Major League Soccer (“MLS”) has two distinct, and intertwined, defining features that set it apart from the rest of global soccer: Its single-entity structure, and its salary cap.
While standard in most major American sports leagues, salary caps are near-nonexistent in soccer elsewhere in the world. Earlier this year (2021), an arbitration panel threw out the English Football League’s attempt to establish a salary cap for League 1 and League 2 (the third and fourth tier of professional soccer in England), after the English player’s union (the PFA) challenged the regime.[1]
One of the central philosophies behind MLS’s American-style salary cap is to maintain competitive balance amongst its clubs.[2] This balance, to MLS, is fundamental to its growth strategy for North American soccer, and the league writ large.
To MLS, parity reduces the predictability of competitive results, which creates a more interesting product for prospective fans and neutrals, which in return will lead to growth in popularity of the sport and the league —or so the theory goes.
For MLS clubs, however, competitive dominance -not balance- is top of mind. The fundamental basis of the parity theory is that it creates a potential for all teams to win. Essentially the draw for fans is the hope that there is a possibility in every matchthat their team will win. So, a club on an individual basis will grow interest, fan support, market share, and revenue faster if they increase their likelihood of winningby become consistent winners.
This makes sense. The biggest clubs and teams in the world are the ones that have the biggest histories of winning. Real Madrid, Liverpool, the Yankees, the Lakers, all built their global fanbases with the contents of their trophy cabinets, not the fact that their matches and games had extremely unpredictable outcomes.
Therefore, soccer clubs, including those in MLS, should fight to maintain competitive dominance, not balance to grow their fanbase and improve their bottom line.
This is the first piece in a series discussing strategies MLS clubs can leverage to break the league’s competitive balance and create a model for sustained sporting (and therefore, hopefully, commercial) success in MLS. You can read the subsequent pieces here: II.
As the 2021 MLS season kicks off this weekend, it makes the most sense to start by breaking down MLS’s Salary cap in straight forward terms, to better understand the constraints by which MLS Clubs must follow as they build their rosters.[3]
MLS Roster Limits
To effectively manage the salary cap, MLS has established limits to its clubs’ rosters. MLS clubs’ rosters may contain between 18 and 30+1 players (an “MLS Roster”).[4] MLS further breaks down MLS Rosters into 3(ish) buckets: The Senior Roster, the Supplemental Roster, and the Reserve Roster.[5]
MLS Salary Budget
MLS’s Salary Cap, as it is most commonly understood, covers MLS clubs’ budget on the first 18-20 players on their MLS Roster (the “Senior Roster”).[6] In 2021, the budget for an MLS club’s Senior Roster is US $4.9M (the “Salary Budget”).[7]
Charging the Salary Budget
This Salary Budget is a bit of a misnomer. It accounts for all costs associated with retaining players on the Senior Roster to compete in that particular MLS season (a player’s “Unadjusted Budget Charge”), not just the player’s salary.[8]
Per the 2015[9] Collective bargaining Agreement between MLS and the MLS Players’ Association (the “MLS CBA”), a player’s Unadjusted Budget Charge includes:
- Any acquisition costs (e.g., transfer and loan fees) paid in that year;
- The player’s annual salary;
- Any performance bonuses paid to the player;
- Any loyalty bonuses, marketing fees, housing stipends and/or other guaranteed compensation paid the player in that year;
- Any Agent fees paid to the agent on behalf of the player by MLS in that year.[10]
Amortization of Acquisition Fees on Budget Charges
With one exception, MLS does not generally allow clubs to amortize players’ acquisition fees on the Salary Budget.[11] That exception is the Special Discovery.[12] Each MLS club may use one Special Discovery tag to amortize acquisition fees of a player on their roster that is 27 years old or younger.[13] Without a Special Discovery tag, all acquisition fees paid in a particular year count towards a player’s Unadjusted Budget Charge.
Allocation Money
The $4.9M Salary Budget is by no means a “hard” cap. In addition to that sum, Clubs may use certain league-established assets to stay under the Salary Budget by buying down players’ Unadjusted Budget Charges (“Allocation Money”).[14] When a club applies Allocation Money[15] to a player’s Unadjusted Budget Charge, it reduces that player’s charge by the amount of Allocation Money applied (a player’s “Budget Charge”).[16] So, if a player has a $500K Unadjusted Budget Charge, and his club applies $200K in Allocation Money to that player, his actual Budget Charge counted towards the $4.9M Salary Budget is $300K.
