Advice for Adam

According to the AJC, Adam LaRoche has requested $3.7 million to play in 2007, while the Braves are offering $2.8 million. Should the sides not agree on a salary, the parties will have one of these offers selected by a panel of arbitrators following a hearing in February. Final offer arbitration requires that the panel choose one of these two offers.

LaRoche is entering arbitration at a good time. He just had a very good year during an offseason when salaries are rising. However, I think LaRoche has selected a number that gives him very little bargaining power. I think he should settle as soon as possible, and the Braves have little reason to do anything but wait until February.

I estimate that LaRoche generated $9.79 million in revenue last year Assuming that Adam’s 2007 is identical to his 2006 campaign, and that salaries escalate by 10%—as they have for the past 20 years—LaRoche will generate approximately $10.77 million. This is well above what Adam is even asking, but arbitration-eligible players usually earn far less than their worth on the free agent market.

Recent history indicates that arbitration-eligible hitters typically earn about 77% less than their gross marginal revenue products. For LaRoche this means a projected salary of about $2.5 million, and this number is based on some pretty rosy assumptions. Don’t think that the Braves don’t know this.

If I were Adam, I’d stay close to the phone and take the first compromise the Braves offer. The Braves have a strong case, and I see very little that could sway a panel to award him $3.7 million.

Addendum: I figured I should  look at the Braves other arbitration candidate, Oscar Villarreal, as well. Villarreal ought to be worth about $5.08 million in 2007 according to my estimates. Arbitration-eligible pitchers tend to get 78% less than their gross MRPs. This puts his projected salary at $1.12 million. He is asking for $1.3 million, the Braves are offering $860,000. Those are more reasonable offers for arbitrators to deliberate over, but I give a slight advantage to Oscar. However, his nickname “The Vulture” can’t help. ;-)

9 Responses “Advice for Adam”

  1. studes says:

    Wow, that’s crazy. Arbitration results vary tremendously by the player’s years of service. I agree that, given LaRoche has only three years, $3.7 million is an awful lot. If he were in his fifth year, however, he could probably get more than that.

  2. Telnar says:

    Are you aware of any research on whether arbitration awards are a flat percentage of MRP, or if they vary based on other things? For example, does a player with 2 win shares above replacement tend to get an award 10% the size of one with 20 win shares above replacement.

    Also, how strong is the effect of years of service when the contract ends at or before the point where the player could have become a free agent?

  3. Matt says:

    Yeah, 77% is a huge discrepancy. Any ideas why it’s that big? I’ve always thought the arbitration boards should reason that since neearly all players are offered arbitration, the awards are much too low and should increase.

  4. Levi says:

    The “X” factor in arbitration hearings is that they are very confrontational and pit the employee and the employer in an openly negative situation. For the most part, no one “wins” in arbitration. I hope to see Atlanta settle both of these contracts before February.

  5. studes says:

    Years of service is a huge issue. In fact, it’s written right into the collective bargaining agreement. Players can only be compared, for arbitration purposes, to other players who have been around just one more year. So LaRoche can’t be compared to the free agent market, just three and four year players.

    This is why player salaries increase as they get closer to free agency status. I’ll bet the percentage of MRP an arbitration-eligible player receives changes by a magnitude of two times or more, depending on his major league service years.

  6. Frank says:

    AJC is reporting that LaRoche has been traded to Pitt for Mike Gonzalez and another player. Bad news imho.

  7. JC says:

    Years of service do matter within arbitration, but it’s tricky. Basically, for the three pre-free-agent arbitration seasons the median percentage difference are about 90%, 75%, 44%. But, the variance is quite large, so I went with the average to bias in Adam’s favor.

    I should add that with the new CBA there may be some other smaller changes that might move awards upwards, so it’s entirely possible that LaRoche’s agent is acting of good information that I don’t have.

    Oh yeah, so long Adam.

  8. Andrew says:

    How about Mike Gonzo’s contract arbitration projection?

  9. Ben says:

    I can’t understand how trading LaRoche for Gonzalez makes any sense unless LaRoche’s ADD is so bad that they feel they can’t rely on him. Because here we’re talking about a good-hitting, young, CHEAP firstbaseman. Maybe he’s not going to be ultimately worth a six year at $14mil, but it just seems crazy to me that the Braves couldn’t get anything more than Mike Gonzalez? Why does this trade just seem insane to me?