All MLS teams, even the ones that don’t spend a lot, would be better off without a salary cap

In most American sporting leagues (NFL, MLB, NBA, NHL) the purpose of having a salary cap is to lower cost of signing players. Since those leagues have monopolies or near-monopolies on the top level talent in their sports, if teams were allowed to spend more they would just end up bidding against each other and paying more money to the same players.

However, MLS is different. MLS has a bunch of complicated rules that prevent MLS teams from ever getting into bidding wars with each other for a player’s services. Instead, the only teams that MLS clubs will be bidding against for players will be non-MLS teams that are not constrained at all by MLS’s salary cap. This means that the cost of acquiring a player is determined by how much foreign teams are willing to pay for that player and would not go up just because MLS teams are allowed to spend more instead of being constrained by the cap. Unlike the teams in other American leagues, if MLS teams spend more they will get better players rather than paying more for the same players.

So if MLS’s salary cap does serve the traditional purpose of a salary cap of reducing player’s salaries, then why does it exist? I have heard 2 main explanations for it: without a salary cap some teams would become stronger reducing the parity of the league and this would somehow hurt the teams that did not want to spend as much; and, if we didn’t cap how much teams could spend some of them would spend more than they could afford and drive themselves bankrupt.

The first explanation isn’t a very good one because having stronger teams in a league increases rather than reduces the popularity of the weaker teams. Which would more people go to see, a friendly vs. Barcelona FC or a friendly vs. Antigua Barracuda FC? Obviously, many more would go to see the Barcelona game because they always want to see their team play against the best competition even if that means that they will probably lose. Also, consider how when a team gets promoted their attendance and revenue will almost always increase. This happens despite people knowing that they have a much lower chance of becoming league champions in the premier league than they had in the 2nd division. From a business perspective, it is better for a team to be a minnow in the ocean than it is for them to be a big fish in a small pond.

As if that weren’t enough reason for MLS teams to be willing to allow their opponents to become stronger, MLS teams also receive a direct financial benefit from the success of the other teams through revenue sharing. If high spending teams like LA, NY, SEA, etc. bring in more stars, this will cause their attendance to increase and 30% of the money they receive in gate receipts is shared throughout the league. It would also lead to larger national TV deals and national sponsorships, with 100% of that money being shared. Higher spending by some teams -> increased popularity for those teams -> increased revenue -> more revenue is shared with all the other teams.

The other explanation doesn’t make much sense either, because only an idiot would needlessly spend money that they cant afford to the point where they would become bankrupt. If a team is spending money on players to the point where they put themselves in a tough spot financially, all they have to do is reduce the amount of money that they are spending on players. The only reason why so many European clubs are having financial difficulties right now is because they can’t afford to reduce their spending on players for 2 reasons that don’t really apply to MLS: UEFA Champions League and promotion/relegation. The UEFA CL can provide teams with a huge amount of money, so many teams overextend themselves signing players in a desperate effort to secure that huge windfall. Similarly, when a team is relegated they often end up losing a huge percentage of their income and it can be a catastrophic event. Because of this teams often spend beyond their means in a desperate effort to earn promotion or avoid relegation. However, CCL isn’t the huge money maker that UCL is, and MLS teams do not need to worry about relegation. Unlike UEFA teams, MLS teams can easily reduce spending without risking a drastic fall in revenue.

So it seems to be difficult to find good reasons for having a salary cap. What should MLS do instead? I propose having a minimum salary rather than a salary cap. HG contracts, GA contracts, and all other player spending up until the minimum salary would be paid for by MLS using shared revenue. Teams would be allowed to (but not required to) spend above the minimum if they wanted to, but any additional spending would have to be paid for by the team rather than the league. This sort of set up would give the more ambitious franchises the freedom they strengthen their teams and compete with clubs in other countries, while still allowing the less ambitious teams to keep their expenses low and stay financially solvent. Additionally, if “super clubs” start forming and generating a lot of revenue, the increased shared revenue would go to raise the minimum salary and prevent the less ambitious teams from falling too far behind.

 

Teams are allowed to sign up to 2 players per year to cap exempt contracts that are similar to Generation Adidas contracts. Teams can actually sign more than 2 HG players per year if they want to, but only 2 of the players would be cap exempt.

One thing I'm not sure about is if players will "graduate" from their cap exempt status if they play a lot of minutes like a GA player would, or if they remain cap-exempt for the duration of their contract.

The NASL had some serious problems besides spending too much on players which were more important in causing it's demise. In fact, you could argue that heavy spending on players by the Cosmos was one of the main reasons why the NASL was able to grow so quickly, and the loss of those star players after the Cosmos changed ownership is sometimes cited as a factor that contributed to the rapid decline of the league.

