re: Need help understanding baseball rookie contracts

This is how arbitration works in the MLB:

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The process is what is known as "Final Offer Arbitration" (though in the world of alternative dispute resolution it is now becoming known simply as "Baseball Arbitration"). In mid-January, each side to the dispute submits a salary figure to a panel of independent arbitrators. After a few hours of hearings, held in early February, the arbitrators pick one figure or the other. The arbitrator cannot "split the baby" and settle on a salary in the middle of the spread between the club's figure and the player's. One side leaves the arbitration a winner and the other a loser, heightening risk and encouraging negotiation and settlement.

This is the critical element of baseball arbitration: it is designed to produce a settlement, not a verdict.

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So the player needs to low-ball their offer a bit and the team needs to pay a bit more because they don't know what the other side's number is.

Since they can't split the difference, this creates a race to the middle (either on the low side or high side) to mitigate the difference paid.

In other words, let's say the arbitrators feel a player is worth $3 Million dollars a year. If the player submits a bid for $5 Million and the club submits a salary of $750,000, the club will most likely lose because they are further away from what the player truly deserves.

Arbitration is a game.