Baseball Arbitration: It’s not just Fun and Games

By: Jeff Stern

“I just want it to be over with.” It’s a phrase that most experienced mediators have heard fairly often. It’s almost always heard in private caucus, to be concealed from the other side, but not infrequently we hear it in both rooms. The parties are stuck and in agreement only on the shared desire to make the case go away. And so what is a mediator to do? Obviously, we have a number of tools in the mediation tool box to deal with impasse, including use of brackets to move the parties closer, or a “mediator’s proposal". But there is another less well-known option, a form of arbitration which I have suggested several times, but only once succeeded in securing an agreement of the parties (who were pleased with how it worked), and it was prior to my arrival at TMG. That process is known in dispute resolution circles as Final Offer Arbitration (FOA), but is better known as Baseball Arbitration, because it is in the realm of major league baseball salary disputes that the procedure has been widely used.

Here is how baseball arbitration works, in its original context. First, it applies only to disputes over salary and only for one year. No other dispute (for example, a no-trade clause) can be on the table. The player and the team each submit a proposed salary to a panel of three arbitrators. The proposals are submitted blindly to the other side and simultaneously, but are then disclosed. The parties then have a short period of time to negotiate and a strikingly large percentage of the disputes (more than 80%) resolve prior to a hearing. For unsettled disputes, the hearings are very short (90 minutes per side) and the criteria are tightly delineated. The unique and defining feature of the procedure is that the panel can only select one of the two numbers as being the more reasonable. The arbitrators cannot reach any middle ground, nor can they land outside of the numbers bracketed by the parties. No written opinion is provided and the decision is required to be reached very quickly.

While there are certain features unique to baseball salary disputes (including objective statistics and publicly available comparable salaries), which contribute to the high rate of settlement, I believe that it is the procedure itself that inherently promotes settlements. By forcing each side to submit what it believes to be a reasonable figure, the dynamic is toward converging numbers. In standard arbitration, where the widely held perception is that arbitrators “split the baby,” (a perception not shared at TMG, by the way) this concern promotes diverging or even extreme positions. It is worth noting, of course, that staking out extreme positions is not limited to conventional arbitration. As mediators, we see it every day: (“He’s in the stratosphere;” “I can’t bid against that offer—it’s insulting” etc.) While there are, of course, situations where one side or the other may have an irrational belief about what a reasonable salary should be, causing the two numbers to be more divergent than expected, the system makes it self-defeating to put forward a proposal that the player or the team does not believe to be serious.

Lawyers are creatures of habit, and the very lack of familiarity may account for its relative lack of popularity, but here are some reasons why I think it is worthy of consideration for many disputes that have nothing to do with baseball. It should certainly be considered for those disputes that share some of the features discussed above—single issues, with available objective data.

I do not accept, however, that baseball arbitration can only be used in single-issue disputes. In most tort cases, for example, there may be factual and legal issues as to liability, damages, and causation. Those issues will obviously affect what each side believes to be a reasonable settlement value for the case. And yet balancing all those issues is a familiar exercise for lawyers and claims professionals. There is no reason, therefore, why baseball arbitration could not work effectively in such cases, and especially for those where the potential damages are disproportionately small in relation to the cost of trial. It is not necessary that each side balance the factors in the same way. An insurer, for example, might question the extent of claimed damages, but assess the liability as stronger for the plaintiff than the plaintiff himself does, perhaps because of incomplete information. In such a situation, for very different reasons the parties could nevertheless be within striking distance of each other as to overall settlement value, and the arbitrator (perhaps weighing all the criteria in his own way) would determine which recommended figure is the most reasonable.

As noted above, the tendency toward convergence of proposals and concomitant promotion of settlement is a major positive feature of baseball arbitration. However, the system also has much to recommend it for cases that do not settle. By putting forward proposals that they deem reasonable, and thus narrowing the gap, the parties have also controlled their degree of risk. And with less at stake between a win and a loss, the parties can also re-assess how much expense they should prudently incur in the arbitration. As in any arbitration—except where procedures are locked in by some prior agreement—the arbitrator can help the parties tailor the procedure to the dispute, by limiting discovery, for example, or streamlining the hearing schedule. These discussions could occur before or after the disclosure of the numbers. In an appropriate case, the parties could forego discovery altogether. The point is that the frequent complaints about arbitration, especially that its length, complexity and costs too often mirror the kinds of litigation it was intended to supplant, can be meaningfully addressed using baseball arbitration. It is a procedure for which I will continue to advocate in appropriate situations, either in the context of a stalled mediation or at the outset of the dispute. And who knows, if I can begin to convince parties and counsel that it is worth a try, perhaps I can report on some results in a future article.