The problem is that TFC is very tight up against the cap... ...the Reds only have about $500,000 available to them.
A number of commenters have already asked, not unreasonably, for clarification on how he came up with that number and how exactly MLS’ “salary cap” works.
Meanwhile, over on the Red Patch Boys forum there’s a stickied thread that attempts to calculate a “Cap Space Estimate” based on available data provided by the MLS Players Union compared to what the estimated minimum “salary cap” will be according to the current collective bargaining agreement between the league and its players.
It may seem like a pedantic point of nomenclature but continued use of the phrases “salary cap” and “cap space” are anachronisms that probably confuse more than they clarify when it comes to understanding how an MLS roster is paid for and organized. The reason? Simply put:
Keep in mind: once the league moved to allowing certain players to be Designated Players, with only a portion of their salary counted against the “cap”, there was, technically speaking, no upper limit on what an MLS team was allowed to spend on players. The limitation was on the number of players they could spend theoretically unlimited funds on NOT on the actual amount of money. As ridiculous as it sounds there’s nothing in the rules that would stop the Columbus Crew, if they had an ambitious and wealthy enough owner, from pursuing the world’s best player and conceivably offering him a one billion dollar per year contract. Admittedly, since they hold all the contracts the league would almost certainly use their discretion in such affairs to not allow such an outlandish scenario to take place but that would be an application of their veto power based on prudent financial sense not one required by league rules. Once the cat was out of the bag in 2007 MLS teams’ player budgets have never looked like ones constrained by a salary cap. Here are a few estimates of the 2011 total salary budgets for some MLS teams from the NY Times’ Goal blog:
- Red Bulls: $13.4M
- LA Galaxy: $12.4M
- Toronto FC: $4.3M
- Vancouver: $3.6M
Clearly, the phrase “MLS has a salary cap of $2,675,000” starts to become nonsensical when some teams are spending multiples of that amount in a given year.
Of course, even before the advent of the Designated Player (“Beckham”) rule in 2007 teams were still capable of going over the “cap”. Programs like Generation adidas moved some players off of a team’s budget while allocation money added to the available budget for teams that had it. Technically speaking allocation money can be used to “pay down” the amount a player costs against the salary budget but practically speaking, other than the facts that it expires, can be traded and is supposed to be limited to signing players new to the league, having available allocation money is no different than having extra salary budget. If I pay you a little out of my right pocket – allocation – so that I don’t have to pay as much out of my left pocket – salary budget – the net effect is no different to my cash balance than if I’d just combined the two pockets into one wallet. So the accumulation of allocation money from selling players, finishing out of the playoffs, being an expansion team, or advancing in the CCL is another way that teams can have a higher total payroll than what is commonly referred to as “the cap.” The league further added to the menu of options teams have for stretching their budget in 2011 with the creation of the homegrown player rule and the return of developmental spots to team rosters both of which allow for roster positions to be filled by players who do not count against the salary budget.
The net effect of all of these programs is that virtually no MLS team spends under “the cap” in a given year. Be it from DP spending, Generation addidas players, allocation money, or homegrown player status almost every team finds ways to extend the total compensation they pay to players. Rollins (and many of the posters on the RPB forum) clearly knows this of course as his prescription for TFC with respect to their roster for 2012 is that “[t]hey need free players”. The league has tacitly acknowledged this by increasingly starting to refer to what used to be called “the cap” as the “salary budget” but fans have been slow to keep up. The common usage of the phrase “cap”, probably because North Americans are comfortable with the concept from other major team sports leagues, causes fans who don’t understand the nuances of MLS budgets to draw precisely the opposite conclusion from the reality of the situation. Again, the most important thing to understand is that the salary budget only provides a part of the money an MLS team will ultimately spend on its roster.