One major difficulty that the NASL faced was simply that the sport of soccer was less popular in the United States back then than it is now. Obviously it is a lot more difficult to get people to come see an unpopular sport than it is for a popular sport. There were very few quality American players, so most teams had to rely very heavily on imported talent. Unfortunately, even if the teams imported famous players most Americans didn't know who they were. Soccer's lack of popularity also caused the NASL to change a bunch of rules to "Americanize" the sport, a failed strategy which MLS also tried before they eventually realized it was a bad idea.

A second major difficulty that NASL faced was that teams played in stadiums that were not designed for soccer and most teams did not own the stadiums that they played in. Experience with MLS has taught us that it is extremely difficult for a soccer team to make money without controlling the stadium that they play in, and MLS lost tons of money in the early years before they started building soccer specific stadiums.

A third important reason why NASL had trouble was that it was far too easy to join the league. Anyone could become the owner as a NASL team just by paying a very small expansion fee. Most of the owners didn't know a thing about soccer, had little or no experience running a professional sports team, and were just generally clueless. Since they did not have to pay a large expansion fee or build a stadium, they did not have a lot of money invested in their team and there was nothing to stop them from leaving at the first sign of adversity. Once the growth of the popularity of the league slowed down, these owners realized that they were still losing money so they folded their teams and left, causing the collapse of the league.

As a result of these problems, it was nearly impossible for NASL teams to make money regardless of how much they spent, and some were even suffering losses that were more than their total spending on players. Still, there were some people who thought that reducing spending would help improve the league's financial situation and a salary cap was introduced before the 1984 season. The result: average attendance declined for every single team that was still in the league, in some cases declining quite drastically, and the league folded after the end of the season. At the time there was only one other professional soccer league in the United States: the USL. Established in 1984, it had a model based around lowering costs as much as possible and had an austere salary cap from the beginning. The USL also folded in 1985 after it's second year of operation. The moral of the story: salary caps and austerity did not result in an improved financial situation for either NASL or the USL.

 

One thing that I forgot to mention in my last post: the salary cap actually made a lot more sense when NASL and USL tried it than it does for MLS. The labor market for soccer was less globalized then, and unlike MLS, those teams did not have any mechanisms to prevent them from bidding against each other. In some cases American teams did end up competing for the same players, driving up the costs for those players in a way that would not happen in MLS. I don't think that those leagues had revenue sharing to the same extent as MLS either, so the smaller clubs had less direct financial benefit from the popularity of the higher-spending clubs than they do in MLS. However, even though a salary cap made much more sense to those leagues than it does for MLS, there is no indication that it succeeded in helping them financially and it may have actually contributed to the rapid downfall of those leagues.

 

I'm not completely convinced by this argument. Teams aren't going to want to waste money by paying individual players more than they need to just because the salary cap does not prevent them from doing so. The strength of the player's negotiation position is determined by how much they could make outside of MLS and by how much it would cost to bring in a different equally good player. If MLS can sign a player without paying them a lot of money, that is what they will do.

Soccer is getting more and more internationalized all the time. There is a trend in all leagues around the world of signing more foreign players. In the EPL, the percentage of foreign players is already more than 62%. MLS already has 42.2% foreign players, and that number is increasing. Additionally, many of the American players in MLS are young players who do not get a lot of playing time, so the percentage of players on the field who are foreign is usually more than that. MLS is probably paying more money in salaries to foreign players right now than it is to domestic players.

There are also literally hundreds of yanks abroad playing professionally in other countries. I would be that a significant portion of those would be bot good enough to contribute to MLS and willing to come to MLS if offered enough money.

The Highest attendance Killarnock had this year was 6523 for their first game of the season. So for them 6500 was very good, and more than 50% higher than the games immediately before and after playing Celtic. It should also be noted that in the previous season Killarnock's highest attendance was 15926 vs Celtic in a season where every single game vs Celtic or Rangers drew more than 8,000 fans and all but 1 of the other games drew less than 6000 fans. Clearly Killarnock's fans prefer to see them play against the big clubs rather than against the minnows.

Or to take an example from MLS, last season the LA Galaxy had an average away attendance of 27,026, a full 50% higher than the average attendance for games that did not involve the Galaxy. People want to see their teams take on the best opponents available regardless of whether they are playing league games or friendlies.

As I said before, teams in the UK and Spain have to spend money because if they don't they get relegated. Relegation would result in a huge loss of revenue for these teams and could cause them to go bankrupt. Contrast this with MLS teams who could reduce spending without anything particularly bad happening to them. There is much less pressure for MLS teams to spend beyond their means than there is for European teams.

As you pointed out, American minor league teams, who spend much less on players than MLS teams, keep folding and going out of business all the time. Meanwhile MLS, which spends far more on players than the minor league teams do, is relatively financially stable. Isn't that just more evidence that spending too much on players isn't what causes leagues to fail?