The marginal cost of the arbitration offer is not the full value of the player’s potential 2010 salary. It is not even the dollars beyond that which a team would be happy to pay the player. It is only the dollars beyond what any one team in baseball would be happy to pay for that player that are actually being risked.
Let’s use Adrian Beltre and the Mariners as an example. Based on some back-of-the-envelope calculations, I’m presuming that the Mariners have approximately $25 million to spend this winter as they shop to fill various needs. That is one of the main reasons why Beltre probably won’t be back in Seattle next year, as he would eat up a significant chunk of that budget, limiting the teams options when pursuing other positions of need. In reality, Beltre would probably make at least $10 million if he accepted arbitration, and likely closer to the $13 million he earned in 2009.
However, the Mariners aren’t risking $10 to $13 million by offering Beltre arbitration. His market value is significantly north of $0, and on a one year deal, it’s probably somewhere between $8 and $12 million, I’d imagine. So, in reality, the Mariners would be risking something like $4 million, as that would be the potential difference between the arbitration award and his free market value. Remember, a team is free to trade a player who accepts arbitration, so it wouldn’t be particularly hard for the Mariners to then ship Beltre to, say, Philadelphia along with some cash to cover the difference between what Philly wants to pay him and what he may get in arbitration.
MLB's arbitration & draft pick compensation scheme is more byzantine than the NBA salary cap & the NFL's "signing bonus" and guaranteed-contract rules combined. This post by FanGraphs (quickly becoming the #1 baseball blog, in my book) helps clear up the principles and the problems facing GMS as they make (or don't make) their offers tomorrow. And do not miss Fangraph's crowdsourced 2010 player predictions, the best thing to happen for fantasy geeks since the PECOTA spreadsheet.
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