For the last ten years, American soccer fans and MLS officials have voiced aspirations of being competitive with the world’s top leagues. This desire to compete against top leagues can be seen through a number of initiatives, from the MLS vs. Liga MX All-Star games to bringing top talent Europe to the United States, albeit at the end of their careers. However, as long as the MLS continues to impose its own spending restrictions, rather than shifting to more Financial Fair Play style restrictions, the MLS will remain a league that cannot compete with other top leagues, regardless of which player(s) are brought over from Europe.
The MLS Structure
The MLS financial structure allows for three main spending categories (though there are categories like Supplemental Roster and Homegrown Player): 1. Designated Players; 2. Targeted Allocation Money; and 3. General Allocation Money.
Similar to how David Beckham’s move to Real Madrid created a new Spanish tax law, Beckham’s desire to play in the MLS created the Designated Player structure. Beckham wanted to play in the United States (specifically, in Los Angeles), but his potential salary made that unlikely, due to salary cap restrictions. Not one to miss a marketing opportunity, the MLS created the “Designated Player” system to allow the LA Galaxy to make Beckham an attractive offer and lure him to the MLS. The Designated Player structure allows a team to use two roster spots (a third may be, and usually is, purchased using General Allocation Money) to sign players to high salaries. Instead of having these full high salaries count against the salary cap, only $612,500 of the salary is counted against the salary cap. For example, Carlos Vela is slotted to make $6.3 million this season with LAFC; however, for salary cap purposes, his salary will only count as $612,500 against the total salary cap allocation. This allows MLS teams to stay within the salary cap while attracting a few top players. Available Designated Player spots may not be traded between teams.
Targeted Allocation Money is additional money (beyond the General Allocation Money) that a team may use to pay the salary of one or more players whose salaries are above the salary cap budget, but whose salaries are below $1.5 million. One example of the use of Targeted Allocation Money is the Chicago Fire’s signing of Nicolas Gaitan. Gaitan’s team, Dalian Yifang, was willing to let Gaitan go on a free transfer. The Chicago Fire was interested in signing Gaitan, but his salary demands were above the amount of money available in the Fire salary cap. The Fire used the Targeted Allocation Money which, after approximately $500,000, did not count against the salary cap, and were able to sign Gaitan. Gaitan’s base salary was $1.4 million, but he only counted against the salary cap for around $500,000. The amount of Targeted Allocation Money for the 2021 MLS season is $2.8 million per team. Targeted Allocation Money may be traded between teams, so while the aforementioned number is the number set for the 2021 MLS season, a team may acquire more Targeted Allocation Money via a trade.
General Allocation Money is the money that may be used to reduce the salary cap hit of any other player’s contract. For the 2021 season, each club is allotted $1.525 million in General Allocation Money. However, like Targeted Allocation Money, General Allocation Money can be traded between teams, so teams may add to or subtract from this number.
The final important number is the salary cap. The salary cap for the 2021 MLS season is $4.9 million.
Why the Numbers Matter
I’m sure many of you, for those of you who have made it this far, are thinking to yourselves “great, you just told us a bunch of numbers. Who cares?” The aforementioned numbers are the budgets that the teams must stay within for salary expenses for the 2021 MLS season. While there is some variability due to the ability to trade Targeted Allocation Money and General Allocation Money, the total spending ability for each team comes out to around $9 million excluding the Designated Player salaries. Even if Designated Player salaries are added in to a team’s spending, the maximum amount that teams are spending is $15-$20 million.
How Far Does $15-20 Million Go In Top Soccer
So, the MLS structure allows (restricts) teams to spend $15-20 million in player salaries. While this is a lot of money to the average person, but in terms of world soccer, it’s not even a drop in the bucket. Let’s compare that number to the numbers we see in the other Big Five Leagues. In the Premier League, Norwich City is currently at the bottom of the table. Currently, Norwich is spending more than 24 million pounds (~$32 million) on player salaries and that does not include the salaries of many recently acquired players, including Josh Sargent and Milot Rashica. When adding those salaries in there, Norwich is more than doubling, and likely tripling, the player salary budgets of MLS teams. Manchester United alone have 7 players (Ronaldo, De Gea, Sancho, Varane, Pogba, Cavani, and Martial) who each make more each season than most MLS clubs spend on player salaries.
Looking at Ligue 1, the MLS teams are much more competitive. The team at the bottom of the Ligue 1 table, St. Etienne, are estimated to spend around $27 million on player salaries each year. While that’s a bit higher than MLS teams, the team sitting second from the bottom (19th place) is FC Metz. The team from eastern France spends approximately $14 million per year on player salaries, meaning that the MLS salary structure is fairly similar to the salary structure of a team that is likely to be relegated from Ligue 1 after this season.
In La Liga, a salary cap is imposed on each team based on where the team finished in the table the previous season. This cap has been significantly reduced due to the COVID-19 pandemic, but even so, the smallest teams are still able to outspend MLS teams. In the 2020/2021 season, the smallest La Liga salary cap was 34 million euros (~$40 million). The smallest cap in the Spanish top flight was more than double what MLS clubs spend on salaries. In Germany, certain notoriously frugal Bundesliga teams (FC Augsburg, Union Berlin) have salary budgets similar to the top-spending MLS teams, but those teams don’t compete against top clubs for titles, they simply fight to avoid relegation each season.
And finally, Serie A in Italy, where there are now 7 American owners of clubs after the Genoa acquisition by 777 Partners. During the 2020/2021 season, the two teams that spent the least amount of money on player salaries in Serie A were Crotone and Spezia, who spent 23 million euros and 22 million euros, respectively. However, those number are net, post-tax salary numbers, so realistically, the teams probably spent approximately 35-40 million euros ($40-45 million) on player salaries.
All of that was a very long way of saying MLS teams are not only not competitive with top European leagues when it comes to player salaries, but teams are not even or barely financially competitive with the teams at the bottom of the table in the Big Five leagues.
The Solution
The solution to this issue should be fairly obvious: if the MLS wants to be competitive with the top European leagues, it needs to allow teams to spend like top European leagues. A salary cap of $4.9 million may not even cover the wages of the Barcelona B team for a season, let alone compete with top tier professional teams. The MLS needs to implement a new, updated system to allow teams to spend more on player salaries. I have been critical of UEFA’s Financial Fair Play system in the past, and I remain critical, but even that system is preferable to an antiquated salary cap structure that is pathetically low at $4.9 million.
The MLS salary structure is hamstringing teams, and if the MLS really wants to be globally competitive, it will institute reforms that allow for further spending. That spending will attract talented young players, increase the overall level of play within the league, and move the MLS one step closer to being a top league in the world.
Big Five FC 