Despite the fact that there are accepted and recognized business valuation practices, valuation is always subject to individual opinion and can be swayed hugely by the ulterior motives of the appraiser.



For example, someone wanting to sell his business may conduct a business valuation to determine an asking price. He obviously wants to get the most money for the business as possible. A potential buyer however, wants to purchase the business for the least amount of money possible. He may conduct his own business valuation and offer a much lower number. Thus, occasional disputes over business valuation are inevitable.

In situations such as these it is only practical to turn to the experts for resolving discrepancies in value perception; professional sports.

Final-offer, or "baseball," arbitration has been employed primarily to settle public sector labor contract issues where labor does not have the right to strike and, within major league baseball, to resolve salary disputes for players who are not eligible for free agency and can bargain only with their current clubs.

Baseball arbitration requires that the arbitrator choose the position of one party or the other in the final decision. While the reward for winning in baseball arbitration can be large, the risk of losing (and being subjected to the other party's valuation) is also substantial. This risk/reward dichotomy often produces a strong incentive to find ways to compromise with the opposing party and make concessions that otherwise would not be made.

Applying this principle to business valuation generally has the same ultimate result, that of closing the gap between the final offers of both parties.

It is the uncertainty inherent in baseball arbitration that accounts for the process working so well; if the arbitrator's expected value were known for certain, all business valuation submissions would equal this number, eliminating risk of losing the arbitration, but also giving up potential rewards. Therefore, the best strategy to employ in the arbitration process is to estimate the arbitrator's expected value. This causes the parties to look at business valuation in a more removed, objective light, as the arbitrator would do.

When the expected valuation has been estimated, the parties weigh the risks and rewards that result from submitting a value in the arbitration that differs from the arbitrator's expected value. This involves a level of gamesmanship-if a party's submitted value deviates too far from the arbitrator's value, that party will lose. Therefore, each side will tend to move closer to the expected value as the arbitration progresses, making baseball arbitration an effective method to overcome disputes in business valuation.