With the Royals signing Greg Holland to a contract, Dayton Moore’s perfect record of never going to arbitration remains. There is a fun Twitter account dedicated to finding Facebook posts by Royals fans and re-tweeting them; posts are chosen for various reasons, but they usually relate to ignorance about some generally accepted or known baseball practice or ignorance about baseball statistics and value. After Holland’s signing, many posts were related to how giving Holland a 1 year contract is completely unfair to him. For those who may not know, I’d like to explain a little bit about baseball’s compensation structure to give more context around Holland’s signing.
When a player is called into major league service from the minor leagues, his service time clock begins. His service time clock is basically the years of experience that he has. For the first 6 years a player is in the MLB, the team for which he plays controls his playing rights. For the first 3 years of those 6, the player basically makes the baseball minimum wage. There can be slight raises, but nothing of note. For the next 3 years, players enter the arbitration process. In the Royals’ case, it usually happens like this. A player and his agent, using available data, propose a salary figure. The team counters with a different salary figure, most likely lower. The player and the Royals generally agree somewhere around the midpoint. This process repeats itself each year for those 3 years, which is why Holland is under a 1 year contract. This is Holland’s first year in the arbitration process, so the Royals control his playing rights for 2 more years after 2014 and can negotiate a new salary figure each year.
There are wrinkles to this process, but that’s basically how it plays out. After those 6 years, the player becomes a free agent and can negotiate playing rights with any team. Different teams have different strategies for handling the arbitration process; for instance, the Braves almost never negotiate like the Royals do. If the player and the team can’t or don’t agree, then an arbitrator picks which figure, the player’s or the team’s, best represents a fair salary. This process is supposed to keep younger players’ salaries deflated, while free agents, who have proven over time that they can contribute value to a team, get the big bucks (or at least that’s the generally accepted reasoning).
Sometimes, teams and players can skip the arbitration process altogether by agreeing to a contract extension similar to a free agent’s contract. The Braves just did this with Freddie Freeman. The Royals did this with Alcides Escobar and Salvador Perez. Players usually aren’t extended early in their careers due to their unproven nature and the team’s desire to hold costs down, but sometimes teams and players agree to contract extensions to gain cost certainty for the team and a guaranteed financial future for the player. These extensions often extend into a player’s free agent years, where the player’s salary could skyrocket if he is good enough.