Arbitration Strategy: D-backs Should Settle with Trumbo, Must Take Reed to Trial

It’s that time of year: teams and players exchanged arbitration figures last week, and any hearings that take place will happen between the 1st and 21st of next month. The D-backs have just two arb-eligible players left, and three possible outcomes with each player: end up at the player’s figure, the team’s figure, or settle somewhere in the middle. No one is under an obligation to go to hearing unless the opposing party insists. And as a “baseball” arbitration (that’s a term of art even outside the baseball world), the procedure requires the arbitrator to pick between the two options without any discretion for compromise.

This is the new front-office-by-committee’s first tour through arbitration, so there isn’t a whole lot to glean from the Towers administration, which was all over the map in its approach. Last year, Brad Ziegler and Josh Collmenter ended up with extensions before figures were exchanged; Matt Reynolds and Daniel Hudson worked out unconventional deals around the non-tender deadline; and Joe Thatcher signed just before figures were exchanged. Both Gerardo Parra and Mark Trumbo settled on the eves of their respective trials for just over the midpoint between player and team figures. The Parra case was also particularly curious because the team filed above the MLBTR projection, a stark recognition that defense was likely to be valued higher in arbitration than it was in the past. The Trumbo one was almost as strange, what with team and player having the “largest relative split” between figures.

With David Hernandez, Cliff Pennington and Jeremy Hellickson all locked up on one-year deals, the only D-backs arb players left standing are Addison Reed and, once again, Mark Trumbo. And while I do think it makes sense for the team to reach an agreement with Trumbo, we can’t and shouldn’t say the same thing about Reed.

First, though, some general points about arbitration. One of the biggest ingredients in the arb salary recipe is the salaries of other players; the CBA actually requires arbitrators to “give particular attention” to the salaries of players at, under, or one level above the player in question in terms of the year-to-year arbitration ladder. The main ingredient, of course, is on-field production; the player’s previous salary also comes into play, although that really only matters if it’s not a player’s first go-round in arbitration.

One way to think of it is that the factors an arbitrator is required and allowed to consider, as well as the actual arguments put forward by player and club, points to a particular “ideal” number. The parties may not agree what that number is (and they’re unlikely to talk about it with each other), but they may not actually be that far apart. The principal reason why team and player figures can be off by 20% or so is that arbitration becomes a neat little economics game.

Pretend for a moment that both parties have the same ideal number in mind. Let’s call it $5M. That may or may not end up being the midpoint.

The reason for this illustration is to show that if both parties privately agree that a player’s ideal salary is a particular number, then the optimal settlement figure for both sides is that same number. If one party is off by $100k and the other $1M, we might say that the party off by $1M has a 1-in-11 chance of victory because it’s ten times farther away. If the figure $100k away gets ten times the weight of the figure $1M off, the perfect figure that reflects the outcome is that “ideal” figure we started with.

Putting it differently: if one party is closer to the “ideal” figure for a player, the most likely settlement is not the midpoint. If both parties know that one figure is much more likely to be selected by the arbitrator, the settlement is likely to reflect that. There’s a strategy, then, to how far a party goes off of the “ideal” figure in the first place; that’s why parties must finalize a number before seeing their opponent’s. That’s a fun little game on its own, but there’s one big complicating factor in real life: the parties may not actually agree on the “ideal” number. So parties must also ask themselves whether they’ve been the most realistic. For our purposes, we’ll rely heavily on the MLBTR projection as a stand-in for that “ideal” figure.

Mark Trumbo: Filed for $6.9M; Team Filed for $5.3M; Midpoint $6.1M; MLBTR Projection $5.7M

Sometimes on this site we run into a problem with these operations-management-type questions. Left to our own devices, Jeff and I would probably answer the question “Should Trumbo play right field or left?” with the answer “Actually, DH or first base — for another team.” This is one of those situations, and that matters, because figuring out the right move with Trumbo right now is largely a matter of knowing what you want to do with Trumbo for 2016 and even beyond. Do the D-backs want to keep Trumbo long term by signing him to an extension? That could lead to a different course of action than if their priority was just to keep his salary down as much as possible for the next two years. Same goes for whether they secretly suspect that they’ll trade him in July over over next winter (Yasmany Tomas‘s fit at third base could have to do with that).

