Salary determination of arbitration and free agent Major League Baseball pitchers: 1984-2003
Date
2005
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Publisher
University of Delaware
Abstract
When a Major League Baseball player engages in salary negotiations with a team, what determinants are considered in their final salary figure are not black and white. As a result it is necessary to explore which factors contribute to a player’s salary, and if these factors are different for free agents and arbitration eligible players. Every free agent and arbitration eligible pitcher between the 1984 and 2003 seasons were evaluated in an ordinary least squares regression analysis that measured player salary as a function of years of experience, innings pitched, earned run average, strike out to walk ratio, year of signing, starter or relief status, playoff experience, and performance relative to the league average; and it was determined that free agent and arbitration eligible pitcher salaries could not be pooled. An Oaxaca means/coefficient decomposition confirmed that the data could not be pooled, indicating that at least 60 percent of the higher salaries for free agents was due to higher returns to productivity characteristics of the players. Additionally, the results indicated that during the 1995 and 2003 seasons, pitchers saw increases of between $13,260 and $15,332 for arbitration eligible pitchers and between $25,186 and $25,840 for free agent pitchers for each additional nine innings pitched, between $20,720 and $24,864 for arbitration eligible pitchers and between $32,710 and $49,065 for an increase of 0.1 in of a pitcher’s strike out to walk ratio, and a decrease of 1.0 in a pitcher’s ERA resulted in an increase of between $435, 120 and $559,440 for arbitration eligible pitchers and between $948,590 and $1,504,660 for free agents. Finally, for an arbitration eligible pitcher, each additional year of experience yields an increase of between $435,120 and $538,720 during the 1995-2003 seasons, while years of experience is not a significant contributor in determining a free agent’s salary.