The Yanks stunned the baseball world last year when they decided against offering arbitration to any of their free agents. Rather than risk older players accepting and receiving above-market one-year short-term contracts, the Yanks opted to clear out as much payroll space for 2009 and beyond. The plan, in the end, was to spend a cajillion dollars on the three top players in a very strong free agent class. It's hard to argue with the results, especially since it seemed as if Cashman and company had anticipated the suddenly depressed market for corner outfielders. Bobby Abreu was forced into signing a one-year deal worth considerably less than what he would have gotten in arbitration.
This off-season is different. Most notably, the free agent class is not as strong, lacking an elite ace and the depth of pitching and positional player choices of the 2009 class. The Yanks also have a lot less money coming off the books. The backloaded contracts of Giambi and Abreu do not compare to Damon's or Matsui's. Furthermore, there is at least one player eligible for arbitration whose recent season provided fair value to the Yanks. Johnny Damon made $26 million in the last two seasons of his contract and Fangraphs says he was worth around $29 million. Compare this to Bobby Abreu, who the Yanks decided against offering arbitration. He made $31 million in his last two seasons with the Yanks while Fangraphs has him pegged as being worth $17 million. In other words, the Yanks have good reason to think they'd overpay less on a 1-year deal for Damon in 2010 than they would have on an arbitration contract for Abreu in 2009. Coincidentally enough, Abreu factors in this decision for another reason. The Angels ended up re-signing him right after the end of the season to a two year, $18 million deal, worth a team option for a third year. His deal might have elevated the price for free agent corner outfielders from last year's. In any case, you can bet that Boras will be asking for substantially more for Damon who it can be easily argued is aging better than Abreu.
In my view, it is harder to anticipate what the Yanks will and should do than last off-season. Of course, I didn't anticipate what they were going to do last year, but the point is that there are more compelling reasons to risk offering arbitration to Damon than there were for Abreu. If they do offer him arbitration, the worst case scenario is the Yanks have a corner outfielder/DH for only one season who in his most recent season provided good value. The problem, however, is the Yanks then tie up money which they could spend toward a Holliday or Halladay (who in the short-term are significantly more valuable than Damon). If he rejects it, then the Yanks get compensation in the form of a draft pick if he signs with another team. In addition, they gain flexibility to re-allocate money elsewhere if they want, or leverage in contract negotiations with Damon (whose status as a Type A free agent will scare away at least a few teams). Of course, they could decide not to offer Damon arbitration and see what the market yields for the left field position. The risk is that they end up without a left fielder of Damon's calibre and are unable to re-allocate money to avoid fielding a team that is worse in 2010.
Today is arbitration day. What would you do if you were Brian Cashman?