For my purposes right now, I’m going to assume that the team isn’t angling to do something horrifically stupid, like sign Trumbo to a 5 year, $100M deal. Other than that, I’ll play ball — rather than insisting that he be traded, let’s act as if the main priority is in saving some money over the next two years (or sweetening his look as a trade asset, which is the same thing).

With on-field performance the main consideration in arbitration, Trumbo is in an uneasy situation. His 2014 was both injury-marred and poor; he’ll try to live off his league-minimum years, which sported some gaudy HR numbers. This is not the first time, however, that a player of his profile has tripped during an arbitration year; that’s all baked into Matt Swartz’s projections at MLBTR. So let’s say $5.7M is the ideal figure, which is still a decent raise off of his 2014 settlement of $4.8M.

Trumbo’s number is $1.2M off of the projection; the team’s is just $400k off. The fact that the team’s figure is three times as close could mean that it’s three times as likely to be selected. That’s all out in the wash, since the math then works out to be $5.7M still as an ideal settlement value. Sure, Trumbo’s people may think the “ideal” is closer to $6.5M, and he’s entitled to think that. From the perspective of the D-backs, though, all that does is affect the likelihood of settlement.

Armed with the (public) MLBTR projection and their internal projection, if they want to share it, the D-backs could approach Trumbo with a $5.7M offer now. But from the team’s perspective, it probably still makes sense to settle if the salary in the $5.9M or $6M range.

Why? Because while we can use a game to assess likelihoods, chaos still plays a role. And in Trumbo’s instance, chaos is bad. A salary of $7M is only $1M more than the team is likely to pay with a settlement, but the effect on Trumbo’s 2016 salary is also important — depending on how well Trumbo fares in 2015, paying Trumbo an extra $1M now could mean the team ends up paying him $3M or even $4M more overall.

That’s bad news because Trumbo would become too expensive an appendage in 2016. Arbitration-eligible players won’t have a big impact on the team’s payroll until 2017, but in 2016, the first wave of arbitrations will be felt. A.J. Pollock and Patrick Corbin could command significant first-year awards or settlements, and Jeremy Hellickson and could command a significant sum if everything goes according to plan. Rubby De La Rosa could also get a healthy raise through arbitration for 2016, although his arb case will be really wonky even if he excels in 2016. We can probably put Randall Delgado in the same category.

Sure, the salaries of Trevor Cahill and Cody Ross will come off the books after this season, and the team can get out from under an obligation to Bronson Arroyo with a handsome $4.5M buyout. But Paul Goldschmidt and about a quarter of the 25-man roster will see their salaries all increase simultaneously; unless there’s a big bump in payroll a year from now, the exiting salaries and salary increases might just cancel each other out.

That puts the 2016 offseason D-backs in a situation similar to the one they find themselves in right now: a little paralyzed by their portfolio of commitments. Again, for Trumbo a lot depends on 2016 performance, as he’s unlikely to get two mulligans from an arbitrator. But if he has the same hollow 30-HR season he had in his last year with the Angels, settling for $6M could mean the team could retain him for 2016 for about $8.5M. If Trumbo gets his $6.9M (however unlikely that is), his 2016 salary could be as objectionable as Aaron Hill‘s — meaning he might have little value, even in trade. Given that risk, a settlement with Trumbo up to (but not beyond) the midpoint seems to make sense.

