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No draft in here

So, my Giants have declined to offer arbitration to Benjie Molina. For those who don’t follow baseball (and would still like to read the rest of this note), the situation is this: for certain players, at the end of a contract with a team, the team can offer arbitration, after which the player has a week to accept or refuse. If offered and accepted, both sides present an independent arbitrator with figures for a salary for the next year. The arbitrator chooses one of the two figures (and no other number), and that’s the contract for one year. If the player refuses arbitration, he becomes a free agent, and may sign with any other team. However, the team that signs the free agent gives up a draft pick in the next amateur draft, and the player’s previous team gets that pick. If the team does not offer arbitration, the player becomes a free agent, and may sign with any other team, which team will not give up a draft pick.

It’s more complicated than that, of course. There are type A and type B players, and the team and player can agree on a contract after agreeing to arbitration but before the hearing, and so on and so forth. But in simplified form, the game rules are this: First turn, the team offers or does not offer arbitration. Second turn, the player accepts or refuses. And so on.

Now, here’s Benjie Molina. He appears to be considered the best catcher currently available through free agency. This may, in fact, be true. He is also a devastatingly bad hitter at this point in his career, and likely to be worse next year. And the Giants have a devastatingly bad offense, of the type that cannot carry another offensive liability. What do they do?

Well, let’s rank the outcomes from the Giants point of view first. Best outcome: We offer, Mr. Molina refuses, we get a draft pick and are rid of him. Next: We do not offer, we get nothing but are rid of him. In either of those, we probably pay league minimum or near it to some cast-off as a backup and start Buster Posey. The next three are versions where we offer and he accepts, where he wins (say, $8 million), where we come to an agreement before the hearing ($7 million), and where we win ($6 million). I’m making those numbers up, by the way; it’s possible that the Giants would be gutsy and ask for a pay cut and that the arbitrator would agree that an OBA at the bottom of the league deserves it, but I don’t think so.

Now, from Benjie Molina’s point of view, and his agent’s. Best outcome, a two- or even a three-year contract, probably for at least $6M/year. This would be from the Mets, most likely. Not from the Giants, anyway, who have a Silver Spikes-winning catcher, who will be expected to start in 2011 if not earlier. Second Best: a one-year contract for $8 million or so, either from arbitration victory or negotiation. Third Best: a one-year contract for $6 million or so, either from arbitration loss or free agency with a total lack of interest around the majors. Worse: no contract at all, an incentive-laden one-year contract for $3 million plus, or at absolute bottom a minor league contract. Worse than that: trying to outrun a vicious assassin sloth.

And then we all try to assign likelihood. Once you have decided you don’t want to rehire the guy, the only reason not to offer arbitration is if you think he will accept. But by accepting, he’s giving up a chance at an extra ten million, or at least five million. On the other hand, by accepting, he’s taking a chance on there not being any interest at all. So you guess.

It seems to YHB that in a case like this, the team should almost always offer arbitration. The worst that happens from the team’s perspective is a one-year loss, a substantial one, surely, but not all that great, particularly for an organization with a $100 million on-field payroll. The gains aren’t that great (a draft pick), but they do exist. The really hard thinking is on the player’s side: the gains and losses are in the millions, and that’s a bigger chunk of his money than it is of the team’s. But it seems that teams routinely deny arbitration in exactly these cases. Am I missing something?

After all, the worst that happens is that you overpay a player for one year. Most teams are overpaying one or more players every year; it’s hard to judge who will be good and who will stink. The real risk for a team is a long-term contract, where you can overpay a player for five years. You could pay $50 or $70 million over market. Or under; you have to guess the career path and the market’s ups and downs. It seems to me that long-term contracts are where a baseball team should be risk-averse; offering arbitration seems like the wrong place. But there are Gentle Readers who are better at game playing than YHB, there are GRs who know more about baseball, and there are GRs who know more about economics and statistics and all that sort of thing, so I’d be curious to know how y’all’s instincts go on this one.

Tolerabimus quod tolerare debemus,


I'm not certain about how the rules work, but I think there is another outcome on the team side that makes not offering arbitration more understandable. I read recently (iirc) that it used to be the case that if a team did not offer arbitration, the player could not re-sign with that team until April. For that reason, a player who was not offered arbitration was essentially gone, because he would not want to wait until April to re-sign with his old team. That rule has been changed, however, so now a team can decline to offer arbitration to a player and still negotiate a contract with him: they don't have to offer arbitration as the price, as it were, of getting to negotiate with the player.

Under these circumstances, especially in a down economy, not offering arbitration has substantially more upside for the team, as the team retains the option of re-signing the player at a lower salary than they could safely offer in the context of arbitration. The Yankees did not offer arbitration to Andy Pettitte this year, but it is widely believed that they would like to re-sign him, just not to a deal that would be reached through arbitration. All you possibly lose by not offering arbitration, then, is the draft pick you would get if the player declined, and you gain the possibility of signing the player at the price you want while dropping the risk of being stuck with the price the player asks for. Again, especially in a down economy, when salaries are dropping and money is tight, this looks like the safe financial move to me.

I'm not saying that the Giants are even considering re-signing Molina after not offering him arbitration, but I think in many cases teams are considering it. The possibility that a team could re-sign a player after declining to offer arbitration is a significant incentive to decline to offer arbitration.

I would add that if you are pretty close to certain that a player is going to be terrible, then there is no reason to offer arbitration. Yes, teams overpay for players all the time, because sometimes players aren't as good as you think they will be, or you have to offer a contract which will pay the player more than he is worth then in order to ensure having his services now, but that doesn't mean that paying a lot of money to a player whom you know will be bad is something you go ahead and do because sometimes players are over-paid. That's where I think the Giants are at with Benjie Molina: they pretty much know he is going to be terrible, at least with the stick. They might be willing to offer him the $3 million, 1-year, incentive laden contract, but anything more than that would be wasting money that they'd like to spend elsewhere on someone who might possibly be good.

I hadn't realized that rule was changed; that does make something of a difference. I suppose, if what the Giants have in mind is a cap of no more than $3M for a catcher, they could be risk-averse in the arbitration offer which could cost them another $3M or even $4M. And yet, I can't help thinking that there is less than a 10% chance that Benjie Molina would accept a one-year deal, so you are giving up a definite draft pick against a slight risk, and that risk doesn't (within the context of a $100M payroll) seem like that big a deal even if you get pinched.

Of course, now, our brilliant GM has announced that Buster Posey will not be our starting catcher, that he may be on the squad but he is Not Ready to catch 150 games in the majors. He announced this before the winter meetings, just to make it clear to any agents or other GMs that he is ready and willing to overpay a veteran catcher on a one-year deal. I am so looking forward to this.


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