Yamil Asad & Other Transfers

There’s maybe a future Yamil Asad appreciation post to be .. posted, but until then I tweeted some stuff (a thread) on his defensive stats. What I want to talk about today is something different, something less statsy.

It’s a quick post to talk through the Yamil Asad transfer stuff, and perhaps explore just how fluid and complicated roster building can be in MLS. I’m going to piece together some quotes from stuff published elsewhere and for this exercise we’ll take them all at face value to see if it all adds up and what we might learn. Quotes from the source material (AJC, ATLUTD.com, etc) are further below.

My stab at a summarized timeline for this off-season’s transfer saga(s) might go something like this:

  1. In August 2017 (mid-season), the club identified Barco as a key target and met with Independiente in September and began negotiations for a transfer.
  2. End of 2017 Season (October): Club offers Asad a 3 year deal, upwards of $300K/year. And we can piece together that the club likely would have either been working with an already known purchase option with Velez, or one negotiated along a similar timeframe. We’ll use the ultimate fee agreed between DCU and Velez as a proxy for what Atlanta presumably would’ve paid Velez. It’s right around $1M, which sounds about right based on what was reported previously.
  3. Asad turned down this offer, and other presumably increasing offers during the off-season.
  4. We start hearing some buzz about Carmona returning to Chile (late October)
  5. In late October, when it was clear there would not be a deal for Asad, club reallocated some combination of the budget space / GAM / TAM that would’ve been used on Asad at $1M fee + $300K wages to trade with Portland for Darlington Nagbe (fee of $300K TAM, $650 GAM, + incentives and wages of $565K (unless they gave him a new deal – he had supposedly been wanting $1M for his next contract). Eales is on record on ET Radio as saying the $650K of GAM was “dry powder” from 2017 (implying it was not generated by a sale or future sale of a player. He also says Carmona is not going anywhere – calming my own fears that Carmona would be sold). And perhaps most importnatly, we hear from Boca and Eales about how Nagbe was brought in to be a #8, not a wide player. Hmm.
  6. On January 10, at the SuperDraft, the club signs Barco – though by all accounts this was contemplated well in advance of the off-season, and with such a low young DP budget charge ($150K), this likely did not affect the rest of the roster build.
  7. In late January the club sells Carmona for $1.5M – with $750K of GAM generated to enhance the budget. Additionally, Carmona’s salary of $700K or so, has an implied annual TAM usage of $200K, so that’s another $200K/year of TAM to play with. All in, this sale probably freed up about $1M of TAM for 2018.
  8. According to Doug, following the Carmona sale, Atlanta went back to Asad with a better offer and he still declined. Who knows maybe this was $350K-$400K?
  9. Early February, Atlanta fields trade offers around MLS and ultimately trades the “rights” to Asad for $500K of TAM to DC United. No rumors to my knowledge about which other teams were interested. But we should assume this was a notably better offer than anyone else since the club would’ve been hesitant to trade with the East, let alone DC who Atlanta play 3 times a year.
  10. Presumably the last step is to use the funds from the Carmona sale and the funds from the Asad rights trade to sign a replacement for Carmona.

I think this is a useful exercise because by laying it all out there in a timeline, a couple things become clear, and other stuff unclear:

  1. Atlanta United initially wanted BOTH Asad AND Barco. This is either because they wanted Asad as the first player off the bench, OR they imagined Almiron dropping deeper in central midfield to play alongside 1 of Carmona/Larentowicz with Asad – Barco – Villalba behind Martinez. That’s a bfd imo.
  2. Nagbe was not in the team’s initial plans for the off-season (neither as a center mid, nor at all). This is important as it relates to the general shape of midfield. This idea we’ve been discussing in atlutd world that from the beginning of the off-season, the club wanted to transform the way it played in the center of midfield is either incorrect or it was correct BUT with the added wrinkle that they imagined Almiron dropping back as the way to achieve that goal.
  3. The fact that once Carmona was sold they again offered a deal to Asad suggests that in terms of priorities, depth in (a now thin) deeper midfield is second to securing Asad or a similarly valuable attacker. Again, it’s either because at this point they think Jeff + Nagbe is fine and would prefer to split available resources between a depth CM and a depth attacker, OR actually who knows? this starts to break down, but I was going to suggest maybe there’s still a chance they want to bring in an attacker and play Almiron in midfield (Nagbe as depth). Then again, Nagbe is a starter. Period. Right?
  4. Just in terms of funds available. This timeline alongside the news of all the new discretionary TAM and all that suggests that the money was always there to sign Asad. He’s at DCU now because of a fundamental disagreement about his market value, not as much because the club couldn’t make slightly higher wages work in MLS budget context. Basically if they had the money for Nagbe, then they had the money for Asad.

Something definitely seems off though still. Something we’re all missing. Could it be a formation tweak? I’m not sure, but I don’t think we’ve necessarily uncovered it yet. Excited to see who they bring in next.

Quotes supporting most of the above timeline etc…

On the Asad negotiations, from Doug Roberson (AJC)

Atlanta United approached him before the end of the season with a contract offer of three years guaranteed and an annual salary of at least $300,000. Asad wanted significantly more.

Atlanta United approached Asad several more times in the offseason, to no avail. When it became clear that they couldn’t sign him, the team used the funds to acquire Darlington Nagbe in a trade with Portland.

After Atlanta United sold Carlos Carmona in January, the team made one more attempt to sign Asad. Atlanta United offered another multi-year guaranteed contract with an increased annual salary. He wanted either more salary or a shorter guaranteed contract. Atlanta United declined and began to receive trade offers for Asad’s rights from several MLS teams.

According to an ESPN report, D.C. United will pay Velez Sarsfield $300,000 with an option to make the loan permanent for $700,000.

