Three years ago, the White Sox signed Cuban slugger Jose Abreu to a franchise-record six-year, $68MM contract. Abreu kicked off his MLB career with a monster 2014 campaign, winning Rookie of the Year and finishing fourth in the MVP voting. His offensive production has declined steadily since then, but still remains above average. Now, Abreu is presented with an important decision that will impact his future earnings. Within five days of the conclusion of the World Series, Abreu and his agents must decide whether he will opt out of his existing contract and into MLB’s arbitration system — a right that is afforded to him via a clause in that six-year pact. (Note: Dodgers outfielder Yasiel Puig finds himself in a similar situation, albeit coming off a weaker year. His situation will be addressed separately from Abreu here at MLBTR.)
If Abreu keeps his current contract, he will earn $34MM from 2017-19. That includes salaries of $10.5MM in 2017, $11.5MM in 2018, and $12MM in 2019. Abreu’s agents must determine whether their client can do better in arbitration, without the luxury of a precedent for a situation like this.
Abreu’s baseline 2016 salary, for the purposes of arbitration, appears to be $11.66MM. That figure is calculated by taking his $10MM signing bonus, dividing it by his six-year term, and adding it to his $10MM salary from 2016. That’s a critical difference, as arbitration paydays are based largely off of the previous year’s salary. However, there is some gray area in this all-important baseline figure, and the Collective Bargaining Agreement does not provide clarity. First, does it make sense to divide the signing bonus by six years, even when Abreu is opting out of the last three? An agent could argue for dividing the bonus by three years, setting Abreu’s 2016 salary at $13.33MM. Second, even if the six-year term is used, the Players Union tends to calculate net present value on the signing bonus, which could put Abreu’s 2016 salary around $11.88MM.
The White Sox will surely argue against interpretations that assign Abreu a higher number for his 2016 salary. I think they would agree that for the purposes of establishing an arbitration baseline, he earned $11.66MM this year, unless there is something in the contract that calls for the exclusion of the signing bonus in determining his 2016 salary.
Is there any argument to be made that based purely on statistical merit, and not prior salary, Abreu should earn more than $11.66MM in 2017 through arbitration? Nope. Abreu seems to be in the range of Giancarlo Stanton’s first three years, which earned him $6.5MM for his first arbitration year in 2014. Even with inflation, Abreu wouldn’t get past $11.66MM.
Since Abreu “deserves” a salary well below $11.66MM through arbitration, can the White Sox argue for cutting his salary? Using the maximum allowable cut of 20 percent, the team could theoretically argue for a $9.33MM salary for Abreu for 2017. However, salary cuts are extremely rare in the arbitration process, so much so that MLBTR’s automated model doesn’t even consider them. Ian Stewart’s pay cut in 2012, after an awful season, is not relevant here. So I think the worst case scenario for Abreu if he opts into arbitration is getting a repeat of that $11.66MM salary for 2017. That would be a win for him, since his contract would otherwise pay him $10.5MM in 2017.
Can Abreu actually score a raise for 2017, beyond the $11.66MM baseline, though? It’s possible, especially once appearances come into play. It would look bad for the White Sox to try to cut Abreu’s salary for 2017, but it also might not look great to the public if they suggest he does not deserve a raise. Do you think Rick Hahn would try to explain all of the above to White Sox fans, in justifying an argument against giving Abreu a raise? Abreu’s agent, on the other hand, can feign mock outrage to the media that the White Sox don’t think a cornerstone player such as Abreu, with a .299 average, 91 home runs, and 308 RBI in three seasons, deserves a raise. The White Sox could consider giving Abreu $12MM or more to save face.
Abreu gains upside by opting into arbitration. He’s still in his prime, and he plays in a hitters’ ballpark. Abreu could put up strong baseball card numbers in the coming seasons, maybe even reversing his declining power trend. Even just normal Abreu performance, combined with token arbitration raises each year, could earn him $40-45MM from 2017-19, instead of the $34MM his contract would have paid.
Abreu’s downside, on the other hand, is limited. I don’t think a salary cut at any point is likely, so he could simply get repeat salaries three times and still come out with $35MM for 2017-19. The one risk factor would be in the White Sox non-tendering him after the 2017 or ’18 season, in which case he’d become a free agent. The White Sox would only do so if his performance truly cratered, and even then, Abreu would make back most or all of the lost earnings in free agency.
Ultimately, I do expect Abreu to opt into MLB’s arbitration system, and I believe he’ll get a salary of about $12MM for 2017.