An Analysis of Final-Offer Arbitration Outcomes for Batters in Major League Baseball from 2002–2006

Abstract

In 1974, Major League Baseball adopted final-offer arbitration to settle salary disputes between players and teams. Currently, a player is eligible for arbitration after 3 years of major league service. The paper analyzes arbitration salary outcomes for MLB batters from 2002–2006. The findings of this paper show that players who threaten arbitration earn 16% higher salaries than those players who settle before the exchange date specified in the Collective Bargaining Agreement. The data used in this paper also show that the criteria used in the salary determination process during arbitration are equivalent to those used in the free agent market. This paper concludes by suggesting possible alternatives to the current arbitration system and discusses the implications of the findings from both player and team perspectives.