On Nagbe’s role, from ATLUTD website

There were a couple guys we considered that we thought could come from within the league and make a difference in our midfield. The others would’ve probably forced Miguel Almirón a little deeper in the middle, and we didn’t want to take him further away from goal. So Darlington fits our lineup perfectly. Whether he’s deployed centrally or on the wing – he will chip in with a few goals and assists but he’s going to be the connector. He had one of the highest possession retention rates in the league, which is perfect for our team and style building out of the back and playing through the lines. He’s the exact piece that we wanted, and we were honestly surprised that he was available. So we’re excited we were able to get him.

With Darlington, we don’t expect him to be a #10 so to speak, because that would push Miguel deeper or out wide. He has a good engine, he’s calm and smooth on the ball. You can fire him the ball while he’s in trouble and he’ll get out of it with possession and keep the flow of the game going. We see Darlington as someone who is going to bring other people into the game and make all the players around him that much better.

More on Nagbe’s role from ATLUTD website

“Darlington’s a player that fits our team very well and fits the way we’re trying to set the team up,” Eales said. “He’s attacking, he’s exciting, and he’s a facilitator and a connector.”

“We got a player who’s one of the top players in MLS but also someone that was different to what we had in the team already,” he continued. “The attributes and skills that Darlington has compliments our firepower that we have up front. With Darlington behind Miguel Almirón, Josef Martinez, and Tito Villalba pulling the strings, I think it’ll see our offense go to a whole new level.”

“We sat down and said who do we like in the league that in an ideal world we could get on the team. One of the first names is Darlington, but you don’t think you’re going to have an opportunity to trade for him. Then circumstances happen and we had that chance and we were ready.”

On the Barco timeline, from Doug Roberson (AJC)

Barco was one of 5-6 players in South America who fit a certain profile that the team was interested in getting to know.

A few members of Atlanta United’s front office set up a trip in September to South America to meet those players.

The sides, which includes two agents representing Barco, Independiente’s board of as many as nine people and Atlanta United, began talking.

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Squad Construction & Competitive Edges in MLS Roster Rules: A Manual

“It depends” is a frustrating answer to any question. I hate it. Even if it’s the answer that makes the most sense. In today’s post, which I hope will live on as an evergreen document, I’m not going to use that answer.

The question at hand: What is the best way to build an MLS squad using the myriad of complicated MLS roster rules: salary cap, designated players, GAM, TAM, Allocation Order, Loans, Superdraft, etc?

The answer: There are right ways and wrong ways to use each of the complicated MLS roster mechanics. Period. It does not dependWelcome to the MLS Squad Construction 2018 User Manual. I advise you to put on a fresh pot of coffee, and perhaps, bookmark this page.

While I will touch on some of the major rules, generally speaking, this post is not an explainer of the MLS Roster rules (like you can find here). Instead, it provides pointers on how best to take advantage of each of the key roster requirements, rules, and mechanisms to create a superior squad structure. I should note that this analysis is based not as much in empirical method but in one of intuitive theory. I believe it is a sound underlying logic but please chime in by commenting on the post if you have questions or concerns.

Get ready for a long list of “Do”s and “Don’t”s for any MLS Front Office. Nashville SC, this one is free, the next one will cost you. LAFC, I still haven’t received that check you promised. Here is a table of contents for what is to follow:

MLS Squad Construction Manual

  1. Introduction to Framework
  2. Allocation Money as Increased Budget (not as tradable asset)
  3. Designated Players and Young DP Savings
  4. The Option Value of Loans and Subsidized Wages
  5. Monetizing Allocation Order Ranking
  6. Differences between GAM and TAM
  7. International Slots & Investing in Scouting/Analytics
  8. Limited value of SuperDraft picks
  9. The real benefit of Homegrown Player Contracts

1. Introduction to Framework

Major League Soccer is a league of relative parity compared to other leagues around the world. This is by design as it is a single entity and the parity enforced via a complex set of roster construction rules orbiting mostly around a “salary cap” or “salary budget” depending on how technical you want to be. The broad strokes are that 20 senior players per team carry with them a “charge” that for most of them equals the wages they are paid by the league as a whole (single entity), no single player can have a charge higher than $480K (players who earn more than $480K are only allowed on a roster through the use of various other mechanisms like “Designated Players” and “Allocation money”), and the total “budget charges” on a team cannot exceed $3.8M (2017 amounts).

There’s a lot I want to discuss here, and I have given this a go before, but the core of what I’m going to talk about in this post is the general idea of maximizing a team’s talent given these roster constraints. As a general rule, I’m going to roll with the idea that wages (not transfer fees) are the better measure of a player’s competitive value on the field (outside of what his value as an asset might be in a cap or non cap environment). I first read about this in Soccernomics, but it’s a basically intuitive concept that on the whole, better players demand better wages, and so a team with higher wages generally has better players. I don’t want to get hung up on this point – we’re just going to need to accept it as a general fact – even though as I Google it, it appears some do take exception to the idea. And of course, teams make mistakes in signings. Regardless, it’s helpful to understand how to fit more wages into the constraints of the MLS Salary Budget given that most wages are funded centrally by the league and so with the exception of designated players, maximizing league-funded wages relative to a club’s competition does not come at an incremental cost to the individual club. And salary information is publicly available for MLS players.

