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contract converts to a minor league contract if in the minors once the major league contract expires.
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In a quick test, this works for a player below the arbitration minimum time. He had an automatically assigned Major League contract, I demoted him to AAA shortly before the end of the season, and he was auto-signed to a minor league contract in the off-season.
Another guy with arbitration eligibility received a new contract through arbitration even though he was only on the 40-man roster, but not the 25-man. I have no idea if this is correct behaviour...anyone? (He definitely should not go through arbitration if he was off the 40-man roster, but we obviously can't test that right now.)