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He currently has a major league contract...even if he isn't on the major league (40-man) roster.
So, in real life, you would need add him back to your 40-man if signing him to a new arbitration contract. Otherwise, would need to non-tender him and he becomes a free agent.
I'm not sure how the game will handle it, though. It might let you sign the new arb contract without adding him to the 40-man...not sure.
Let us know what happens!
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