Addison Reed: Filed for $5.6M; Team Filed for $4.7M; Midpoint $5.15M; MLBTR Projection $3.8M

Reed’s case is a lot different. Where Trumbo has to contend with explaining away his 2014 performance, Reed’s case is unmoored because the arbitration process has not yet assigned him a value. Still, look at these figures! Last year, it was remarkable that the team filed a figure for Gerardo Parra that was higher than the MLBTR projection. There, though, there was an explanation: very few players of Parra’s skillset had actually made it to arbitration. He was a unicorn, and to the extent he added some super-plus value, it was through oodles of one skill that has historically not played a big role in the arbitration awards/settlements of right fielders.

With Parra, the team overshot the MLBTR projection by $100k. With Addison Reed, the team has overshot the MLBTR projection by $900k.

Say what you will about the MLBTR projection system, but it’s been stunningly accurate, to the point that I’ve wondered if it’s kind of a self-fulfilling prophecy. But where the system might not yet have been hip to a player of Parra’s particularly unusual skill set, it’s working with a data set that is positively dripping with closers.

In terms of who would win at arbitration, the game we set up earlier would consider the team’s figure to be a 100% lock. A more sophisticated game would still build in some more chaos (but hey, I’m working for free), and if I were to guess, I’d put the team’s chances in the 95% range. That’s a big enough incentive to roll the dice and go to trial: they’re very likely to win.

But if the 2016 payroll made settling with Trumbo a good idea, it makes going to trial with Reed a necessity. I have liked J.J. Putz more than most, but this team has a bad recent history of paying closers salaries in the $7M-$9M range. Given the year-to-year volatility of relief pitchers, there are extremely few relievers that make sense for the D-backs in that salary range. It’s just a bad idea.

If Addison Reed and the D-backs settle his arbitration salary — even at slightly below the midpoint, or $5M — Reed will have a 2016 salary above $7M. That’s true even if he misses the whole year to injury. In other words, settling with Reed now makes him almost valueless a year from now. The only value he would have would come from the fact that a tender decision wouldn’t have to be made until November, from the fact that some team might value him inappropriately high (hey, Kevin Towers might be a GM again by then), and from the fact that one-year deals for relievers should probably come with salaries somewhat above what the pitcher would command in a multi-year deal. And 2017? Forget it.

At $4.7M, there is at least a chance that Reed makes sense for the D-backs in 2016. At $4.7M, there could be a fairly large market for Reed midseason, with an extra small-market team or two. At $4.7M, Reed is not a flat-out mistake.

And there’s one other reason why the team should go to trial with Reed: to send a message. It’s been thirteen years since the D-backs took a case to hearing. Worse than that, agents seem to have caught on that the D-backs are terrified to go to a hearing. Using the MLBTR projections as a cross-check, it looks like agents have been pretty aggressive with the figures they file for arbitration. And yet, on top of that, the team has a recent history of settling above the midpoint, which rewards agents for aiming unusually high. Remember how last year, the figures for Trumbo offered the biggest discrepancy (proportionally) in the sport? In that game of chicken, the D-backs lost. They’re going to keep losing, and the fact that they’ve been losing these games of chicken means that losing costs them dearly.

The figures for Reed is a bridge too far. If the D-backs settle near the $5.15M midpoint for Reed, they’ll be the laughingstock of the sport. Their $4.7M figure was too high as it is, and it’s way too high if they don’t retreat to the position that they were trying to get so close to what an arbitrator would offer that victory would be almost assured. In reality, I’m sure both Reed figures benefited from some kind of discussions between team and player. But let’s say those discussions revealed that Reed wouldn’t settle for less than $5.2M; fine. Again, that affects likelihood of settlement only.

If the team had filed a $4M figure for Reed, I’d say the situation offered a golden opportunity to make a relatively safe play to lower Reed’s next three salaries while giving the team the very significant ancillary benefit of making agents take the D-backs more seriously in the future. But this is a little different. They have to go to trial. They have to show that they aren’t willing to pay any cost to avoid a hearing. At $4.7M, going to trial isn’t just about getting Reed at a good figure and having him as an actual asset in 2016. At that number, the D-backs risk doing a tremendous amount of damage to future negotiations if they don’t go to trial.