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Friday, February 19, 2010

Tiger Woods - Statement

I am not a journalist or technically in the public relations field, but I have represented a significant number of high-profile professional athletes who have been the subject of intense media scrutiny, so I think I have somewhat of an educated opinion on what transpired with respect to Tiger Wood’s recent statement.

America has a fascination with tearing down its heroes, whether they are athletes, politicians, or other high-profile individuals. America also has a penchant for forgiveness. America puts high-profile athletes (and other high-profile individuals) on a pedestal (we wear their jerseys, buy their products, and flock to the fields and arenas in which they perform, and embrace and root for them to succeed). However, Americans are fallible, and we want, deep down, to know that our heroes are fallible also – it “humanizes” the hero in the mind of the public. All of a sudden, we can say “hey, I made that mistake too” or “hey, that could have happened to me”. An athletes’ failure (in the main) can strengthen his/her bond with the public because he/she becomes more “like us”.

Some in the media have asked me whether Tiger took the correct path in handling this matter with respect to public relations given that I had represented Sammy Sosa, Andy Pettitte, and A-Rod (and others) in somewhat similar circumstances. To be candid, I would have provided different advice, and employed a different strategy, but that is not to say Tiger (and/or his advisors) chose the wrong path. At the end of the day, Tiger only had to apologize to his wife, his family, and his friends, which he did. He does not need to apologize to the American public or his sponsors. With his statement (and I’m sure well before then), he apologized to the only people he needed to apologize to. This was a personal failure, not a professional failure.

Tiger made a number of personal, not professional, mistakes. These mistakes will cost him some sponsorship dollars and a few (and I mean a few) fans. America didn’t embrace Tiger because he was “squeaky clean”, they love him because he was (and is) the best (and more importantly, the most exciting) golfer of this generation. He singularly energizes a sport and has become one of the most recognizable personalities in the world because of his “on-course” performance, not his “off-course” behavior or personality.

As far as his sponsors are concerned – Tiger has made them their money – his sponsors have a choice now: cut and run, or maintain their relationship with the best golfer of this generation. Tiger’s sponsors were not robbed or cheated by these recent developments. They got what they paid for – the best golfer in the world. If they determine going forward that Tiger will not have the public appeal (and resulting marketability), then they will move on, as is their right. But watch, and wait, because most of his sponsors won’t cut and run, because performance sells. Performance, not personality (or personal life) drives his popularity and resulting marketability.

I wish Tiger Woods and his family the best and I look forward to his return to competition, because I, like the rest of America, love a hero. Maybe more so now that I know that he is fallible.

Tuesday, February 9, 2010

Debunking Salary Arbitration Myths - Part 2

Salary Arbitration: Battle of the Midpoint. Maury Brown’s article in a special to Yahoo Sports can be viewed here:;_ylt=AqF3fSxVuGp1cB9h5WbNqv0RvLYF?slug=ys-arbitrationmidpoint012510&prov=yhoo&type=lgns

Mr. Brown writes:

“It’s this midpoint figure where a dollar one side or the other offers a moral victory. A dollar below, the club wins. A dollar above, the player gets braggin rights.”

While Mr. Brown’s article is excellently written, his ultimate conclusion, on a practical level, does not accurately reflect the basic notions of salary arbitration and midpoints. Salary arbitration is meant to determine a players’ actual value within the “salary arbitration system”, not his value with respect to the “midpoint”. The only time a midpoint has tangible effect is in the case of an actual hearing. While some agents brag about “above midpoint settlements” and certain teams take a hard line of “never settle above the midpoint” – this is mere puffery. Settlements rule the day, and most often, settlements reflect a players’ actual value within the system, irrespective of the midpoint.

The midpoint, is, as some have often described it, an ultimately arbitrary number. Players/agents and teams “guess” at what the other will file in an effort to create an equitable midpoint. However, the midpoint between a club’s submission and a player’s submission is not arrived at out of the ether. Clubs and agents make “educated guesses”, based upon a great deal of experience and negotiation, on what the opposition is going to submit as a filing number. On the basis on this “educated guess” numbers are submitted. The idea is to create a midpoint “in or around” the player’s value within the salary arbitration system.

For example, if a player (and his representative) believe that he is worth $3.1m in the current salary arbitration market, the player will seek to set up a midpoint at or around $3.1m. Let’s use Andre Ethier from last year as an example. Ethier filed at $3.75m while the Dodgers filed at $2.65m, resulting in a midpoint of $3.2m. Ethier’s representatives were aware of the filing numbers of Ethier’s main comparables, including Corey Hart, whom they also represented. Hart filed at $3.8m, while the Brewers countered at $2.7m, resulting in a midpoint of $3.25m. Also in the mix (among others) was Conor Jackson, who had settled at $3.05m. Ethier was statistically superior to Jackson, but the question was how much better?

