likelihood is that the majority of disputes that arise will not be overtly complex.  Baseball arbitration could be a solution rolled out to handle such matters, and at the least, can begin to assist the use of dispute resolution mechanisms within the sector.

[1] See https://esic.gg/about/

[2] Bird & Bird, Esports Disputes: Choosing your battleground (18 January 2018).

[3] Carl Stevens, ‘Is Compulsory Arbitration Compatible with Bargaining?’ (1966) 5 INDUS. REL. 38.

[4] J Pauwelyn, ‘Baseball Arbitration to Resolve International Law Disputes: Hit or Miss?’ (2018) 22(2) Florida Tax Review 40.

[5] Jeff Monhait, ‘Baseball Arbitration: An ADR Success’ [2014] 4 Journal of Sports & Entertainment Law, Harvard Law School 105.

[6] Mark L. Goldstein, ‘Arbitration of Grievance and Salary Disputes in Professional Baseball: Evolution of a System of Private Law’ (1975) 60 Cornell L. Rev. 1049, 1065–66.

[7] Jason M. Pollack, ‘Take My Arbitrator, Please: Commissioner “Best Interests” Disciplinary Authority in Professional Sports’ (1999) 67 Fordham L. Rev. 1645, 1661.

[8] Ed Edmonds, ‘A Most Interesting Part of Baseball’s Monetary Structure—Salary Arbitration in its Thirty-Fifth Year’ (2009) 20 Marq. Sports L. Rev. 1, 3.

[9] David L. Snyder, ‘Automatic Outs: Salary Arbitration in Nippon Professional Baseball’ (2009) 20 Marq. Sports L. Rev. 79, 82.

[10] 2012 Basic Agreement, art. VI(E)(1).

[11] https://www.mlb.com/glossary/transactions/super-two.

[12] https://www.mlb.com/glossary/transactions/super-two; 2012 Settlement Agreement, art. VI(E)(1 (b)).

[13] 2012 Basic Agreement, art. VI(E)(2-5, 13) & art. VI(E)(2).

[14] 2012 Basic Agreement, art. VI(E)(1-13).

[15] Monhait (n 5).

[16] ibid.

[17] 2012 Basic Agreement, art. VI(E)(5).

[18] 2012 Basic Agreement, art. VI (E).

[19] Ethan Lock & Allan De Serpa, ‘Salary Increases Under Major League Baseball’s System of Final Offer Salary Arbitration’ (1986) 2 Lab. Law. 801, 804.

[20] Jeffrey D. Schneider, ‘Unsportsmanlike Conduct: The Lack of Free Agency in the NFL’ (1991) 64 S. Cal. L. Rev. 797, 836.

[21] Pauwelyn (n 4).

[22] John L. Fizel, ‘Play Ball: Baseball Arbitration After 20 Years’ (1994) 49 Disp. Resol. J. 42, 45.

[23] Edmonds (n 8).

[24] Howard Beats Out Pujols to Win NL MVP Award, ESPN.com (Nov. 22, 2006), http://sports.espn.go.com/mlb/news/story?id=2669508.

[25] Monhait (n 5).

[26] Jayson Stark, ‘Arbitration Payout Puts Howard in Uncharted Salary Territory’, (ESPN.com, Feb.21, 2008) available at <https://www.espn.co.uk/mlb/spring2008/columns/story?columnist=stark_jayson&id=3257829>.

[27] Monhait (n 5).

[28] Roger I. Abrams, ‘Inside Baseball’s Salary Arbitration Process’ (1999) 6 U. Chi. L. Sch. Roundtable 55, 72.

[29] Cecilia Morgan, ‘Employment Dispute Resolution Processes 2004’ (2005) 11 Tex. Wesleyan L. Rev. 31, 36.

[30] Rebecca Hollander-Blumoff & Tom R. Tyler, ‘Procedural Justice and the Rule of Law: Fostering Legitimacy in Alternative Dispute Resolution’ (2011) J. Disp. Resol. 1, 5.

[31] 2012 Basic Agreement, art. VI(E)(10).

[32] Maury Brown, ‘Detailed Salary Info For 142 MLB Salary Arbitration Players, The Biz of Baseball’ (Baseball Prospectus, 20 February 2012) available at <https://www.baseballprospectus.com/news/article/16071/bizball-inside-the-2012-salary-arbitration-class/>.

[33] Watson Farley & Williams, Esports and Arbitration (18^th January 2023).

[34] Monhait (n 5).

[35] Pauwelyn (n 4).

[36] Monhait (n 5).

[37] 2012 Basic Agreement, art. VI(E)(13).

[38] Monhait (n 5).

[39] ibid.

[40] Bibek Das, ‘Salary Arbitration and the Effects on Major League Baseball and Baseball Players’ (2003) 1 DePaul J. Sports L. & Contemp. Probs. 55, 58.

[41] Thomas J. Hopkins, ‘Arbitration: A Major League Effect on Players’ Salaries’ (1992) 2 Seton Hall J. Sport L. 301, 306–07.