Total Wages & League Parity

So I started by saying that there’s relative parity, and that all the teams have this “salary cap” thing of $3.8M, right? Yea, sort of. Here are the actual player wages paid by each MLS team in 2017 courtesy of Steve Fenn‘s excellent Tableau Viz:

Dashboard 1

These are the total team wages (players 1 – 29), not just the Senior players (1-20) whose charges must sum to the $3.8M budget cap. But the point should be clear, that while there is a salary budget/cap in place, teams pay vastly different total wage bills. Most of this variance is tied up in the optional signing of designated players whose wages can be as high as the individual owners are willing to fund them with the team taking only the league-funded $480K charge per DP against the $3.8M budget. What happens if we exclude DPs? While I’m working with a slightly different data source, here is a graph I put together of just the non-DP wages by team in 2017 (the league-funded wages):

League-funded Wages
This chart has the non-DP wages plus the DP and young DP roster charges (but not the DP wages in excess of the budget charges, which the individual club owners fund). The first black line approximates the nominal MLS Salary cap and the second line is a proxy for the cap plus an average year’s worth of distributed allocation money.

What you can see is that on a total dollar measure, the disparity between the teams is greatly reduced once you take away the excess wages supplied by individual owners directly for the designated players. On a low to high basis, we go from a range of $5M-$23M to $4M-$7M. There’s some timing noise in my numbers above, and I’ve done my best to add back the “league funded portion” of each team’s DP wages (200K for a young DP, 480K for any other). But an important reality is that once you take away all excess owner funding for designated players (a max of 3) and you’re just staring at the allocation of central league-funded wages (the salary budget), there’s still a not insignificant amount of room to maneuver if your goal is to maximize your team’s league funded wages relative to the rest of the league (as a proxy for maximizing your team’s talent relative to the rest of the league).

I should mention that while most of this article talks about the importance of maximizing league-funded wage bill, it is absolutely important to get your signings right also. All things considered, Orlando City popping up atop that graph above shouldn’t dissuade you from believing that more league-funded wages is better. They just signed some bad expensive players over their life (and to be fair, they only paid half of Dwyer’s wage this year and it’s counting his annual salary in the above).

2. Allocation Money as Increased Budget (not as a tradable asset)

The disparities in league funded team wages originate in several places, but the largest driver is Targeted Allocation Money (TAM). Each team received $500K in 2015, $800K in 2016, and $1.2M of TAM in 2017 (and there are reports of a fresh batch of $2M+ coming in 2018). This pool of league funds has several uses. Its primary use is that it allows teams to pay players that make more than the maximum budget charge and still comply with the roster rules without having to tag them as designated player (using TAM to pay down the wages of high earners to the max charge). As an example, this might allow a team to pay a total of $5.2M in non-DP wages even though  the cap is $3.8M. TAM can also be applied to a transfer fee which otherwise would blow up a team’s budget number or require the player to be tagged as a designated player. And, it can be traded between teams. So already, we’ve got 1 way to use TAM that increases your team’s wages relative to other teams, and 2 ways that do not.

If you could choose between 1) signing a player for free who is worthy of a $700K wage by applying TAM to his wage and 2) paying a $500K transfer fee for a player worthy of a $200K wage and applying TAM to the transfer fee, it’s clear which one is the more efficient choice when building a squad in this rule-intensive environment. Find the players who are out of contract that can help your squad (seems obvious) and you’ll be able to pay higher wages than if you’d spent TAM to pay a transfer fee. And all else equal, the third option is even worse: trading your TAM to another MLS team for another MLS player’s contract (think of it like an intra-MLS transfer fee). Instead of spending your TAM money to purchase a player like in #2, you do that PLUS you give another MLS team more TAM –TAM that they can use to increase the wages of their roster relative to yours! Transactions like these are veritable “six-pointers.” If you trade someone $200K of TAM, they now have exactly $400K of potential wage budget more than you had before the transactions. If the primary framework of this post is to max out league-funded wages to build a stronger roster than your opponents, trading allocation money is bad.

Orlando City Examples (Good and Bad)

  1. As an example of what a team should do, Orlando City traded Kevin Molino (2017 guaranteed comp of $400K) to Minnesota United for $650K of allocation money. If Orlando City thought they could find a suitable replacement player on the international market demanding somewhere around $650K of transfer fee and $400K in wages, this move makes sense as they’d be extracting team wages from Minnesota, on net. Alternatively, if there was an international player out of contract somewhere that fit their needs, they’d potentially have $1M of cap room to play with to find a replacement TAM player (a real potential upgrade over Molino).
  2. As an example of what not to do, instead of using the allocation money they’d just received from Minnesota, halfway through the season Orlando City traded $1.6M of allocation money to acquire Dom Dwyer’s contract (2017 guaranteed comp of $670K) from SKC. Dwyer’s current contract requires its team to feed it a minimum of $180K of TAM in addition to the max budget charge of $480K. By making this trade Orlando has lowered its team’s league-funded wage bill relative to its peers while still taking on a big contract that requires continuous league assets to stay compliant. On top of this, it sounds like Dwyer’s contract is nearing its end and his next one will need to be DP level for him to re-sign, so it’s possible Orlando’s best case scenario and worst case scenarios for Dwyer are both difficult to swallow. Worst case (i think), he leaves when his contract is up, and the team effectively paid $1.6M for a season and a half of no playoffs. Best case, he signs and becomes a DP, and now he’s taking up one of those precious DP spots for $480K max cap charge.
  • Rule: “Use” TAM to reduce a player’s cap hit to your team’s salary budget, don’t trade it to other teams. At least not for another MLS player contract.
    • Sub-rule: If a team offers you TAM for a player that you can find a replacement for from outside MLS for similar money, go for it. You’re lowering their total potential league-funded wage bill. You will either use the received TAM to replace the player via transfer fee, or if you can find a similar player on a free, you can apply that TAM to those wages or increase your wage bill elsewhere while decreasing your competition’s overall roster strength.
    • Sub-rule: These same principles should work for General Allocation Money (GAM) as well. GAM is like TAM but it has even greater utility in its flexibility.