Let’s push the analysis even further though. Have a look at the bottom teams in the NY Times’ estimation of total team payroll:
- Chivas: $2.7M
- San Jose: $2.7M
- Portland: $2,652,557
What do those bottom three numbers look suspiciously like: the 2011 MLS salary budget! That’s right, rather than being a “cap” the budget looks a lot more like a salary floor in practical application. Now, strictly speaking, salary “floor” is incorrect terminology as well. A floor would be a mandated minimum amount that teams must spend each year. I’ve read that such a figure does exist buried in the language of the CBA but, as a practical matter, it’s so low that it’s essentially irrelevant. Regardless, because of the way the league is structured financially, there is practically no incentive – if the current commonly shared understanding is correct* - for teams to consistently spend less than the full amount available from the salary budget.
To understand why teams have little to no incentive to spend less than their total available salary budget you’ve got to understand how MLS apparently operates. Again, none of this is official but has largely been gleaned together from the publically available documents relating to expansion bids and public funding for stadium plans. Basically, the investor/operator of an MLS franchise does not pay for the salary budget portion of their team. In return for an initial franchise fee, an annual cut of ticket revenue, a portion of shirt sponsorship, ceding the revenue from national television and sponsorship deals to the league office, and possibly even an annual capital call MLS owners are given a soccer team the players of which are already paid for by the league. The front office of every team can sign up to roughly $2.7M dollars worth of players plus “free” Generation addidas players, home grown players, and developmental players before their owner has to kick in a single extra cent they wouldn’t already be sending to the league. That’s the key thing: it doesn’t cost an MLS team extra money to spend their entire salary budget every year. Since there’s no indication that unspent salary budget can be hoarded from year to year or is returned to the penny pinching owner the only reason to stay well under budget in a given year would be to not lock yourself into bad contracts for future years. However, given the fact that even in that situation it’d still likely be better to pay a player a bonus in the current year and less base contract in future ones it’s hard to see why all but the most incompetent MLS team wouldn’t still try to use up virtually all of their salary budget each season. So the salary budget, rather than being a cap, acts as a de facto salary floor by setting the most likely minimum amount an MLS team will spend.
Now, in any given year a team may, because of the way bonuses are paid and contracts are structured compared to how they’re reported by the PA, on paper appear to be spending less than the full budget (like Portland in 2011). It’s my opinion though that such instances are more than likely purely an accounting mistake on the part of the folks providing estimates of team payroll than actual examples of teams using less than their available budget. Keep in mind: we don’t actually see what players are paid in a given year. If a player signed a $100K per year contract that runs for four years but got a $100K signing bonus in year one the PA would report that as a base salary of $100K and a guaranteed salary of $125K. So the people doing the calculations will use the $125K figure as a proxy for the players total compensation even though he was actually paid $200K in year one. What number counts against the league’s salary budget? I’m going to suggest that the most logical amount to MLS would be the $200K they actually paid they player that year. That might account for why Portland appears to be under the salary budget in 2011 even though they signed Diego Chara as a Designated Player: as a new team they may have paid a number of large signing bonuses in year one that are underrepresented in the guaranteed compensation number released by the PA. If this theory is correct watch for their estimated payroll figure shoot up next year as they spend more money freed up from the now paid for signing bonuses from year one (one quarter of which will still show up in the guaranteed compensation numbers) on base salaries and new players. Finally, it’s been pretty well stated that, if not paid out of allocation, any transfer fees paid by MLS on behalf of a club will count against the salary budget as well. Logically that’s further money that would not be in the figures released by the PA.
That was extremely long and fairly technical. The take-aways though:
1st) The MLS salary “cap” is better referred to as the salary budget and has the practical effect of acting like a salary floor.
2nd) MLS team finances, even with the help of the PA, are still fairly muddy if not opaque. Getting really granular like Rollins’ commenters and the posters in the RPB forum seem to want to is just as likely to mislead as it is to clarify. Broad strokes analysis of teams and individual players’ contracts is probably more useful.
Got it?
*That understanding may be incorrect. There is an unlikely but not implausible theory that MLS funds most of the players’ salaries through an annual capital call that is, in essence, just a disguised bill for each team. I’ll get into this in a future post but it’s one possible explanation for New England’s famous seemingly masochistic behaviour with respect to not spending their entire salary budget through much of the last half decade.
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