Note: Based on the CBA in effect 2015-19
By Paul Tenorio, The Athletic, 22/01/2019
With Atlanta United fans holding out hope for a way to field four designated players, and LA Galaxy fans wondering how its team will solve its own four-DP problem, rumors have been floating around the MLS Twittersphere about loopholes in the league rules that may provide a way out for either team.
With an aim on dispelling those rumors, we asked for questions about targeted allocation money (TAM), general allocation money (GAM), designated players and any other confusing MLS rules.
The big conclusion to draw from what follows below: No, you can’t have four DPs on the roster.
For more details, here are the answers to your specific queries. Questions have been lightly edited for clarity:
Question: Can you restructure a contract to circumvent the DP rule, i.e. back load the deal such that you could buy down to make a player not a DP for a year?
The salary budget charge for a designated player is actually straightforward math: MLS takes the payments over the course of the entire guaranteed portion of the contract—salary plus transfer fee—and averages them to determine the budget charge. So backloading a guaranteed contract to push more money to the later years would not have an impact on the players’ budget charge at front end of his contract.
Here’s an example: Assume Jorge the MLS player has a four-year contract. He makes $700,000 in 2019 and then $4 million in 2020, $4.5 million in 2021 and $5 million in 2022. His salary budget charge would be $3.55 million per year, the average of those four salaries, and still well over DP level.
Does a transfer fee have to be spread out over the entire contract or can it be all put in year 1?
A transfer fee is divided over the length of the guaranteed portion of a player’s contract (i.e. not option years). The club is free to negotiate when the transfer fee is paid.
A team can pay the full transfer fee up front in that first year, but for same reason as above, that has no effect on a player’s budget number. So even if Atlanta paid all $15 million of Barco’s fee up front, that $15 million still is divided up over the length of the guaranteed portion of his contract, not just in the first year of the deal.
What’s the max transfer fee you could pay that would be DP year one then paid with TAM for the rest of the contract?
It depends on the salary for the player and the number of guaranteed years of a contract. In regards to TAM, the best way to think of it is to work back from the $1.53 million cap on TAM-eligible contracts. (In order to be eligible to be bought down with TAM, a player must make more than the maximum budget charge, $530,000 in 2019, and no more than $1 million more than that max budget charge, or $1.53 million.)
Therefore, if a team is signing a player to a three-year deal, it can’t spend more than that $1.53 million cap multiplied by three years, or $4.59 million in combined salary and amortised transfer fee, if it wants to buy down a player with TAM.
Can a club restructure a player’s contract if a transfer fee was paid to acquire that player?
A deal can be restructured, but the league would likely keep the budget charge the same over the original guaranteed years of the deal. That would prevent a team from restructuring and trying to amortise the original fee over the added guaranteed years of a new deal.
I’m just so curious if there’s a way for Atlanta to loan Barco while having 3 other DPs. How much would other team have to pay for that to work under MLS rules? I would think the amount would = Salary + transfer fee/5 – 504k. Is that correct?
Theoretically this is possible. With a young DP like Ezequiel Barco, Atlanta would only need a team to cover the salary in order for Barco to be removed as a DP from the roster. (For a senior DP, that formula gets far more complicated.)
That being said, it’s unreasonable.
Imagine upsetting Miguel Almirón by not selling him when you told him you would, while simultaneously angering your young DP in whom you invested upwards of $20 million. All for six more months of Almirón. Imagine this scenario: You’re selling Almirón six months later, and Barco tells the team he refuses to come back to Atlanta. You’re then likely forced to sell Barco at a massive loss. Meanwhile you’ve sent a signal to other players that you might not be true to your word when you tell players you’ll be selling them when the right opportunity comes along.
Why do any of that when you can sell Almirón right now for a $10 million profit? How does that make good soccer or business sense?
If (Carlos) Vela went on loan for a 6-month period to Barcelona, how does DP play out?
Under MLS rules, loaning a player provides roster relief but not budget relief.
