“We do need to continue to figure out ways to improve the quality, and some of that is going to include spending money. Hopefully over time we begin to find a balance where if you have highly compensated players on your roster it doesn't compromise your ability to have the rest of the depth in your roster that continues to provide the quality we're all looking for as a league." Adrian Hanauer There have been many threads, probably thousands of posts about the salary cap. Realistically, It isn’t going to be removed. Salary caps are now firmly established in professional sports in the United States, and MLS is no exception. Personally, I think the designated player rule has been a good tool for getting marketable players into the league. I also think MLS addressed some of the very low wages for younger players in the most recent CBA. My concern is that the salary limitations restrict teams’ ability to hold on to good, veteran players who aren't worth DP wages, but are nonetheless invaluable to improving the overall quality of the league. In what follows, I propose modifying the rules in order to specifically target retaining four groups of players: MLS veterans with four years of service; MLS graduates of the Generation Adidas program; international players and non-MLS domestic players who have national team experience. To pay for it, I propose letting teams fund the additional payroll, acknowledging that not all will choose to do so. Finally, I am going to share some data from Europe about when payroll spending disparity seems to unbalance a league. The Salary Budget Last year, the salary cap was reportedly $2,675,000, which applied to the roster of 18 to 20 players on an MLS roster. http://www.socceramerica.com/article/43328/younger-dp-rule-slights-home-based-talent.html It is worth noting, however, that the typical league salary budget is significantly higher than the cap, as Don Garber noted in his State of the League speech in November, 2010: “Most of our clubs are spending between $3.5 million to $4 million on their salary budgets. That is not counting Designated Player salaries. That is with allocations and other things that they're able to do, in essence, to become a fully funded MLS club salary budget. We've increased the amount of allocation money. It is up to almost $10 million in 2011.” http://www.mlssoccer.com/news/artic.../transcript-commissioner-garbers-state-league Current salary budgets today is presumably at the high end of the range Garber noted – about $4 million per team. How the Cap and the Designated Player Cap Charge Make Retention of Quality Players Difficult This season, the rules provide that if a player is paid more than $350,000, the team must either use allocation money or pay the overage themselves – thus making him a designated player. For players 20 or younger, the cap hit is reduced to $150,000, and for players between 21 and 23 the cap hit is $200,000. (In addition, if a young designated player occupies a team’s third DP slot, they do not have to have to "buy" that slot by paying the one-time $250,000 fee.) http://www.sbnation.com/soccer/2012/2/16/2803063/2012-mls-roster-rules Reducing the cap charge (or cap “hit”) for young players certainly helps, but still any team that has three designated players must dedicate a significant portion of their cap to those players. Adrian Hanauer explained the challenge: “You can either have three highly compensated players and really boot-strap the rest of your roster, or you can try to balance your roster without highly compensated players. In doing the simple math, if you have a roster of 20 senior players and three of them are taking a million of the cap, then 17 of them are taking up $1.5 million -- which is about $88k per player, and that's a challenge." There aren't too many established quality players who will work for $88k, after all.” http://espn.go.com/sports/soccer/news/_/id/5476270/dp-salary-issues-remain-mls-continue-growth The choice currently is to either limit the number of designated players – players who do help the league market its product – or really squeeze the pay of everyone else on the roster and send the other veterans and promising (but expensive) younger players packing. It’s a Hobson’s choice. At least broadcasters seem to think that high profile, highly compensated players help sell the league, as L.E. Eisenmenger reported in April, 2010: “We were lucky to have [Donovan and Beckham] in MLS Cup and the ratings show that,” Christopher Alexopoulos, ESPN’s producer for soccer programming told me. “The ratings show that stars bring people to the television set. Stars are really important to selling the game on television.” http://www.examiner.com/pro-soccer-...ond-designated-player-purchase-slot-for-third The problem, of course, is that if a team has designated players – players who have some marketing value beyond their on-field contributions -- there is little room in the budget left to compensate valuable veterans or promising younger players, even those who may be sold later for more money. The league needs high profile players, but purging a roster of talented younger players is especially painful according to Hanauer: “For players who