The Practical Effects of MLS's Newest Rule / by Mike Fotopoulos

By Mike Fotopoulos (@irishoutsider)

The new Targeted Allocation Mechanism (TAM) does a lot of things right for MLS. It creates another loophole to get more big-name players into the larger clubs, and creates some interesting pressure for smaller clubs. Overall, it tips the scales once again towards a star-driven league, as bigger clubs capture most of the benefit while their competition can only watch as the table stakes rise. It is an interesting development to the capgeeks out there, as it sets a precedent for more open spending and other, more balanced roster rules. If the league’s goal is for bigger and better plus (some) parity, TAM adds another building block. With a little bit of reorganization, the latest version of the MLS rulebook could be its best.

TAM’s main benefit is that it effectively adds a 4th Designated Player (DP) slot for cap savvy clubs. If you have the means and the opportunity, this is another invitation to open the wallet for another superstar. The main problem here is that it only helps those clubs willing to help themselves. The additional funds create an incentive to spend, but the mechanism cannot directly buy in players. It is, in effect, a league-wide sale on new talent, but not an actually subsidy. The main counter to this is that smaller clubs can trade their TAM funds to improve their roster, though this is unlikely to be a net benefit. Top clubs have a buyers’ market for funds, and the price of unused TAM could be anywhere from some draft picks to an MLS-level starter. This is a relative bargain compared to a Core Player or additional DP.

A logical next step would be to implement a softer salary cap and a luxury tax. This would loosen roster restrictions and create more direct redistributions for club salaries. While the CBA is set, TAM shows that the league still has plenty of ways to manipulate the market by creating and distributing allocation funds. According to the 2014 MLS Players survey, Toronto, RBNY, LA Galaxy, Vancouver and Seattle combined to roughly 30M over the cap. With the recent additions of Kaka, Frank Lampard, David Villa, Andrea Pirlo, Giovanni Dos Santos, and Steven Gerrard, this number practically doubles. Taxing $60M at 25% would create around $1M per year for each untaxed club to buy in additional talent. This would help with competitive balance issues while giving smaller clubs a direct incentive to invest in (mostly) new players.

In practice, taxes could be collected into the targeted allocation pool and distributed out to non-paying clubs. This already occurs for DPs. Fees for the 3rd roster spot are pooled and split up among clubs with 0-2 DPs. MLS could then put similar restrictions on the taxed funds, limiting the focus to transferring in new players, or it could choose to earmark some of it for general cap relief. The latter would probably ease some of the players union’s concerns as well. This would be a short-term fix to transition the league salary structure into something more resembling the NBA. The existing structure would be managed by contract minimums and maximums with teams granted various cap exceptions (franchise, mid-level, etc). For MLS, the league could have exceptions for Designated Players, Core Players, Young/Homegrown, and other strategic goals (e.g. CONCACAF Champions League). Taxing on top would allow teams to spend openly but with some regard for competitive balance.

The key would be to free up player acquisition, letting the bull run so to speak, and doing away with many of the more byzantine aspects of allocation ordering. Wealthier clubs would be more open to paying taxes if the league removed some of the issues that currently block the market. The current allocation order creates an indirect tax on transfers when clubs need to trade up or risk losing a player to a competitor. Replacing this system with a luxury tax would remove this barrier and create a little bit more transparency is the transfer market. To prevent intra-MLS bidding wars, the current discovery system could replace allocation order. Prior to each window, clubs could rank their targets with the league, and conflicts could be resolved before negotiations. This wouldn’t be a perfect system, but it would prevent the current allocation model where higher positioned clubs can have a blanket block on new transfers.

Top-level talent has been and is going to be the main value driver for the league. MLS is fortunate to have clubs that are willing to take on the risk of signing in these players. While there has to be some balance to the league to keep all 20+ clubs sustainable, adding tens of millions in salary each window appears to place MLS past the point of organic growth. There needs to be more and more salary in the system to raise the talent level within top teams and across the league. While a dozen newer, wealthier owners might be considered ideal, the league’s long-term strength is going to be it’s balance and shared prosperity. TAM was likely born from the growth in league revenues, taking from recent profits to nudge clubs into further investment. By extending this idea, owners may have to be willing to spend a little bit more at the very top to fund future revenue growth