With a full senior designated player like Vela, the entirety of a budget charge must be covered in order to remove a player from the books entirely (Vela made $6.3 million in total compensation in 2018, and LAFC paid Real Sociedad a transfer fee to acquire him). For a six-month loan, that math gets even more complicated.
Can an MLS team loan one of their extra DPs to their USL team to comply with MLS rules?
No. Per league rules:
An MLS club can receive roster relief and budget relief for a maximum of one player loaned to its USL affiliate; provided, however, that:
- The player is under the age of 25 (i.e., he does not turn 25 prior to the end of the calendar year);
- The player’s Salary Budget Charge is less than or equal to the MLS Senior Minimum Salary (including any loan fees, transfer fees, agent fees, housing, car, etc.); and
- The loan of the player to the USL affiliate must last for the duration an entire USL season; provided, however, that such a player may be recalled to his parent MLS club only in the case of Extreme Hardship.
How are players who play for/assigned to development/USL teams treated in terms of salary cap/roster spots? Are there two-way contracts? Can players play for both teams regularly?
There aren’t two-way contracts, but players can be loaned down to and recalled from USL teams (though this would have no impact on a team’s salary budget except in the case covered above).
There are also short-term loans of USL players to MLS, but only for Champions League, Open Cup and exhibition games.
Who or which team came up with the concept of TAM and GAM? And is there any other league or sport that uses something similar?
The league came up with both forms of allocation money. TAM was instituted after the 2015 CBA when into place.
While there may not be an equivalent in other leagues, it is essentially cash- and salary-cap-relief trades but doing so within a single-entity system.
Is there any way for a fan to reliably figure out how much GAM/TAM a team has left for this season?
Is there a list of TAM / GAM amounts, how they were acquired and when they expire or was used?
MLS does not disclose the amount of GAM or TAM held by any one team.
It would be an incredibly useful tool that would completely change how we talk about MLS teams, offseason needs, in-league trades and roster building. The league still fights against it out of fear that it would impact contract negotiations, essentially sacrificing further fan engagement for relatively small advantages on MLS deals—especially considering it has almost no bearing on negotiations in a massive global market.
It’s why discussions around MLB, NFL, NHL and NBA teams are far more advanced in this sphere. Just take a glance at the data available on sites like Spotrac for other professional leagues. MLS is far behind those leagues in sharing information.
Are the clubs themselves given more detailed information about the other teams deals/contracts or are they trying to piece together other teams resources like the rest of us?
The clubs have some details on other teams, but nothing substantially up-to-the-minute. The internal information gives them a firm idea of which teams have more or less GAM and TAM to move, but it’s usually not exact amounts.
Will MLS increase the number of DP’s to four? It looks like more teams are having to make the difficult decision of narrowing the number of DPs to three… thoughts?
Should the league even consider the thought of a 4 DP system?
This could happen with the 2020 CBA that will enter into force prior to the 2020 season.
If an MLS club has a DP that they then convert to a TAM player (e.g. Tito Villalba), does an MLS club that sells the player still get to keep 100% of the fee needed to recoup the out-of-pocket costs before the profit split?
Good question and a complicated one. For a player who is first a DP and then bought down with TAM, like Villalba, it gets complicated.
Let’s say Villalba is on a four-year guaranteed contract. His transfer fee is amortized over the four years of the deal—so, split into quarters. Once the player is bought down with TAM, the league begins to reimburse the team for the quarters of the transfer fee, year-by-year, in years in which the player is no longer a DP. So, as an example, if Villalba’s transfer fee was $2 million, his budget charge would include $500,000 per year on top of his salary. Once the player is being paid down with TAM, the league begins to pay the team back for that “out-of-pocket” transfer fee every year because that $500,000 is now covered by TAM.
If a player is then sold, the team would recoup all “out of pocket” expenses from the one DP year of the deal before the transfer fee was then split 75-25 with MLS.
