Salary Arbitration is a system that is used to settle contract disputes. Two parties, the players and teams, each come up with a salary for the upcoming season and plead their cases at a hearing. Then the arbitrator, a third neutral party, listens to their arguments and determines their salaries if the two parties cannot come to an agreement themselves. Players in MLB are eligible for salary arbitration after three full seasons of playing for any of the MLB teams. Between, three to five years players are required to stay in their current contract; but can take their salary demands to an arbitration panel if the players do not reach an agreement with the team.
After, the sixth year of playing for the league the players become free agents. For the NHL, players must have four years of experience to be able to negotiate their salary wages. The evidence that can be presented in salary arbitration cases is the overall performance/ statistics from previous seasons, number of games played, the length of service with the team or club, the overall contribution to the team success, and the performance and salary of any player. Evidence that the arbitrators will not allow is the salary and performance of a player who signed a contract as an unrestricted free agent, any form of media reports like testimonials and video clips, financial state of the team, and the salary cap and team’s payroll.
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How it works
In the MLB, salary arbitration was introduced in 1970 when the league association was seeing players held out on contracts. These disputes were mostly caused from players feeling they deserved a higher pay and more freedom. One MLB player named David Cones in 1992, had one of the longest salary arbitrations in history. His hearing lasted for six hours with the New York Mets. Cone eventually left the hearing with the Mets and agreed to a salary raise of $1.9 million.
Over, time the club owners realized that the contracts would have to change with other players as well if the league wanted to remain successful. So, in 1993 the owners made a vote to create the salary arbitration process with hope that it would end the contract holdouts. Once a player becomes eligible for salary arbitration, their salaries increase. Chris Carter, who plays for the Astros, entered arbitration in 2014. In 2014, his salary was $510,000 and after signing a deal in 2015, avoiding salary arbitration hearing his new salary was over $4,000,000. The decision to make salary arbitration available to players eventually was picked up by the NHL and the MLB and NHL are the only two major sport leagues to use it
Since the NHL was formed in the early 1900s, they had trouble trying to keep a good financial health. Making it hard for them to support the large increases in player salaries. Around 1980, that started to change when the growth from league revenues started to increase from television views, licensing arrangements, and the franchise expanding. But, compared to other sport team’s hockey players were still making way less.
The league tried to fix this problem in 1989 when Wayne Gretzky signed an eight-year contract for $20 million. Leading the way for other top NHL players to have the chance to sign multimillion-dollar contracts. In 1994, the league decided to enforce a tax that would make it harder for teams to exceed the average payroll while still funding smaller teams. The NHL would use the money collected from the tax on franchises that needed it. The players, however, saw the tax as a salary cap and did not agree with the league.
They also did not agree with the age players had to be to qualify as unrestricted free agent, the rights that the unrestricted free agents had, and many other issues the players did not see fit. These events led to a lockdown that lasted 103 days which is most of hockey season. Finally in 1995, the league decided to cancel the tax introducing salary arbitration. That way it would not make it hard for players to get increases in their salaries. The players and teams came to an agreement over their contracts and salaries.
Salary Arbitration has affected both MLB and NHL a significant way. Since, its introduction in 1970 players in both leagues have been given the right to negotiate their contracts and salaries. It has paved the way for players and teams to find common ground without lockouts or contract hold outs that can affect revenue for the leagues. But, still has the chance to cause tension between the owner and players because every year one will always get a better deal over the other.
The way NHL and MLB are similar is the application of arbitration. For players not eligible for free agency and want a new contract with their existing club or team, but not able to agree on salaries then the player or club can call for salary arbitration to settle the dispute. MLB and NHL are different because salary arbitration in baseball uses a variety of arbitrators to resolve arguments. While, the hockey league is not limited to the choice of final offers from the players.