In that respect, Allocation Money, is essentially just an extension of the Salary Budget.
In 2021, MLS Clubs have at least $1.525M in General Allocation Money (“GAM”) to use to stay below the $4.9M cap.[17] MLS clubs can, with some restrictions, use GAM on any player on their MLS Roster.[18]
In addition to buying down a player’s Unadjusted Budget Charge, clubs may use GAM as consideration in trades for players within MLS, much like cash transfer fees work in other parts of the footballing world.[19]
As well, in 2021 MLS clubs can opt into using (at their own discretion) up to $2.8M of Targeted Allocation Money (“TAM”). Clubs can use TAM on certain “targeted” players with Unadjusted Budget Charges between the CBA-designated Maximum Salary Budget Charge (in 2021: $612,500), and a million dollars over the Maximum Salary Budge Charge (or, $1,612,500 in 2021).[20] The Lowest Salary Budget Charge that clubs can use TAM to buy a player down to is $150K.
Unlike GAM, at this juncture, TAM is not tradable.[21]
The Supplemental and Reserve Rosters
Outside of the Senior Roster, the spend on the next 10+1 players on the MLS Rosters are:
- Supplemental Roster: Up to four players that must have an annualized salary of, at most, Senior Minimum Salary ($81,375 in 2021);
- Reserve Roster: Up to six players that must have an annualized salary of, at most, Reserve Minimum Salary ($63,547 in 2021)
- Loaned player: One additional player that may receive Senior Minimum Salary so long as the club sends the player on loan outside of MLS for the entirety of the MLS season.[22]
The Total Budget
In essence, the true budget for regulated player spend in MLS for 2021 is about $10,013,157 (the “Total Budget”) broken down as follows:
- $4,900,000 baseline Salary Budget;
- $1,525,000 in baseline GAM;
- $2,800,000 in TAM;
- $325,500 for the Supplemental Roster;
- $381,282 for the Reserve Roster and
- $81,375 for the loaned player.
Unregulated Spend
While MLS allows for significant regulated spend over its $4.9M Salary Budget, MLS has also established certain areas of unregulated spend that do not count towards the Total Budget.
These areas includes:
- Spend on Designated Players above the Designated Player Budget Charge[23];
- Spend on the (still unnamed) U22 initiative players above the U22 Budget Charge[24];
- Spend on “Homegrown” academy developed players above Senior or Reserve Minimum Salary;[25]
- Spend on “Generation Adidas” players drafted in the MLS Super Draft above Senior Minimum Salary.[26]
Designated Players:
The Designated Player (or “DP”) tag is likely the most well-known MLS salary cap financial mechanism. Each MLS club may use up to 3 Designated Player tags. Players may qualify for a Designated Player tag so long as their Unadjusted Budget Charge is over the CBA mandated Maximum Salary Budget Charge (in 2021, $612,500).[27]
This creates significant overlap with TAM-eligible players, as every TAM player technically qualifies as a DP. The biggest difference between DPs and TAM, then is in that there is no financial ceiling for DPs. Put simply, players with potential 2021 Unadjusted Budget Charges of $650K and $100M both qualify as DPs.
For clubs with smaller budgets, where their higher-end player spend is still within the TAM threshold, the DP mechanism is more to a finical mechanism to stay under the Salary Budget. For all clubs though, the DP tag provides the opportunity to sign a big player that can bring their team up to a new level without affecting the rest of their player spend.
So how does this Designated Player tag work? Essentially, any portion of a Designated Player’s Unadjusted Budget Charge above a certain threshold (that threshold being the “Designated Player Budget Charge”) is not counted towards the $4.9M Salary Budget.[28]
The Designated Player Budget Charges are determined by a player’s age:
- 24 Years or older: Maximum Salary Budget Charge (In 2021: $612,500).
- 21-23 years old: $200K
- 20 years or younger: $150K (together, with Designated Players aged 21-23 years old, “Young Designated Players” or “YDPs”).[29]
Clubs may use GAM to buy down players’ Designated Player Budget Charge to a minimum of $150K.
