His LT demands will likely increase between 2nd/3rd arb years. I can't recall a player reducing demands without a major injury. But, other than that, no downside.
There is a bug in the game. I never had the balls to test it until last season. Arb a player and you return the same screen. Hit the LT link and then sign him LT. You get him for 6 seasons.
Hardball Dynasty – Fantasy Baseball Sim Games - Player Profile: Jimmy Powell
The disclaimer here is that I did it after his 2nd arb in hopes of keeping his LT demands lower. They did not change. I was afraid to do it after his third arb because he's too good and, if it didn't work, I'd have been way too ****** at myself for losing him.