Hart ultimately settled at the midpoint of $3.25m, while Ethier settled at $3.1, $100k below his midpoint of $3.2m, but $50k ahead of Conor Jackson’s $3.05m. Did Ethier “lose” because he didn’t settle at the midpoint? The simple answer is no. Ethier was behind Hart and ahead of Jackson on a statistical analysis, and he was more than $50k behind Hart (again, on a “drilled down” statistical analysis). So once Hart settled at $3.25m and Jackson at $3.05m, Ethier was placed in the position of having to settle below his $3.2m midpoint because, again on a statistical analysis, he was more than $50k behind Hart, but still slightly ahead of Jackson at $3.05m.

Good agents will often, in the case of a team that is not “file and trial” (I will address the “file and trial” strategy in another post), file somewhat high in an effort to push the midpoint up. Clubs, on the other hand, when faced with the same situation, will file somewhat lower, in an effort to push the midpoint down. However, the player’s actual value within the system is ultimately the most important number.

This is not to say that in certain situations, numbers are filed that create a significant leverage to either a player or a club. Take for example Neifi Perez in 2001. Perez filed at $3.95m, and the Rockies filed at $3.1m, resulting in a midpoint of $3.525m. In that same class/year, Deivi Cruz settled for $3.525, the midpoint in Perez. Perez was statistically superior to Cruz, and was thus able to obtain an above midpoint settlement of $3.55. The reason was simple – Perez had a better chance of prevailing at hearing given the Cruz settlement, so the Rockies, in an effort to avoid being an underdog at hearing, acquiesced, and paid Perez over the midpoint. Regardless of whether the settlement was “over the midpoint”, it was a factual matter that Perez was superior to Cruz, and thus should have been compensated higher. Teams have also employed this strategy to get players, like Ethier, to settle below the midpoint.

The goal in salary arbitration submissions to arrive at a player’s true value within the system. Sometimes, by virtue of overly aggressive filings on either the clubs’ or the players’ behalf, the midpoint becomes important with respect to a hearing. A bad midpoint, for either the club or the player can lead to a loss at hearing or an inequitable settlement. However, the majority of cases are settled pre-hearing, and the majority of those settlements, whether at, below, or above the midpoint accurately define the individual player’s value irrespective of the midpoint.

In the main, if a player settles below the midpoint, it is not a “loss”, as he usually receives what his true value within the system is. Likewise, if a player settles above the midpoint, it does not follow that it is a “win”. More likely, the above midpoint settlement is reflective of his value within the system. As stated, there are aberrations, and the “file and trial” aspect does not fit within the above-described model.

In conclusion, the midpoint is an arbitrary, yet in the main, intellectually arrived at number that has bearing on a players’ actual value within the salary arbitration system. The midpoint is one way of making that determination in that it is a “bargained for” number, but it is not usually the ultimate determining factor in a player’s salary. If a player settles below the midpoint, but is still compensated at a level that accurately reflects his value within the system – he has not lost.

Wednesday, February 3, 2010

Sports Law Blog

Many thanks to Professor Michael McCann, who is also the sports law columnist for Sports Illustrated, for featuring this blog on The Sports Law Blog is the product of some of the best sports lawyers in the country.

Tuesday, February 2, 2010

Debunking Salary Arbitration Myths - Part 1

Regarding the upcoming salary arbitration hearing between starting pitcher Wandy Rodriguez and the Houston Astros, Greg Lucas of FSN-Houston wrote:

Rodriguez doesn't lose no matter what the decision is. He made about $2.6 million in 2010. No wonder an awful lot of baseball owners rue the day they agreed to arbitration to settle contract disputes. The players always win. The owners offer raises-in Wandy's case almost doubling his salary--but may have to pay even more if the arbitrator rules such.The scoreboard may show the owners "winning" a decent percentage of the actual arbitrator's decisions, but they still pay out more money than they had the year before.

Maury Brown of the Business of Sports Network and contributor to Yahoo!Sports writes:

Last year, Red Sox closer Jonathan Papelbon(notes) reached a $6.2 million settlement deal ahead of exchanging figures. The deal was the largest ever offered to a first-time salary arbitration eligible closer, and the third highest in history behind Howard’s $10 million arbitration award in 2008 and the $7.4 million awarded to Miguel Cabrera(notes) after he won his case in 2007. To place that in perspective, it was a 700 percent raise from the $775,000 Papelbon made in ’08. As for Howard’s award in 2008, his increase from the $900,000 he made in 2007 was 1,011 percent. As one executive replied when asked about salary arbitration: “Honestly? What’s to like about it?”

