The Sweeper: The Rich Get Better in MLS?

mls-dp

Big Story

When’s the best time to make a major news announcement that could change the landscape of MLS, on a topic that’s been the subject of much rumour and conjecture for years?

Why, the morning of April 1st of course!

And thus today Major League Soccer made an important announcement that, as had been intimated by Commisioner Don Garber last week, the league will allow clubs to add a second designated player to their roster (and even a third), with numerous new salary mechanisms in place that the league’s official site calls “a mathematical and administrative nightmare at this point.”

Here’s the league’s summary (this is for real despite the date of the release, folks):

The opportunities have doubled for Major League Soccer’s clubs to pay select star players above their club salary budgets. All 16 MLS clubs now have the opportunity to sign at least two Designated Players. The Designated Player Rule is a mechanism that in 2007 began allowing an individual club to pay one player any amount above a fixed salary budget charge. The club salary budgets are an expense shared by all MLS owners.

Under its new parameters, the Designated Player Rule also gives clubs the option of “purchasing” a third Designated Player slot for $250,000 that will be dispersed in the form of allocation money to all clubs that do not have three Designated Players. Designated Player slots may be used to sign and retain existing MLS players, but they are no longer tradable.  [..]

A club’s salary budget will be charged $335,000 for its first Designated Player under contract, $335,000 for its second Designated Player under contract and $335,000 if it signs a third Designated Player. If a Designated Player joins a club’s roster in the middle of the season, that club’s salary budget for the year will be charged $167,500.

The previous budget charge for a club’s first Designated Player, $415,000, accounted for approximately 18 percent of that club’s salary budget. The current rules reduce that budget charge to approximately 13 percent of a team’s salary budget.

Additionally, clubs have the option of “buying down” the budget charge of a designated player with allocation money. The reduced charge may not be less than $150,000. Allocation money are funds, separate from the club salary budgets, provided by the League based upon finish in the previous season, fees collected for the transfer of a player abroad, expansion or exceptional circumstances. Allocation money may be used to reduce the portion of a player’s compensation that counts against a club’s salary budget in connection with signing players new to MLS, or re-signing existing MLS players at the end of their contracts.

In the event that an MLS club transfers a Designated Player under contract to a club in another country, that MLS club will recoup the amount it has spent on that Designated Player before any additional transfer revenue is shared with the League.

These changes to the Designated Player rule are effective immediately. The Primary Registration Window — in which MLS clubs can conduct transfers to acquire players under contract in leagues of other countries — concludes April 15. The Secondary Registration Window opens July 15 and closes August 14, 2010. Registration windows always apply to the country of destination in a transfer. Players out of contract may be signed at any time.

As Grant Wahl noted on Twitter, this is a “win” for AEG, owners of the Galaxy. And a win for Red Bull New York and the other teams with serious money to spend on superstars.

And hence, MLSSoccer.com’s piece on this is quite hyperbolic: “Fans who dream of watching the likes of Thierry Henry, Raúl and Ronaldinho on an MLS field at the same time can wake up. That dream is a reality.”

Well, not quite, such players do actually have to be signed by teams and paid seriously large amounts of money outside of the salary cap hit, with the very uncertain return on that expenditure on and off the field to be taken into account.

Though that salary cap hit is now much lower, that still means teams would have to find millions of dollars to sign each of those players. I don’t see FC Dallas or the New England Revolution ponying up that kind of cash any time soon regardless of this change; the big stumbling block to signing DPs has long less been the salary cap hit than the cash needed to pay a star player in the first place.

That’s why only five teams out of sixteen have designated players right now. Reducing the salary cap hit from $415,000 to $335,000 for the first designated player signed is substantial (this hit can be further reduced by applying the mystical entity known as “allocation” funds as well, to no less than $150,000), but this doesn’t remove the larger stumbling block for clubs of signing superstars in the first place: paying superstar salaries ouside of the cap hit. The DPs signed so far have had very mixed success: for a Beckham there’s a Denilson, for a Blanco there’s a Marcelo Gallardo, for an Angel there’s a Claudio Lopez. Numerous teams with more limited budgets like Kansas City and DC United have regretted designated player signings that have not helped on the field or off it, and these changes don’t change that gamble to sign the first DP all that substantially.

It’s notable that only the richest teams now have designated players a few years into the rule’s application: LA, New York, Toronto, Seattle and (less richly as a club and in their expenditure on their DP) Houston.

What it will mean is that those few clubs that can afford to sign designated players have it much easier now, with much less damage to their overall roster construction (with less money taken up of their salary cap allotment) for one, two or three DPs.

Will this mean less parity? Yes. Is this good for the league?  Probably, but not certainly. It’s understandable that a company like Red Bull, who recently pumped in $200m to build a new MLS stadium, want more freedom to spend on building a team worthy of that stadium as well. They can afford to do so, along with the Galaxy. Toronto and Seattle, as profitable entities in MLS, are also more likely to add second designated players. Just reward for investment and success, many will say.

But the barrier to adding a first designated player remains high for most other teams, so expect to see a more lopsided league in the near future, which will make it even harder for the clubs already struggling to keep up.

Quick Hits

The Sweeper appears daily. For more rambling and links throughout the day every day, follow your editor Tom Dunmore @pitchinvasion on Twitter.

9 thoughts on “The Sweeper: The Rich Get Better in MLS?

  1. KT

    “Fans who dream of watching the likes of Thierry Henry, Raúl and Ronaldinho on an MLS field at the same time can wake up. That dream is a reality.”

    That dream will be a reality when Thierry Henry, Raúl and Ronaldinho actually show up on an MLS field at the same time.

    Aye, chihuahua.

  2. Dave

    How lopsided might the league really be if the rich teams end up with 2 or 3 DPs and a bunch of ordinary joes clocking $90K a year? After all, LA had Donovan and Beckham and still couldn’t finish off Real Salt Lake in the Cup Final.

  3. Tom Dunmore Post author

    Dave, this is going to make it much easier for a club like LA to build a team around those superstars — the cap hit could be as little as just over $500k for three DPs (if one is signed mid-season), which combined with the expanded salary cap, makes it much easier to put better players alongside those stars. That’s compared to $415k for one DP alone under the previous rules.

    But you’re right, it’s certainly not the end of parity; it’s a lean in that direction, though.

  4. Kartik

    honestly, people forget mediocrity kills quality. The old DC United dynasty would beat just about every team today. This is good, because we’ll see more quality. As a neutral M LS fan, I can’t wait for some big clubs that can do something outside of MLS.

  5. Matthew N

    Inequality is good for the sport. I still hate the way MLS does things financially, but every single step towards “glasnost” is better than the way it was.

  6. Benjamin Kumming

    Well, I guess the positive spin on this would be that we will hasten the financial collapse of the smaller teams in MLS, and the league will fold sooner and kind of just get it over with rather than dragging us along for a slow death.

  7. Michael K.

    “The old DC United dynasty would beat just about every team today.”

    Ah, that old chestnut.

  8. Matthew N

    Tom,

    It was meant to be a reference to the “opening up” of the economy regarding MLS, but perhaps I should have used a different expression. The way I see it, the more open and transparent MLS’s inner workings are (and the more it behaves similar to foreign football leagues), the more successful it will be. I can understand their unwillingness to completely throw caution to the wind because owners would get themselves into lots of debt and whatnot, but there are a lot of downsides to having an artificial cap. The closer we get to letting the big boys spend the money they want to spend, the more fun the game will be for everyone (fans and players).