In addition to those Designated Player Budget Charges, if a club intends to retain a third DP on their roster, it must pay a $150K GAM luxury tax to the league.[30] This means that there is an additional $50K per-DP Salary Budget impact, or a net Total Budget effect of $662,500 per DP, to carry three “senior” Designated Players. However, should at least one of those three players be a YDP, MLS waives that tax.[31]
U22 Initiative: Further Off-Cap Spend
In addition to the DP rule, in 2021, MLS also established a U22 initiative starting to further incentivize MLS clubs acquiring young, high-value players.[32] Under the initiative, MLS teams may spend an unlimited amount on transfer fees that are 22 years or younger so long as those players’ annual salaries are at or below the MLS’s Maximum Salary Budget Charge (so, in 2021 $612,500).[33] The U22 Initiative works similar to DPs where All spend over a certain threshold (the U22 Budget Charge) is not counted against the $4.2M Salary Budget.[34]
In 2021 the U22 Budget Charges are:
- $200K for players of 21 years old and older; and
- $150K for players 20 years old or younger.[35]
The number of players that an MLS club may use this initiative on depends on the age and Unadjusted Budget Charge of their Designated Players.[36]
If a club has three Designated Players that are 24 years or older, all with Unadjusted Budget Charges over the maximum TAM threshold ($1,612,500 in 2021) the club may only use the U22 initiative on one eligible player. [37]
However, If the club carries less than three DPs, if at least one of the club’s three DPs has an Unadjusted Budget Charge less than the Maximum TAM threshold ($1,612,500 in 2021), or at least one of the club’s three DPs is a YDP, the club can use the U22s initiative on up to three eligible players on their roster.[38]
Homegrown Player Initiatives
MLS also provides a Homegrown (academy-developed) subsidy, allowing Homegrown players making up to $125K above Reserve Minimum and Senior Minimum salary to sit on the Supplemental and Reserve Rosters.[39] MLS clubs may also apply TAM to Homegrown players
Unadjusted Budget Charges on the Supplemental and Reserve Rosters to make them compliant.[40] Academy players may also qualify for the U22 initiative.[41]
Breaking Competitive Balance
These roster rules lay out the framework for every MLS to construct their MLS Roster. Leveraging these rules is central to breaking MLS’s competitive balance. These rules provide opportunities to maximize their roster’s quality if clubs approach their strategy from the framework of the rules themselves.
Outside of direct player spend, clubs can leverage significant investment in infrastructure, personnel, and player development programs, that will have direct impacts on the quality of players on their team sheet, that are completely unregulated by the salary cap. Leveraging this off-cap spend is crucial to gain a consistent competitive edge in a league where spend for the majority of players is flat.
[1] See, PFA Welcomes the Withdrawl of Salary Cap Rules, PFA February 9, 2021, at https://www.thepfa.com/news/2021/2/9/pfa-welcomes-withdrawal-of-salary-cap-rules.
[2] In addition to (among other things) protecting the financial health of the league and its constituent clubs.
[3]For seasoned MLS Cap wonks, most of this will not be new, novel, or interesting. But It seems right to set a framework for the salary cap before we start discussing strategies to maximize player value within that framework. This also only considers the Cap effect of deals in the abstract of one season. Things (like player eligibility for certain singing initiatives) get complicated as you work on contracts that last over multiple years. That more advanced discussion is better reserved for an MLS 102 (or 202, depending on your school of choice).
[4] See, MLS Roster Rules, at 2021 MLS Roster Composition at https://www.mlssoccer.com/news/2021-mls-roster-rules-and-regulations. The MLS Roster Rules page has no section, subsection numbers, so citing it is somewhat of an art form here. In most cases these cites just point to the heading of the relevant section. Just search for the heading in your web browsers “find on page” function, and you should be able to get to the information referenced.
[5] Id, at Senior Roster; Supplemental Roster; Reserve Roster.
[6]See, Id. If MLS clubs maintain less than 18 players on their Senior Roster, they will incur a Salary Budget charge equal to the Senior Minimum Salary of that year (in 2021, $81,375), “for each unfilled Senior Roster slot below 18.” Id. at Senior Roster.
[7] Id.
[8] See, MLS 2015-2019 CBA § 10.6(b); See also, MLS Roster Rules at Special Discovery.
[9] The 2015 MLS CBA effectively expired at the end of the 2019 MLS season. Through numerous stops, starts, and force majeures, MLS and the MLSPA eventually ratified a new collective bargaining agreement, which they announced in February 2021. See, MLS & MLSPA ratify new Collective Bargaining Agreement, MLS Soccer.com, February 8, 2021 at https://www.mlssoccer.com/news/major-league-soccer-mlspa-ratify-new-collective-bargaining-agreement-0. While MLS and the MLS Players’ Association have agreed in principle to a new CBA, neither party has published a long-form version of the agreement. So, for the purposes of this article, we will assume that 2015 CBA provisions not contravened by the public statements about the changes in the new CBA will not change under the new 2021 CBA.
