Meaning
Dispute resolution mechanisms require an independent neutral to select entirely one of two final proposals submitted by opposing parties without modification or compromise. In founder buyout disputes and equity valuation deadlocks, baseball arbitration eliminates the power of the appointed decider to split the difference between competing price demands. Both parties present a single monetary figure accompanied by valuation evidence, and the decider adopts whichever figure appears closer to fair market value.
The procedure ends once that selection is registered, leaving no scope for intermediate figures or negotiated amendments.
Submission Mechanism
Procedural protocols govern the timeline and formal exchange of valuation reports prior to final submission. Each party formulates a final valuation figure in isolation, often submitting the number under seal to the appointed independent expert. In night baseball arbitration, the neutral determines an independent value before opening the sealed offers, immediately adopting whichever party’s submitted number sits closer to that figure.
Under standard formats, the neutral inspects both figures and the supporting market data before making the single binding choice.
Incentive Alignment
Compelling parties toward reasonable positions is the foundational purpose of this binary selection rule. When traditional dispute processes allow intermediate compromises, parties exaggerate claims to pull the middle point toward their desired outcome. Under baseball arbitration, an extreme valuation offer guarantees total defeat because the decider will naturally select the more conservative and defensible competitor figure.
Departing founders and remaining partners are therefore pressured by the structural rules to abandon aggressive claims and converge toward objective market realities. This dynamic conserves personal capacity and reduces the financial costs of extended dispute proceedings by encouraging realistic opening stances.
Valuation Finality
Binary choice eliminates prolonged appeal cycles and produces an immediate binding purchase price. The mechanism forecloses negotiated compromise, forcing both sides to live with the chosen proposal in full.