3. Designated Players and Young DP Savings

Recall the chart above that showed most team wage inequality comes from designated players. This is obvious, but it is critical that a team “hit” on their 3 designated player signings. There are two different lenses we’ll view this from. First, the fan lens, where we can assume that our team’s owner has virtually infinite resources and does not consider transfer fees for designated players to be an investment. This is a simple thought exercise: simply sign the best players that are available and that you can convince to play at your club: most likely attacking players as goals and assists are hard to find. But there are simple ways to maximize your overall league-funded wages with designated players also: namely signing young designated players (aged 23 and younger) who only count $200K against the cap instead of the standard $480K. If you were to sign 3 stud young DPs instead of 3 DPs in their prime, you would have $840K of additional cap room to spend on strengthening the rest of your squad. This is a significant chunk of change: Tito Villalba, Victor Vazquez and Sascha Klestjan make around $650K each. However, I have to mention that if this is strictly the fan perspective first, you may not want to spend all 3 of your DP slots on young (potentially risky) players when you could buy 3 David Villas instead that are proven.

However, from an owner’s perspective — specifically an owner who cares both about having a winning team AND about internally financially prudent things like ROI — the 3 designated player slots should be thought of as investments to the extent that the players signed command significant transfer fees. If this is the case, the Young DP route is absolutely the way to go. First, we already mentioned the competitive advantage to the rest of the team’s budget structure ($200K vs $480K cap hits for each DP). Secondly, if you care about ROI, then any one-time transfer fee paid to another club around the world should be thought of as a prepaid asset and not as an expense. Simply put, you should be paying a transfer fee that you believe you can recoup when the player departs the club. And really, the only way to do that is to sign a young player whose value is still on the rise. The goal doesn’t even need to be to receive more than you paid, simply to recoup. You can’t do that with an established player but you can with a young player. The cap room you save by signing young DPs will allow you to strengthen elsewhere with veterans.

Good examples of this are FC Dallas (who filled all 3 2017 DP slots with young DPs, successfully generating that extra $840K budget amount) and Atlanta United whose Almiron and Villalba counted as young DPs (a combined $400K against the cap instead of $960K), allowing them to spend $325K on an expensive veteran CB like Michael Parkhurst to captain the expansion side. Below is a breakdown of the 2017 DP wages.

DP Wages
Someone will probably call out Montreal. For whatever reason Piatti still shows up in the Players Union Salary releases as making $450K (under the DP threshold). I don’t think this is true, but the data is the data.
  • Rule: Sign young DPs instead of old ones to a) gain an $840K budget advantage with which to strengthen the rest of your squad and b) to increase the chance of eventually recouping transfer fees paid to sign your DPs, and c) increase the chance of turning a profit on the player’s departure, which could add up to $650K of GAM to your team’s overall budget (or more, if they change the rule).

4. The option value of loans and subsidized wages

If we maintain our goal of increasing the squad’s wage bill relative to the competition, there’s another tool to add to the kit. It is customary in global football for clubs to loan young players to one another for half seasons or seasons at a time. Acquiring players on loan is helpful in MLS for a few reasons. The first is that it is not uncommon for a home club to pay a portion of the loanee’s wages. Having a player on your roster in MLS but not having to pay 100% of that players wages is immense as it allows you to once again strengthen the total wage bill of your club (and it’s overall roster strength) relative to the rest of the league. Secondly, loan agreements often have purchase options and options are always good. Specifically in MLS, the ability to not bring a player back next season if he’s not working out this season allows you to free up the cap space needed in the following season to find the player’s replacement. In MLS with strict salary cap rules, a bad player on an expensive contract that you can’t get rid of can cripple your team’s overall budget strategy in a way that doesn’t exist in other league’s around the world.

In 2017, Atlanta United acquired 4 players on loan: Josef Martinez, Yamil Asad, Greg Garza, and Anton Walkes. Martinez was a DP whose option was exercised after just 3 games because it turns out he’s Thierry Henry but good. Asad and Garza were paid $150K each by Atlanta, suggesting to many of us that their home clubs footed the bill for the rest. And Anton Walkes was a league minimum $53K charge for Atlanta, suggesting Tottenham paid some portion in addition to this. Atlanta was able to allocate these additional funds to strengthen the squad in other ways. But more importantly, nothing is ever a sure thing. It’s possible all 4 of these guys might’ve been failures and had the deals not been set up as loans, ATL could’ve been heading into 2018 with no roster flexibility (like Orlando City). The roaring success of all 4 players in 2017 has left Atlanta with much better problems to have (which I’ve discussed in other posts).

  • Rule: Roll the dice with 3 or 4 high upside loanees with purchase options while if possible having their home clubs subsidize the wages. If 2 are winners, exercise their options and call it a day. The rest go back to their clubs next year and you have cap space to play with. Use wage subsidies on loanees to strengthen other areas of the team, increasing your effective team wages relative to the rest of the league.

5. Monetizing Allocation Order Ranking

OK, this one is just weird. Basically there’s a ranking/priority order for MLS teams chasing USMNT players or other good players that used to play in MLS but who’ve left and want to return to the league. Basically if you want to bring one of these players into the league, everyone in front of you in the ranking order has dibs before you can sign the player. This order resets each season in a worst to first ordering (giving bad teams the first crack at utilizing this mechanism in the offseason) with expansion teams automatically getting the first pick. So a couple features to this thing that are really important. First, it appears to me that the only spot in this ranking that has value is the #1 pick as the #1 pick has right of first refusal whenever there’s a player trying to reenter the league. Second, as the summer transfer window closes (halfway through the MLS season), the market value should start to disappear because if the team in the #1 spot doesn’t use the mechanism it doesn’t get to hold onto it: the order will reset the following year and they’ll likely lose that spot. Third, the timing of when players decide they want to come back to MLS and whether these players meet the needs of MLS teams matters and is somewhat random. Fourth, just from looking at recent transactions and the valuations inherent in them, this thing matters, and clubs place significant value on it. Here are the 2017 allocation order uses and trades:

  • Chicago trades GAM (undisclosed) + 1st round pick + 3rd spot for Minnesota’s #2 spot (Juninho)
  • Atlanta signs Brad Guzan (free transfer)
  • VAN trades $225K + International Slot to Minnesota’s #1 Spot (Freddy Montero loan)
  • DC trades $175K + 9th spot in the order for Dynamo’s #1 spot. (Deshorn Brown)
  • NE trades $175K + 5th spot in the order for San Jose’s #2 spot.
  • NE trades $400K + 2 years of intl slots to CLB for rights to Kriztan Nemeth through CLB’s #1 spot in the order

Just eyeballing it, that looks like basically if a decent player is on the line, we’re talking about the #1 ranking having a trade value somewhere in the range of $300K – $600K in allocation money. Additionally, similar to the principles we discussed earlier around TAM, the type of player you bring in through this mechanism is either a high value TAM player or a DP — my point being if you trade for the #1 pick, you’re trading a bunch of allocation money and then needing to use more allocation money to pay the wages of the player you’ve acquired. While I don’t know for sure, I can’t imagine any team would trade league assets to another league team in order for the rights to then pay a hefty transfer fee to a foreign club for the rights to pay a hefty wage to the incoming player. But, I’m sure this has happened. What’s probably much more common is that teams monitor the allocation list for players whose contracts are expiring. As an example, Atlanta United were able to use their #1 ranking in the allocation order to sign Brad Guzan on a free transfer (i suspect he’s on $700K wages or around there).

The question though is, what’s the best thing a team can do with a high allocation order ranking (what’s our next “Rule”)? It appears to me that if you’re going to exercise your privilege from the top spot of the allocation order, you have to strike it big and you have to find a player who is out of contract (Brad Guzan is a good example). But there are generally, more efficient plays: namely, trade the allocation ranking down to another team who has their hopes set on an available player. Collect allocation money and other assets from that team, thereby necessarily increasing your team’s potential wage bill relative to your competition’s (all at zero actual additional cost). Because the #1 ranking is the only one with real value at any given moment, an ideal string of transactions would be finding yourself at the #1 spot multiple times in a given season, by trading the #1 spot down for the #3 spot let’s say + allocation money. Then after one more team uses their position, you’re back in #1 and ready to fleece the next team for allocation money should a big name be available. All the while, you would have to keep an eye on the clock and realize that your allocation order will not carry over to next season.

So, while Atlanta’s Brad Guzan signing was certainly a success, what Minnesota did was also very interesting and in my mind, clever. They started the season in the #2 spot, but on Dec 23 traded the #2 spot to Chicago for the #3 spot + allocation money (undisclosed) + a 1st round draft pick . Then After Chicago took Juninho and Atlanta took Guzan, Minnesota had the #1 spot and traded it to Vancouver for $225K + a 2017 international slot. So the basic concept is there, so long as you hold teams near the top of the order hostage for the highest possible ranking spots, you can put the league through the windmill so to speak, repeatedly landing yourself back atop the order and demanding more assets to let other teams go after their guys, all the while increasing your league-funded team wages relative to your competition by buying TAM not selling it. There’s some nuanced game theory in there somewhere, but at least as a framework this should be the goal. LAFC, read this paragraph again.

  • Rule #4: Trade allocation ranking order down a few spots to collect allocation money, then do it again once your team is back up in the top spot. Remember not to let the summer transfer window close on you in the top spot.

6. Differences between GAM and TAM

In principle, general allocation money and targeted allocation money do the same thing: they allow a team to have a wage bill that exceeds the nominal $3.8M salary budget cap. But there are key differences that should have an impact on front office behavior. First of all, targeted allocation money can be applied only to players who make more than the $480K max budget charge but less than $1M. And importantly, GAM and TAM cannot be combined and applied to a single player’s budget charge. Because of this, if a team is trying to sign a player right around that max budget charge and also comply with the league’s $3.8M budget cap, whether his wages are ultimately above or below the max charge may depend on which allocation money resource is more plentiful for the club. You may want to pay a player $500K instead of $475K if you have enough TAM (but not enough GAM) to reduce his wage low enough to slide under the overall budget cap. In order to increase your club’s league-funded wage efficiency relative to your competition, it may involve paying a player more than his market value, as counter intuitive as that may sound. Sam Steejskal first reported on these sorts of odd incentives.

Secondly, understand that while General Allocation Money is indefinite-lived, Targeted Allocation Money does in fact expire after 4 transfer windows. As an example, TAM issued in 2017 will expire at the end of the 2018 season. This presents interesting and complex scenarios. Take for example a situation where Team A may have TAM that’s about to expire. The value of this expiring TAM is quite low to most teams, but perhaps there’s a team out there (Team B) that is trying to pay a one-time transfer fee before the window shuts to secure a player. Assume also there are other teams with varying common needs of TAM and stocks of TAM. Team A’s goal should be to identify the appropriate trading partner (Team B) who has a need for TAM for the purpose of using it in the very short term (before it expires). Offers from other teams in the league will surely be low-ball in nature because the TAM is about to expire. Team B’s goal should be to find a cut rate deal for TAM given the presence of TAM that is about to expire. If Team B deals with any other team than Team A they’ll likely have to pay more for the same amount of TAM (different vintages). Something to think about. Less of a direct takeaway.

