MLS Salary Cap: Where is it now and Where is it going?

One of the questions I received for the mailbag deserved a little more attention. The question asked about the current MLS salary cap and where it might be headed. Here is all the information I could piece together on the subject with a few tangents added in.

Where is it now?

The last CBA signed in 2010 mandated for an increase in the salary cap each year until 2014. In 2011 the Salary cap was $2.81 million dollars and this year it is projected to be around $3.1 million. However only the first 20 players by largest salary may count against the cap. The only exception to this is the Generations Adidas players, they can make a good amount of money but not occupy a top 20 spot. Spots 21-24 have to earn at least $46k or be a GA player and the rest of the spots have to earn at least $35k.

This means Portland's new draftees could sign with the Timbers but not count against the cap depending on what their salary comes out to be.

Where is it going?

What is interesting about all of this is that the salary cap might be increased significantly next year. Especially with some of the money MLS is set to receive or already has received. MLS has made $125 million for selling a 25% stake in SUM. For those of you who don't know Soccer United Marketing (SUM) was created in 2002 to handle the commercial, marketing and promotional rights to soccer in the US. Right now they manage MLS, USSF and the Mexican National teams appearances in the US. Yes you read that right, the Mexican National Team. Whenever the Mexican National Team plays a friendly in the United States SUM has set it up and arranges all the advertising. So in some ways Mexico is helping MLS become even better. Another aspect of SUM is the managing of the international clubs who come frequently to the US for preseason games. All those big name teams that play either MLS teams or each other are almost all set up by SUM. For in depth interview with the president of SUM check this Forbes article.

SUM's Shareholders and owners are the MLS owners with Don Garber as the CEO of the company. I bet you are asking yourself how does this help MLS? Well, as stated previously in 2011, just after the end of the MLS season, SUM sold off a 25% stake to Providence Equity for a reported $125 million dollars. Which means that SUM is valued at between $500 million and $600 million.

What the stakeholders did with that was quiet until one or two GM's started referring to something called a "league DP" (Read this article for how it all came up). While the terminology was wrong the league did indeed help with up to at least $1 million of the signing of three players in the recent season. The league terms this players as "impact designated player". Here are the specifics from an article on Philly Soccer Page, who got the information from the Philadelphia Union GM John Hackworth.

"More notable may be the new "impact designated player" alternative, which became available this season after Major League Soccer sold a reported 25 percent of its marketing arm, Soccer United Marketing, to Providence Equity Partners for a reported $125-150 million in 2012.

"The league would match up to $1 million of the investment [on impact designated players]," Hackworth said.

The player must meet certain requirements to qualify as an impact designated player. Notably, the player must be a young attacker. Colorado used this mechanism to sign forward Gabriel Torres this year, as did Toronto with Max Urruti and Portland with Diego Valeri.

As the quote points out Diego Valeri and Maxi Urruti were signed with the help of MLS and that MLS could be paying for up to $1 million of the expenses associated with them. It also means the League might be using the money in other ways.

Add the information about SUM to the information that was has surfaced about the new TV deal and you get a pretty hefty influx of cash. The new TV deal is rumored to be as high as $75 million dollars per year for the English rights in the United States alone and when you add in possible Spanish language rights, the rights in Canada and the international rights the figure could be closer to $120 million per year. Not all of that money is MLS' as a portion of that goes to SUM and to USSF for the rights of to the National Teams but if you took out $20-25 million per year to USSF that still leaves a lot of money for MLS to use. The revenue alone would cover each teams' payroll at the current salary cap level of $3.1 million and if it was increased to $3.75 million the TV revenue would still cover every teams' payroll.

What does this all mean?

MLS is not just relying on the TV revenue as there are few other revenue streams such as: Ticket revenue, merchandise revenue, MLS Live, Transfer fees, and expansion fees. If MLS is serious about being a top league by 2022 the salary cap will be the number one issue that needs to be addressed and possibly the single entity structure. In the end what happens during the next round of the CBA negotiation will be very interesting especially with the league earning greater and greater revenue.

As with any labor negotiation both sides have started posturing and positioning themselves. Don Garber has mentioned on multiple occasions that MLS loses millions each year. The players union, through Eddie Pope the Director of Player Relations for the MLS Players Union, has stated that one of their priorities is to raise the minimum salary. Raising the minimum salary means that the salary cap must rise or the roster size shrinks. Currently the minimum salary is around $36k and the highest paid player in MLS is Clint Dempsey at $8 million. Clint's salary can literally pay for 222 minimum salary players.

With the gulf so large between the highest paid players and the lowest you would think there is a massive wage inequality in MLS. Well, there is and then there isn't because it depends which way you look at it. As pointed out by Empire of soccer currently 28 players on MLS rosters account for 37.3% of guranteed salary paid to players (You have to take this with a little grain of salt because this is not the total compensation just the numbers released by the players union). This is a massive amount of money going to so few players.

Then there is this Harvard Sports Analysis Collective post which looks at salary inequality in the major US professional leagues. They found MLS has more salary equality than the NFL and MLB but not as good as the NBA and the NHL. According to their analysis "while the very top MLS earners make exorbitant salaries, the rest of the league is fairly equal. The bottom 50% of MLS salaries constitute about 17% of total income, while the lower half of MLB earners make less than 8% of net salary. The designated players take a huge bite out of the MLS pie, but the remainder is divvied up fairly equally."

All the information above just means that the next round of negotiations will be contentious and as always there is the risk of a work stoppage. The risk is there but just like last time everyone at the table understood that a work stoppage would be huge blow to all the progress soccer has made in the last 18 years. I would imagine the minimum salary will grow to $45-55k and the salary cap to grow to at a minimum $4.5 million before the purse strings slowly get more and more loose.