are 23 or 24 years old and could be in our league for 10 years and could be massive stars, we should be encouraging teams to sign them and not create salary caps and player rules that inhibit that in any way." http://espn.go.com/sports/soccer/news/_/id/5476270/dp-salary-issues-remain-mls-continue-growth To be fair, MLS has tried to make it easier to sign younger players to higher contracts through its recent expansion of the DP rule, but the rule is limited both in the number of players who can qualify – it doesn’t add DP slots, it just reduces the cap charge for certain players --and in scope, as Ridge Mahoney noted in Soccer America (emphasis mine): http://www.socceramerica.com/article/43328/younger-dp-rule-slights-home-based-talent.html At a time when MLS is pouring resources into academies to develop younger players – home grown stars – it seems to have done very little to modify its rules to make it easier to retain those players after they have some experience and near the end of their initial contracts. And it isn’t just promising young players who are hard to retain, it’s also veterans – those players who will never be marquee stars, but are the glue that holds the team together. Sounders owner Joe Roth explains, “I’d like to be able to keep a core group of players. Growing up in New York, players played an entire generation for the Yankees or Dodgers or the football Giants. I think that’s a missing component in today’s sports. You can’t keep track of where the players are going.” http://www.soundersfc.com/News/Articles/2012/01-January/Joe-Roth.aspx My Proposal First, I would establish a salary floor of $4 million per team – essentially the high end of the current actual average salary budget provided by MLS to each team. I call this amount the “Base Budget” which would be provided by the league to every team. (Given the changes I suggest below, the league may choose to scale back on allocation money in order to equalize the Base Budget for every team, but MLS could still provide some allocation money beyond the Base Budget if it chooses to – it’s their choice). Note I am not really injecting new dollars into the payroll here by suggesting the $4m number, but I am trying to provide for less variation from team to team -- right now the league is handing out allocation money both for doing poorly and doing well (CCL), which is something of a push-me pull-you. Second, once the pay of a “Qualifying Player” (which I define below) exceeds $200,000, I would allow his team to make an election: they could count every dollar of pay between the $200,000 threshold and $600,000 (that is, three times the threshold) against the Base Budget and have the league pay the salary, or they could pay the overage beyond $200,000 themselves and exceed the Base Budget by up to $400,000 on that player. What would this achieve? For teams seeking to pay promising young players or needed veterans more, they could do without absorbing a disproportionate amount of the pay in their cap. OTOH, for teams that want the equivalent what today is a less expensive DP and lack allocation money, they could fund up to $600,000 through their league provided Base Budget without any charge to themselves. Who is a “Qualifying Player”? Players who are not designated players but either (a) have been in MLS for four full seasons, or (b) are a graduate of Generation Adidas, or (c) occupy an international slot, or (d) domestic players with less than four years of MLS service but who have played at least five times for their national team. The idea is to focus these new dollars on young emerging players who have not yet reached peak sale value or veterans who have value to the organization but are not realistically DP candidates. (Note DP players are essentially unchanged, but the teams could elect to allocate up to $600,000 of their salary budget to a DP salary, not just $350,000 as now – for teams with a single DP, it actually would lessen the burden on the owner to pay as much of his salary). How much additional spending would this allow? Again, because only certain players qualify, it won’t result in a huge jump in the current $4 million salary budget, but an ambitious team with perhaps four or five players could spend as much as $400,000 more on each of them – perhaps $1.6m - $2m at the high end, although my guess is perhaps $400,000 - $800,000 would be more typical. It would be at their discretion. Third and finally, I would limit total payroll spending to three times the team’s Base Budget. In other words, if the Base Budget is $4 million, total payroll spending, including the league provided Base Budget together with payments to Designated Players and Qualifying Players funded by the team (and any other allocation money MLS still might give out), could not exceed $12 million. That’s the top limit, or “Max Cap.” Practically, for teams like LA, if they want three designated players they won’t be able to spend as much on Qualifying Players as others might, although even LA could spend more than they are spending under the current rules. For example, if Grant Wahl’s numbers from last year are correct, LA could have spent just over $1.4 million on Qualifying Players on top of