It means that if there is no contract signed before the arbitration, both parties will give arguments to an arbiter of why the contract (one year only) should be a certain amount. The arbiter will then decide between the two amounts.
It's an option to avoid because the player will receive harsh criticism in the process that will make him want to leave once the contract is expired or before.
It get harder and harder for government to regulate corporations as they get bigger and bigger and are multinationals. That's what happens with tax heavens.
I understand corporations motives, but the parent commenter explains well that it doesn't work well if they are too greedy about it.