This all goes out the window if discretionary TAM is used to buy the cap number down. Because it’s discretionary funds, that money is also recouped by the owner in the event of a sale, same as a designated player spend.
Who would you say are the most successful MLS DPs of all time, along with the least successful?
Robbie Keane, David Villa and Sebastian Giovinco are the three best DPs. There’s a long list of unsuccessful DPs, especially early on when teams were signing low-level DPs who would now be fringe TAM players.
If a club buys out a player’s contract in the offseason … does the player automatically go to the allocation order or re-entry or some other mechanism?
The player must first go through waivers before a team is able to buy out his contract.
Is a league-imposed roster compliance rule like DP spots fully enforced in tournaments like US Open Cup or CONCACAF Champions League which are outside MLS governance?
These are not outside of MLS governance. According to the 2019 CONCACAF Champions League regulations in Section VI, Part C: “All players must be registered with the club and the appropriate Association and eligible to play in any league match for the current playing season per the FIFA transfer deadlines in each country.” In the U.S. Open Cup regulations: “Teams entering the Open Cup shall use their official league roster as their Open Cup roster.”
In other words, you have to be roster compliant with your league in order to be roster compliant with CCL and U.S. Open Cup.
Would MLS be better suited to allow teams to loan within the league? –
This is allowed. Here is an article talking about why it doesn’t happen more often.
How do money mechanisms work if they are not an MLS team yet, example Adi going to Cincinnati before they are an MLS team?
MLS would still enforce league rules for teams that are set to come into MLS. This was part of the reason why the Fabian Johnson to Cincinnati move did not happen last year when Cincinnati was still in the USL.
When will we get to a point where TAM/GAM becomes just a pool of money meant for a squad not just 2 semi separate things?
Do you foresee any rule salary/budget changes that we are not aware of?
Yes, this may occur in the near future for MLS. It wouldn’t be surprising if the players association make an effort to have TAM simply dumped into a larger salary budget coming out of the CBA negotiations in 2020.
Curious about charter flights/league’s view on them for next CBA especiallt as cities like Nashville, Cincy are not always accessible via direct flights.
Charter flights will be an issue in the CBA negotiations, but may take a back seat to more rights in free agency and a higher salary budget.
Can an MLS team buy out a DP in the last year of their contract and re-sign them to min salary and then buy a new DP?
Theoretically this is legal, but multiple general managers said the league would step in and prevent a DP from being re-signed to non-DP money after being bought out. It’s also worth remembering that once you buy a player out, he is free to sign anywhere in the world and has also been put up on waivers in MLS. There is no guarantee he would re-sign with your club.
How would MLS transfer rules work if a Euro club wants to buy a player who is signed to an MLS 2 team? Who gets the money if he’s not officially on an MLS roster (e.g. if a Euro club offered Los Dos $10 million for Efrain Alvarez before he became a Galaxy homegrown)
This is a great question.
If a player is not on an MLS contract, then MLS has no claim over any portion of that transfer fee. I am awaiting comment from USL as to whether the league claims a portion of any transfer fees.
Selling a player to another league, a portion of transfer fee goes to the club & can be used for $750k GAM, with the rest going “Against the expenses incurred by the club in relation to the costs of an existing or new Designated Player”. Can this be used to pay down existing DP to TAM level? Or does it only apply to acquisition costs and not salary/budget charge costs? If so, could a club use it to pay down the “pro-rated” transfer fees of a prior DP acquisition transfer fee to reduce cap hit?
This doesn’t refer to budget relief, but rather that it can be used for the “out-of-pocket” expenses that come with an existing or new DP. In other words, an owner pays his own money for all salary above the max budget charge, plus the transfer fee. That cash can come from the profits from a player sale, but it has no impact on the actual budget charge.What did you think of this story?
Paul Tenorio is a staff writer for The Athletic who covers soccer. He has previously written for the Washington Post, the Orlando Sentinel, FourFourTwo, ESPN and MLSsoccer.com. Follow Paul on Twitter @PaulTenorio