their $10,978,593 payroll (remember, the cap charge would drop the cap hit on Designated Players to $200,000 too), while New York would have had to cut payroll to get to the $12m cap. No other team would have been impacted by the overall cap of $12m Even with the max cap of $12m, the Qualifying Player rule would mean more payroll spending – that’s what it is designed to do – and yes it isn’t likely to be equal. Some teams will use this to spend more on their rosters than others do. How Equal Do Payrolls Have to Be for a Competitive League? There is a legitimate concern when one team can spend more than another that the competition will suffer and that a handful of teams will dominate the league. Fans look at the duopoly of Spain or Scotland (at least, until a few days ago) and fear with justification that such dominance of a few clubs can’t be healthy for a league. The problem is that the current salary cap doesn’t really equalize spending now thanks to the designated players, but it does strip successful teams of valuable players who cannot all be financially rewarded with a boost in pay reflective of their role in their team’s success, as Ives Galarcep recently noted in an article for Fox Soccer: http://msn.foxsports.com/foxsoccer/usa/story/la-galaxy-test-mls-limits-on-american-soccer-020812 What better way to keep up with the Joneses than to knock the Joneses down a peg or two? Of course, the fact is that spending is hardly equal now. Last year, Grant Wahl calculated the payrolls of every MLS team and compiled the list you see below. Yes, the payrolls changed over the course of the year, but when Wahl ran his numbers New York was spending 6.3 times as much as Chivas USA did on players. Here’s Wahl’s list: 1. New York: $15,666,639 2. Los Angeles: $10,978,593 3. Chicago: $5,559,103 4. Toronto: $5,214,381 5. Seattle: $3,118,103 6. New England: $2,983,032 7. Dallas: $2,924,318 8. Kansas City: $2,905,107 9. Philadelphia: $2,886,399 10. D.C. United: $2,881,530 11. Columbus: $2,808,203 12. Colorado: $2,710,113 13. Salt Lake: $2,645,721 14. Houston: $2,565,875 15. San Jose: $2,518,590 16. Chivas USA: $2,477,548 http://sportsillustrated.cnn.com/so...yer-salaries-crunching-the-numbers/index.html That’s quite an imbalance. MLS argues that it maintains competitive balance despite this disparity by forcing teams with designated players to purge other quality veterans and younger players as noted above, but does MLS really have to do that in order to maintain a competitive league? Put another way, if we took out the designated player labels and just looked at overall payroll, just how imbalanced does payroll spending have to be before a competition is dominated by only a handful of big clubs? UEFA looked at this issue in its Financial Benchmarking Report for FY 2010. Specifically, UEFA looked at the average combined personnel and net transfer costs of the four biggest spending clubs in the top division of every European league and compared them with the average combined costs of other clubs the division. What UEFA found was that in leagues where a few teams tend to dominate the league, spending is very imbalanced. For example, in Spain, the top four clubs spend 6.4 times more on personnel and transfer fees than the rest of the La Liga clubs. In Scotland, the number jumps to 8.6x. Greece is 9.8x, the Ukraine 12.8x and in Portugal the big clubs (presumably Porto, Benfica, Sporting and Braga) spend a staggering 16.6x on average more the rest of the league. Little wonder you see the same clubs at the top of the table in these countries. But in places like Germany, Switzerland, Norway, even France, where the ratio drops to 3.5x – 2.5x, the leagues are far more balanced. Only England has a ratio of 3.x without the same level of competitiveness (but here some clubs like Man City just outside of the top 4 were spending very heavily and make the league look more balanced than perhaps it is). The information is on page 70 of the report for those who wish to read it. You can download it here: http://www.uefa.com/uefa/footballfirst/protectingthegame/clublicensing/news/newsid=1585473.html There is a lesson here, IMO. Spending doesn’t have to be equal for competition to flourish. Indeed, it is possible to have very competitive leagues – and both France and Germany are highly competitive right now -- where bigger teams spend even three times the average of the others, but the scales tip quickly if that ratio moves over 5.0x. If MLS limits total payroll spending to 3x base salary budget and retains a playoff system, I believe the league will remain very competitive even if most teams elect not to spend anything beyond their base salary budgets. Of course, should LA and NY spend $12 million and the majority of the clubs spend anything beyond the base salary budget the ratio won’t even be 3x – probably closer to 2.5x – which would still make MLS once of the most balanced leagues in terms of payroll spending. In addition, even if bigger spending teams have an advantage over a long season, in a short playoff series much of that advantage can be negated. MLS won’t turn into La Liga. But going forward it will be able to keep more of the players it wants to keep IMO.