[10] See, MLS 2015-2019 CBA at § 10.6(b).
[11] See, MLS Roster Rules at Special Discovery. “In general, the total amount of the acquisition cost of a player is charged against the Salary Budget in the year in which it is paid.” Id.
[12] Not to be confused with the Discovery process. See, MLS Roster Rules at Discovery Process.
[13] Id.
[14] See, MLS & MLSPA ratify new Collective Bargaining Agreement Feb 8, 2021, at https://www.mlssoccer.com/post/2021/02/08/major-league-soccer-mlspa-ratify-new-collective-bargaining-agreement-0. ; MLS Roster Rules at Buy-Down.
[15] Not to be confused with the MLS Allocation Process to assign prominent USMNT and certain former MLS players to clubs around the league. See, MLS Roster Rules at Allocation Process.
[16] See, MLS Roster Rules at Buy Down.
[17] See, MLS Roster Rules, at General Allocation Money. Clubs can receive GAM from other sources in addition to the GAM distribution, including via player sales. Id.
[18] Id. at Buy Down.
[19] Id. at Trades.
[20] Id. at Targeted Allocation Money. Clubs may also apply up to $200K in TAM to new Homegrown (academy-developed) player signings. Id.
[21] See, MLS Roster rules, at Discretionary Targeted Allocation Money Available Per Year. Prior to 2020, MLS provided “Mandatory TAM” in addition to the Discretionary TAM made available on a club-by-club basis. Clubs could trade Mandatory TAM (sometimes in exchange for GAM). See, Montgomery, Matthew, Why RSL Traded TAM for GAM, and What it Means, RSL Soap Box, July 22, 2019, at https://www.rslsoapbox.com/2019/7/22/20705920/why-rsl-traded-tam-gam-explained#:~:text=Here’s%20a%20trade%20from%20May,worth%201.5%20units%20of%20TAM). However, the new CBA rolled mandatory TAM into GAM, so no TAM is tradable at this point.
[22] See, MLS Roster Rules, at Supplemental Roster.
[23] See, MLS Roster Rules, at Designated Player.
[24] See, MLS Roster Rules, at U22 Initiative Roster Slots.
[25] See, MLS Roster Rules, at Homegrown Player Subsidy.
[26] Id. at Supplemental Roster; Generation Adidas. We won’t dip into Generation adidas players at length in this piece, but per the MLS Roster Rules, “all Generation adidas players are Supplemental Roster players until they graduate from the program.” Id.at Supplemental Roster. “Generation adidas is a joint program between MLS and adidas that is dedicated to developing exceptional talent in a professional environment. Each year, a handful of top collegiate underclassmen and youth national team players are signed by the League with most of such players entering the League through the MLS SuperDraft. Until the end of the guaranteed term of his contract up to three years, Generation adidas players are on a club’s Supplemental Roster.” Id. at Generation adidas.
[27] See, MLS Roster Rules at Designated Players.
[28] See, MLS Roster Rules, at Designated Players.
[29] Id.
[30] Id. at Young Designated Player.
[31] Id.
[32] See, MLS & MLSPA ratify new Collective Bargaining Agreement, February 8, 2021 at https://www.mlssoccer.com/post/2021/02/08/major-league-soccer-mlspa-ratify-new-collective-bargaining-agreement-0.
[33] See, MLS Roster Rules, at U22 Initiative Roster Slots.
[34] Id.
[35] Id. The MLS Roster Rules page says Ages 21 to 23 qualify in the $200K tier. It also says eligible players must be 22 years old or younger when signing their first contract, but that players can maintain the tag “through the year in which he turns 25.” Id.
[36] Id.
[37] Id.
[38] Id.
[39] See, MLS Roster Rules, at Homegrown Subsidy. The Homegrown subsidy applies to Homegrown players on the supplemental and reserve roster slots. Generally, players making Senior Minimum Salary may sit in Supplemental Roster slots, and players making Reserve Minimum sit in the Reserve Roster slots. Whether the subsidy applies to Reserve or Senior minimum salary depends on which roster slots the applicable homegrown player sits. Id.
[40] See, MLS Roster Rules, Targeted Allocation Money.
[41] See, MLS Roster Rules, U22 Initiative Roster Slots.
Andrew Visnovsky 
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