7. International Spots

I’ve mentioned over and over again that when teams are considering trading for a player currently under contract with another MLS team, that they should evaluate whether there are comparable players available on the global market because it makes sense to use TAM towards a fee outbound from MLS rather than trade another MLS team an asset that increases their wages relative to your own for a similar player. In order for this process to work, you need International Spots/slots. Each team starts with 8 but these are freely traded in 1 or 2 season increments. Based on my research, the market value seems to be between $50K and $75K of allocation money, but they’re also acquired by trading other assets like draft picks or players. I’ve also noticed that this market normally clears. Some teams like to have a lot of IS slots and others only use a handful, so teams don’t seem to have trouble acquiring the international slots they need, and I’m yet to see a team really be held over the barrel for one.

Most importantly though, if you can get your international players Green cards after they’ve been around for a year, then you no longer have to use an IS on them. This is a free lunch, and every team should pursue it. As IS spots free up, you can either monetize them or use them to sign players on the much more liquid global player market (compared to the unionized and single entity-contracted MLS player pool)

Example: Atlanta getting Green Cards for Kenwyne Jones, Chris McCann, and Kevin Kratz. Not only does it free up IS spots, but it theoretically increases the intra-MLS trade value of these players slightly.

  • Rule: Acquire international spots in order to ensure the ability to compare MLS trade opportunities to global player market. Work international players through the US Customs Office Green Card process to free up international spots and increase player trade value.

This is a good time to mention that I fully realize that the directive to sign comparable internationals instead of trade for MLS players in an effort to maximize your league-funded wages relative to your peers comes at a real cost (not a TAM/GAM asset cost). This is because while trading assets for MLS players is not an efficient use of league assets and cedes inherent competitive advantage, it costs less “real life dollars” to gather information on MLS players than it does to hire scouts and analysts to generate information on players abroad. The costs of setting up a quality scouting and analytics department do not count against the salary cap. They are simply real costs to be incurred by the owner of a club. So one way to think about this is a tradeoff between the following two models:

  1. Spend more money on scouting and analytics. In doing so, spend allocation money on wages and transfer fees for international players that you otherwise would trade to an MLS team for a comparable league player. In doing so, you increase your team’s league-funded wages relative to your peers, increasing your theoretical advantage.
  2. Spend less money on scouting and analytics. Instead, give up league assets to other MLS teams in order to acquire league players (the cost of this information is not the real life dollars you would spend on scouting/analytics but instead the ceding of competitive advantage to other MLS clubs).

One of these seems like MLS 3.0, the other MLS 2.0, at best.

8. The limited value of a SuperDraft pick.

I’ve placed a high value on allocation money in all of the above rules/arguments, so I should mention an asset that should be given a much lower priority: SuperDraft picks. Each year players are drafted out of college via the 4 rounds of the MLS SuperDraft. Before the draft there’s a combine where players work out and scrimmage in front of all the teams. Generally speaking, players drafted in the SuperDraft either make the senior minimum wage or the reserve minimum wage, or if higher than that, they are tagged as Generation Adidas players (normally the top prospects) and they are automatically eligible to be placed on the supplemental roster (and therefore not count against the cap). Kevin Minkus at AmericanSoccerAnalysis did a study to understand the value of SuperDraft picks based on their ordering. I’ve included his chart below:

SuperDraftMinutes
Kevin Minkus at AmericanSoccerAnalysis pulled together this helpful chart looking at empirical success rates as measured by minutes contribution across the 4 rounds of the draft.

Basically each pick in the first round is expected to contribute fewer and fewer minutes over the first 2 years a player is in the league, with anything outside of the first round being mostly valueless on average. When you consider that a healthy MLS academy is pumping out homegrown players who are competing for the same roster spots, there’s a very real argument that an MLS team should not want to make any pick outside of the first round (anomalous draft classes not withstanding). This makes me thinking that whenever a team needs to trade for a player or an asset, they should first start by offering SuperDraft picks. If you need an international slot, try a SuperDraft pick, what about a nominal amount of GAM or TAM, try a SuperDraft pick. Want to move up a few places in the allocation order? (say from 7 to 5 and then hope 4 teams utilize their rankings allowing you to spend some amount of time in the top spot) Try trading a SuperDraft pick or two.

Something you should not do is trade allocation money for a better SuperDraft pick. I simply do not understand it. As an example New York City FC traded $250K of GAM to Chicago for the rights to draft Jonathan Lewis, who is certainly a prospect with some upside. But I don’t follow why drafting Lewis and hoping he develops into a good player who if he becomes a good player will demand a higher salary is better than spending $250K of GAM (effectively $250K of salary budget) on a player of the $250K caliber. Players who make around $250K include Leandro Gonzalez Pirez, AJ DelaGarza, Steven Beitashour, Drew Moor, Sebastian Lletget. Point is that’s the caliber of player you can have on your team at that wage amount – now acquiring one of those players may cost something, or it may not. Older players like Jeff Larentowicz ($175K) was a free agent around this time.

In contrast, Atlanta United have done a decent job trading SuperDraft picks for assets, including: 2017 #24 pick for 2 seasons worth of international slot, 2020 4th rounder for Kevin Kratz, 2019 fourth rounder for Harrison Heath, 3rd rounder or conditional 2nd for Romario Williams, 2018 2nd rounder for the discovery rights to Greg Garza.

They did trade an expansion drafted player for the #8 pick and turned that into Julian Gressel, which has worked out swimmingly, but I don’t think this sort of move works out very often.

  • Rule: Trade your Superdraft picks away for assets you can use to increase your team’s total potential league-funded wages relative to your competition.

9. Homegrown Players

The league (and surely in partnership with USSF) has created special rules around homegrown players that are supposed to create incentives for clubs to invest in youth development. I want to clarify specifically what the incentives accomplish here, because I think there’s some confusion about the way people talk about this. First the rule: basically, if a player qualifies as a homegrown (he’s played in your development system for a year), he isn’t subject to the Superdraft and instead you can sign him to your team as a homegrown player. He will occupy a supplemental or reserve spot on your roster so he won’t count against the cap, so long as he makes $125K or less (they start out making much less: Tyler Adams makes $75K).