Mr. Lucas, Mr. Brown, and many others in the media, seem to miss the point of salary arbitration (SA), and more importantly, players’ rights (as well as clubs’ rights) under the Basic Agreement. A player with 3 or more years but less than 6 years of Major League Service (MLS) is eligible for salary arbitration (SAE) pursuant to the Basic Agreement. In certain circumstances, a player with 2+ years of MLS may also be eligible for salary arbitration as a “Super 2”. There is also a provision which allows certain free-agents to submit to the salary arbitration process, but that provision is not relevant to this entry. The Basic Agreement can be viewed here:

Salary arbitration is a collectively bargained for process. Owners and players originally agreed to the salary arbitration process in 1974, and little has changed in the process since. While Messrs. Lucas and Brown (and others) focus on the “raises” that salary arbitration eligible players receive, they miss the significant benefits that the salary arbitration system bestows upon clubs.

How does a club benefit in the salary arbitration system? The answer is simple. A club that has a SAE player controls that player throughout that player’s SA eligibility (at least 3 years, and in the case of Super 2s, 4 years), in addition to the 3 years of service prior to salary arbitration eligibility, for a total of 6 years. The club can choose whether to tender that player a contract, thus making him salary arbitration eligible. If that player’s expected salary in the salary arbitration system exceeds what the club believes his value to be, the club can simply non-tender the player, thus making him a free-agent.

A recent example of this is the Pittsburgh Pirates’ decision to non-tender Matt Capps, the Pirates’ closer for the past 3 years.

The Pirates made the decision that they could find a comparable player to Capps in the free-agent market at a lower price than Capps’ salary arbitration value. Capps was due a raise from his $2.35 million salary, and the Pirates ultimately determined that such a cost outweighed Capps' value.

The Pirates eventually signed Octavio Dotel for $3.5m to be their closer. The Pirates thought that Capps was not worth his “arbitration value", and non-tendered Capps. That decision was club’s, and not the player’s. It certainly remains to be seen whether the Pirates’ “valuation” of Capps was correct. Given that he signed with the Nationals for $3.5m with performance bonuses in the free-agent market, one could conclude that the Pirates incorrectly gauged the “market” value for Capps.

Even more beneficial to the clubs is the fact that salary arbitration contracts are usually non-guaranteed. The guarantee is matter of negotiation, but the majority of salary arbitration contracts are non-guaranteed. Thus, if a player fails to perform in spring training (or engages in some prohibited activity which results in injury), the club has the right to terminate the contract and pay 1/6 of the value of the contract to the player.

In my opinion, the salary arbitration system protects clubs to a greater extent than players, given that the decision to tender a player a salary arbitration contract is always in the clubs’ hands. To debunk Mr. Lucas’ notion that players cannot “lose” in the salary arbitration system, let’s take a look at what Wandy Rodriguez, a 2nd time salary arbitration eligible starting pitcher, could have received if he was a 2010 free-agent, and not a 2010 salary arbitration eligible player. In this analysis, I’ll use John Lackey, who was 2010 free-agent. Below is a comparison between John Lackey’s and Wandy Rodriguez’s 2009 statistics. Clearly, Rodriguez is statistically a better pitcher in 2009, yet because Rodriguez is salary arbitration eligible, and not a free-agent, he will get paid either his submission of $7.0m, or the club’s submission of $5.0m. In the meantime, Lackey, as a free agent, was able to obtain a 5 year $83.0m contract, with an average annual value of $16.5m.

Platform Year Comparison
Rodriguez, 2009 Astros 1.000 14 12 .538 3.02 33 33 23 205.7

John 2009 Angels 1.000 11 8 .579 3.83 27 27 16 176.3

Why is Lackey able to earn $16.5 per year over 5 years, and Rodriguez is only able to earn either $5.0m or $7.0m? It’s simple – Lackey is a free-agent and able to freely negotiate with other clubs, whereas because the Astros control Rodriguez this year (and the next 2 years, as Rodriguez is a Super 2) in the salary arbitration system. Therefore, the Astros are paying much less for Rodriguez in the salary arbitration system than they would if he were a free-agent. If Rodriguez was a free-agent, he might well get a contract in excess of Lackey on the basis of a pure statistical analysis.

