As explained by Tim Dierkes (MLBTR), “[f]or a team to receive draft pick compensation for a departing free agent, arbitration first must be offered to that player. The risk is that the player will accept, and the team will be stuck with that player on a non-guaranteed contract for 2010.” Last winter, in order to sidestep fiscal “risk” and reallocate funds to effectively improve their ball club (e.g., CC Sabathia, Mark Teixeira, A.J. Burnett), the Yankees chose not to offer arbitration to any of their ranked free agents. In a depressed market, the move, which was originally criticized by many fans and writers, was ultimately a wise one, as most players, even those with plenty to offer — see, Bobby Abreu — struggled to find lucrative contracts on the open market. Had the Yankees made arbitration offers in the hopes that they would later receive compensatory picks upon their free agents signing elsewhere, perhaps those same free agents would have accepted and limited Brian Cashman’s ability to better equip the team for 2009 (again, he needed payroll space).

However, this winter, with fewer holes to fill, a thinner free agent class, and a championship caliber core still present in the Bronx, the situation has evolved and the Yankees could very well offer arbitration to their ranked free agents rather than decline to do so. In fact, the club’s arbitration decisions will be announced later today, therefore, we won’t have to wait long to hear about who was offered arbitration and who was not. While Xavier Nady, a Type-B free agent, probably won’t receive such an offer due to his injury-marred campaign, his cost, and the presence of Nick Swisher, Johnny Damon and Andy Pettitte are two players that could be considered for offers, as the Yankees reportedly want both of them to return for next season.

In Damon’s case, after earning $13M in 2009, if the Yankees were to extend an arbitration offer to him, following an arbitration hearing (or perhaps the two parties will agree to a deal), he would likely receive a figure close to $16M in 2010. While this is above market value — overpaying an aging left fielder with poor defensive credentials certainly is not ideal — it does provide a significant benefit in terms of short-term roster flexibility (in essence, the Yankees would be overpaying for that flexibility). Based on published reports, however, it seems as though Damon, along with his agent Scott Boras, would be displeased with a one-year deal. The two appear to be seeking a 3-4 year contract in order to capitalize on Damon’s productive year, therefore, it is definitely not a foregone conclusion that Damon would accept an arbitration offer, as he is much more likely to reject such a proposal. As a Type-A free agent, if Damon does, indeed, decline the organization’s arbitration offer, they would subsequently receive two draft picks (first and second round) from his future team. That’s obviously not a bad thing, although the Yankees would still be in need of a new left fielder.

With Andy Pettitte, the arbitration decision could be a lot clearer. While Pettitte was not content with having to accept an incentive-laded deal (roster and performance bonuses) with a “meager” base salary of $5.5M for 2009, he did end up winning most of those incentives and earned $11M, in total. Due to his impressive 3.3 WAR performance this season, one that was worth $15M according to FanGraphs (about $4.5M per win), the Yankees may inevitably choose to offer Pettitte arbitration. Though I am uncertain of the manner in which roster and performance bonuses are taken into account when negotiating arbitration offers, I would assume that Pettitte could amass more than the $11M he earned with the Bombers, meaning that his 2010 salary, after the arbitration process (agreeing to a deal or attending a hearing), would inch closer to $13.5M. With a state of ambiguity surrounding the team’s starting rotation, the Yankees would be particularly pleased if Pettitte were to accept that offer. If Pettitte, a Type-B free agent, rejects the team’s arbitration overtures and signs elsewhere — an outcome that is thought to be unlikely — the Yankees would garner a supplemental draft pick from the lefty’s new team.

So, while we wait for today’s arbitration announcement, which won’t arrive until later tonight, what do you think? Could Damon receive an offer due to the flexibility such a deal would provide the Yankees (collecting two prospects would be great, too)? Given the team’s pitching needs, maybe Andy Pettitte should be offered arbitration (perhaps you believe both players should receive arbitration offers)? Will either player be presented with offers or will we see a repeat of last winter’s strategy? For the record, both Tom Singer (MLB) and George King (NY Post) have reported that the Yankees are unlikely to offer any of their free agents arbitration.