So I want to be clear, that the primary benefit of the homegrown player designation is *not* that a homegrown player doesn’t count against your cap. After all, no supplemental or reserve roster spot (21-29) counts against the cap (basically the low earners in MLS). If we play the scenario out where a club successfully develops a star out of their youth system, while he’s still developing in his early years in MLS he’ll be on the supplemental/reserve roster, making $75K or so and not counting against the cap. But if the player truly becomes a star, at some point it will be time to renegotiate a contract and his wage demands will exceed $125K (perhaps at this point there are clubs overseas offering him much more than this). It is at this point that an MLS club can either a) sign him to a fair market value wage, at which point he (like all other good players) counts against the cap and the homegrown player tag goes away, or b) sell him overseas and take the profits from the sale (which is basically the entire fee) after MLS takes its cut (or doesn’t if they change the rules as reported), and convert $650K of this profit into general allocation money to increase the strength of the squad. If you’re still reading at this point, I think you know where I’m going with this. The primary purpose of the homegrown player rule, is not for MLS teams to create homegrown superstars and keep them in MLS (if it was, then the rules would be much more generous to teams who do this – maybe the player’s wages would be exempt from the cap hit regardless of amount). The rule is designed to create an incentive for MLS teams to develop youth players in the area into stars and then sell them overseas. One important note, which I may explore further in another post, is that in order to sell a player oversees for a significant transfer fee you need to resign the player to a long term contract. So the act of turning a non-cap hitting homegrown into a transfer fee may involve a transition period, where the player is briefly making something closer to a fair market value wage before a foreign club comes in for him.

  • Rule: Develop homegrown players by stashing them in spots 21-29 on your bench and getting them minutes, and then when they have developed into stars, sell them to generate profits which you can convert into general allocation money to further strengthen your team (increase your team’s league-funded wage bill relative to your competition).
    • Alternatively, you can sign a homegrown player out of college who would otherwise have entered the SuperDraft if he has fulfilled the 1 year of development within your academy. This 22-23 year old is likely more ready to see significant minutes in MLS than a 16 year old phenom prospect. Accordingly, there’s a benefit to paying the 22-23 year old an entry-level homegrown wage and have him not count against the cap.

That’s it for now in terms of the “Do”s and “Don’t”s.

I should mention Jared Young at AmericanSoccerAnalysis has a similar full breakdown of Roster Construction here. He comes to some different conclusions about what portions of the roster a club should focus on. It’s an interesting read and a very helpful breakdown of the key rules.

Let me know if you have questions or ideas on where to take this from here. I’ll likely be publishing something like this in chapter form over at DirtySouthSoccer. I’d also like to looks specifically at some of the nuances of how an expansion team can find advantages – with the expansion draft and other types of things.

I also have vague plans to publish some MLS Trade Price Guides as the league becomes more and more transparent with the amounts being traded around.

 

On MLS Home Advantage and Playoff Structures

Home field advantage is a real thing in sports. And it impacts soccer more than any other major sport. Freakonomics argues that home field advantage is primarily driven by refereeing decisions as the raucous crowds have a conscious or subconscious impact on the referee when he goes to make difficult decisions. In soccer where the referee has greater latitude to make highly judgmental decisions that significantly impact the game, homefield advantage is felt the heaviest:

Home Field Advantage - Global Soccer

More interestingly, homefield advantage is greater in MLS than in the 5 major European leagues. In the major European leagues, home sides generally average 1.6+ ppg, but in MLS it is 1.8 ppg at home. This is a significant difference. Some have argued that the difficult travel times (unique to the larger US geography) and coach class commercial flights have a big impact here, but personally, I think it’s more likely that a similar homefield advantage exists in America as it does overseas (i.e. one that is primarily determined by important, judgmental referee decisions per Freakonomics), but that the parity of the league amplifies this effect. After all, if there is a very little difference between two teams facing one another on the field, any inherent advantage to the home side will show through more often. And this happens in MLS. And of course, MLS by design is a league of great parity relative to the European leagues. There’s a Salary Cap and some other interesting roster budget mechanisms that I’ve discussed before, several times. A league designed to be competitively even (like some other popular US-based professional leagues) should suffer more from the impact of unconsciously biased referee decisions. Perhaps this is why they are adopting V.A.R. ahead of the rest of the world. A post for another day.

But, here’s what I wanted to talk about: the Playoffs.

This week Sam Stejskal at FourFourTwo reported that MLS is considering an overhaul to the playoffs formatting due to scheduling issues where the FIFA international break slows down the “momentum” of the playoffs between the conference semi-final and final rounds. Currently those rounds are home and home double-legged affairs with away goals being the tiebreaker if aggregate scorelines are tied after 180 minutes plus stoppage. The reported proposal would swap out these double leg series for single elimination games hosted by the higher seeds. Stejskal mentions that the lower seeded team has won 8 of the 12 conference championship series since the current structure was introduced (this seems like a perfectly reasonable outcome over a sample as small as this if you buy that home and homes are mostly fair to both teams). Also posted at FourFourTwo acutally… while I was drafting this paragraph, is this piece by Steve Davis, who mentions that 11 out of 12 single elimination play-in games have gone to the home sides!