And just in case you thought that Rodriguez was a “1-hit” wonder with respect to Lackey, here are their 2 year numbers:

Two Year Comparison

Rodriguez, 2008 Astros 1.000 9 7 ..563 3.54 25 25 10 137.3
Rodriguez, 2009 Astros 1.000 14 12 .538 3.02 33 33 23 205.7
TWO YR TOTAL 2.000 23 19 .548 3.23 58 58 33 343

John 2008 Angels 1.000 12 5 .706 3.75 24 24 16 163.3

John 2009 Angels 1.000 11 8 .579 3.83 27 27 16 176.3
TWO YR TOTAL 2.000 23 13 .639 3.79 51 51 32 339.7

The salary arbitration system does benefit players in that they are able to compare themselves to other players in the salary arbitration system and receive higher salaries than they were receiving prior to salary arbitration eligibility. They are no longer subject to the bargained for contract renewal provision of the Basic Agreement, which is at the clubs’ discretion. Keep in mind that prior to salary arbitration eligibility, clubs are able to renew players at the minimum salary ($400,000) or above (at their sole discretion), no matter the quality of performance. For example, Tim Lincecum was paid $650,000 in 2009, despite being the 2008 Cy Young Award winner on the basis of these statistics:

Career Totals

Lincecum,, 2007 Giants 0.148 7 5 .583 4.00 24 24 16 146.3
Lincecum, 2008 Giants 1.000 18 5 .783 2.62 34 33 26 227.0
CAREER TOTALS 1.148 25 10 .714 3.16 58 57 42 373.3

In 2010, Lincecum is salary arbitration eligible. He has submitted a demand of $13.0m, and the San Francisco Giants have submitted $8.0m, with a midpoint of $10.5m. Let’s take a look at Lincecum compared to C.C. Sabathia, who last year signed a 7 year $162.0m contract (with an AAV of $23.0) as a free-agent:

Platform Year Comparison

Sabathia, 2008 Indians 6 8 .429 3.83 18 18 10 122.3
Sabathia, 2008 Brewers 11 2 .846 1.65 17 17 23 130.7
Sabathia, 2008 1.000 17 10 .630 2.70 35 35 25 253.0



Tim 2009 Giants 1.000 15 7 .682 2.48 32 32 26 225.3

It is arguable that Lincecum is statistically superior to Sabathia. Regardless, Lincecum will earn somewhere between $8.0m and $13.0m in 2010, while Sabathia will earn $23.0m. Why? Because again, Sabathia was a free-agent, while Lincecum is salary arbitration eligible. The San Francisco Giants are the beneficiaries of the salary arbitration system in this analysis. If Lincecum was free-agent eligible, he most likely would command a salary of $23.0m (Sabathia) or above. In addition, the Giants are protected throughout Lincecum’s salary arbitration years in that if he fails to perform or is injured, it will be reflected in his future salaries. In contrast, if Sabathia fails to perform to expected standards or is injured, by virtue of his guaranteed contract, he will continue to earn $23.0m every year for the length of his contract (unless, of course, he violates certain terms of his contract). As it stands, Lincecum has to go year by year for the next 4 years (Lincecum, as a Super 2, will have 4 years of salary arbitration eligibility).

As stated, players benefit from salary arbitration, but clubs certainly benefit in that they have choices with respect to a salary arbitration eligible player: they can choose, at their sole discretion, whether to tender a player a contract, or not to tender him a contract. In addition, clubs are protected. A player’s salary arbitration salary will fit within the confines of similarly situated players that have gone through the system or are currently going through the system. In the salary arbitration context, clubs do not have to concern themselves of free market forces that could push the player’s salary higher. The salary arbitration system protects both players and clubs.

In response to Mr. Lucas, certainly Wandy Rodriguez can lose. If he were a free-agent coming off of his 2009 season, he’d make far in excess of either $5.0m or $7.0m, and most likely have the security of a guaranteed multi-year contract. Should Rodriguez fail to perform this year, or is injured, it will be reflected in his 2011 salary (should the Astros again tender him a contract, at their discretion). Rodriguez has no security in a 1 year salary arbitration contract. I’m sure that if Rodriguez had his druthers, he’d choose to be a free-agent as opposed to salary arbitration eligible.

In response to Mr. Brown, who seems to embrace the thoughts of the unnamed executive who proclaimed “Honestly? What’s to like about it?” What’s to like about it from the club perspective is that salary arbitration is a 3 year (or 4 year in the case of Super 2) club option, wherein the club decides at its sole discretion whether a player is worth his value within the salary arbitration system. If the club does not believe that he is, it can non-tender the player. In addition, with the exception of 3rd/4th time salary arbitration eligible players (who, by virtue of the criteria set forth in the Basic Agreement can compare themselves to free-agents), clubs can take comfort in the fact that players are limited by the salaries of similarly situated players within the system. Players within the salary arbitration system cannot negotiate with other teams, thus reducing leverage that would otherwise be present in a free-agent context.

The end result is that salary arbitration benefits both players and clubs. There are no “winners” and there are no “losers”. It is a contractually bargained for process by which the club maintains control over the player throughout his eligibility while in turn, the player can finally contractually compare himself to similarly situated players and is freed of the clubs' discretionary renewal power.