Pavano is a Type A free agent, meaning the Twins would receive two draft picks as compensation if the 17-game winner signs with another team. The Twins offered the right-hander arbitration last year, too; he accepted and the sides settled on a one-year, $7 million contract.
Crain and Hudson are Type B free agents, which would award one pick to the Twins if they sign elsewhere.
The Twins declined Tuesday to offer arbitration to three other ranking free agents, relievers Matt Guerrier (Type A), Jon Rauch (Type B) and Brian Fuentes (Type B). They can still sign them at any time.