BY MICHAEL GARDNER – FAN FUEL BLOGGER
To play armchair manager is a sports fan’s greatest pastime. The best time to play this game is during the offseason and many supporters of Toronto FC are rushing to their mobile and not-so-mobile devices to read of the latest transfer rumours.
Given that the league supposedly operates under a salary cap, many apply NHL thinking when it comes to evaluating player moves. Does the team have the room? Is the player worth that salary? All valid questions except for this: Does Major League Soccer actually have a hard salary cap?
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For public consumption, yes. It is a hard and real number to control costs and level the playing field for all teams in the league.
But to truly understand the answer to that question you have to first understand that Major League Soccer operates like no other league in North America. It operates under a single entity ownership structure.
What that means is that the league owns all of its franchises. Those who are referred to as “owners” of franchises, such as Toronto FC’s Maple Leaf Sports and Entertainment, are not actually owners. They are operators of that franchise. All operators therefore become stakeholders in the league, which profits when its collective business succeeds. Operators do keep profits if the franchise they operate within their geography does well but a portion of revenue is also returned to the league and it is used to sign players, pay wages, etc.
That last point is an important one too. Players are under contract to the league and not to the teams. Last year, when fans in Toronto were on about Dwayne De Rosario and his contract, the league stepped up and said that they felt he was on the right type of contract for a player of his skill set and achievement. While MLSE had a seat at the table, the contract itself was between DeRo and the league.
How does all of that relate to the salary cap?
If you understand the above you can further understand that sometimes, there are circumstances which could enable the owner (MLS) and its operators (the teams) to profit if that cap is stretched a wee little bit.
Here are some basics.
The MLS salary cap is set at approximately $2.6 million and they have a max cap hit for any player of $335,000. This includes designated players and non-designated players alike. Designated players are big money players that are brought in for both competitive and marketing purposes (otherwise known as the Beckham Rule).
Teams can sign upwards of three designated players and pay them whatever they like. This is money that is spent from the operators’ budget. The max cap hit for any of those three is of course, $335,000. Teams can buy that amount down even further, using allocation money, which we will discuss later.
There are also Generation Adidas players who were signed to specific contracts, which allowed younger players to leave college and not have the salaries count against the cap.
All sounds very simple, use those tools and fit your team’s payroll under these amounts. Cost control and level playing field for all. Here’s where it gets a little murky.
Players in MLS have two types of compensation – base compensation and guaranteed compensation. The latter includes all bonuses. MLS doesn’t specify which amount is used against the cap though the consensus amongst writers is that it is the base amount. Not having clarity around this issue means that it is plausible that teams can hide compensation within guaranteed numbers to exceed the cap.
But let’s look further.
Some teams, such as those with shiny new stadiums in big markets, are exceeding even the lower base amount. As an example, the New York Red Bulls had a base salary amount of $3.2 million last year using figures released from the league. The guaranteed amount was much higher. That included the designated player cap hit allowances of $335,000 talked about above. If there is a cap of $2.6 million, how can this happen?
The answer of course may partially lie in the use of “Allocation Money” to impact cap hits and salaries, another nuance to the MLS cap situation.
Allocation money is money that the league uses to sign players, “buy down” the cap hits of certain players and is made available to its franchises. MLS’s website indicates that a club may receive allocation money based on:
– failure to qualify for the MLS Cup playoffs
– the transfer of a player to a club outside of the MLS
– expansion status
– qualification in the CONCACAF Champions League
Interestingly, the amounts of allocation money available to teams are never made public. Even more interesting is the wording that was removed from the public website in 2011. In 2010, it was stated that allocation money was also made available for “exceptional circumstances” as deemed appropriate by the Competition Committee.
So to recap, a team may be allotted allocation money for reasons that the league thinks are appropriate. The public is not always told who gets it. The public is never told how much they get. And the public is not always told why they got it. Follow that?
Why is this all important?
It’s simply a reminder that the world of MLS is vastly different from that of other professional leagues in North America. The salary cap is a function tool to control costs but it is not a restrictive tool.
The league will spend money if it is in its collective interest to do so. The league seems content to allow some of its franchises to comfortably exist over the cap in certain important markets. Sometimes they appear to be willing to help them too.
When the New York Post reported in 2010 that like Thierry Henry, Rafa Marquez would be available for a $5 million transfer fee if he went to any team on the planet except New York. The price if he went to New York? $0.
Why would Barcelona do that?
If you understand the concept of single entity ownership and the fact that New York had a new stadium, an All-Star game on the horizon and TV deals that could be more lucrative, you’ll understand why the league appears to have wanted him there and not in Columbus. With rumours persisting about Barcelona’s interest in an MLS expansion club, you can see, at least in theory, how an arrangement could have been made.
I’m sure there were many other factors such as the player’s intentions and wishes and I am not alleging any misdoings. However, it appears that a business deal was struck that benefited a large MLS market at an opportune time.
The long and short of this for Toronto FC fans is that the cap is important. Operators have to manage their assigned budgets. But it isn’t the be all and end all. If a business case can be made, exceptions appear to follow. With Toronto FC but one of three profitable franchises ranked annually by Forbes, we seemingly have some flexibility moving forward. For all intents and purposes, in the absence of public disclosure of allocation money and salary cap calculation mechanisms, the MLS appears to have somewhat of a soft cap.
We’d be wise to focus on names rather than numbers.
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