It is my opinion that switching to fully single elimination games hosted by the higher seeds would be a mistake because of the significant home field advantage in MLS, which is due to the significant level of parity in MLS (something the league purposefully designed). With teams averaging 1.8 points per game at home during the regular season and less than a point per game on the road during the regular season, these series would become largely “no contests” when that’s not what playoffs are supposed to be (my gut is that they would mirror the 11/12 play-in games going to the home team). Consider how few teams in MLS actually average more than 1.5 points per game (a favorable average) when playing away from home. Below is the full inventory of said teams over the past 5 years:

Home Field Advantage - Global Soccer 3

Also consider, how this stacks up to more traditional “Big 5 European Leagues” with traditionally less parity, in terms of percent of the league that averages 1.5+ ppg when playing away from home:

Home Field Advantage - Global Soccer 2

If no teams in your league can average a positive result when playing away, then why would you even hold a postseason in which every single round is laced with the most significant home field advantage observable in sports? It doesn’t make sense to me. Many out there want the team with the better record to be rewarded with an advantage in the playoffs. I understand this sentiment. After all, while playoffs are an exciting way to determine a league champion, the regular season should “matter” – especially in a sport like soccer, where the best leagues in the world determine their champion via a regular season table format. But my answer to these complaints is that first and foremost, the 2 best teams in each conference are absolutely rewarded something valuable, a bye – well earned rest, and the right not to be challenged by the 5th or 6th best teams in the conference. The third and fourth best teams are offered the significant homefield advantage vs the 6th and 5th best teams in the play-in rounds. But once we whittle the playoffs down to the top 4 teams in each conference, are we sure we want to try to reward incrementally different advantages to each of those 4 teams? In a league of parity and where the schedules aren’t balanced and New York Red Bulls and New York City FC have to play each other 3 times a year while Atlanta gets to face DCU (let’s not talk about it), if we were to award the 2nd best team a significant advantage over the 3rd place team in the East, would that even be fair? How certain would we be that the 2nd place team really earned this advantage? And as a reminder, the advantage given to the 2nd place team in this case would be massive based on the numbers mentioned above this post. From 2012-2016 in MLS, teams equivalent to the #4 seed in each conference average 1 point per game on the road against the league as a whole (including the basement dwellers of each conference). In short, it’s stacking the deck too much to let a team averaging 2.3 ppg at home (average top seed home record) host a team averaging 1 ppg on the road (avg #4 seed away record) and have this be the meat of your postseason (conference semi-finals and conference finals).

In summary, MLS created a league based mainly on the traditional American socialist-oligopoly high-parity sports model (NFL, NBA), and not on the free-market model (MLB, EPL, etc). In doing so, the league needs to accept that it values parity, and that having chosen a playoff-determines-champion model, the league needs to accept that it mainly* values the “what-happens-in-the-postseason-is-what-matters” concept. Those two ideas work decently well together, and the main benefit is that the playoffs are interesting because in most postseason games, they offer a visceral and tangible moment to distinguish two good teams that both want to be champion in a mostly just manner. While I understand that it feels right to give a team an edge for success it maintained over the long haul in the regular season, full homefield advantage in a single knockout game is too blunt of a tool to accomplish this, and further due to the nature of the league’s parity and the odd imbalanced scheduling, I’m not sure there’s much between 1-4 that would make me even want to dole out rewards/advantages in the playoffs between those teams. Just let the playoffs be what playoffs are supposed to be, taking the X number of best teams over the course of the year and facing them off against each other to determine who can come out on top when it matters most.

Postscriptum:

I realize that I didn’t address the MLS Cup Final being hosted by the higher seed as well as the play-in games being single elimination games hosted by the 3/4 seeds vs 5/6 seeds in each conference. For the record, it would be ideal to host the MLS Cup Final on neutral ground (like the Super Bowl), but I understand how ticket sales / tv optics impact this decision for a league that’s still trying to establish it’s place. It seems a necessary evil to me to make sure the Final is sold out and packed. Similarly, I think it’s fair to think of the 5th and 6th best teams in a conference as “wild cards” lucky enough to have made it into the playoffs (but also important that they’re allowed a path at all, given a league of high parity demands more teams be allowed entrance into the postseason).

Additional Material on Home Advantage:

Sorry for the team-agnostic content this time around. Will try to do a catch up post soon on recent ATL UTD matches… there’s just so many of them, and some of them are weird.

Atlanta United & MLS Roster Rules: 2018 Salary Cap Scenarios

Just a quick jump post over to DirtySouthSoccer where I wrote a piece about the MLS roster rules and the salary cap, looking ahead to 2018 and wondering what sort of options the front office has to retain the squad as currently assembled. If you like spreadsheets, give it a read, but maybe make a pot of coffee first.

I try to guess at GAM and TAM balances as initially allocated to the expansion clubs plus I guess at undisclosed traded amounts and unconfirmed rumors of future money injections by the league. In the end, if you want to help think through whether the club can sign Garza and/or Asad next year, you’ll need to read most of it.

2018 Roster Panic Part 2: Lost in Spreadsheets

Economics of MLS Allocation Assets – Pt 2

In this one I summarize the last post’s conclusions (part 1), expand further from there, look at some data on TAM price inflation, and then draw what I believe to be a very important conclusion re: how best to use allocation money for clubs in an inflationary environment (TAM-related).

Quickly revisiting Pt 1 plus some knock-ons

In the last post I wandered through some scenarios in an attempt to understand the best and worst uses of the league’s complex fiat currencies: General Allocation Money (GAM) and Targeted Allocation Money (TAM).

I ultimately concluded that GAM and TAM are best used via the action that destroys them forever: the buying down of player salaries via centralized league funds and/or the buying down of a transfer fee for an imported player via centralized league funds. Essentially, every dollar of GAM or TAM in your possession is a way to increase your team’s competitive position relative to the rest of the league (by carrying a higher wage bill than is otherwise allowed under the league’s complex roster rules). So any transaction that sends GAM or TAM to another team within MLS rather than the aforementioned transactions which destroys/uses the GAM/TAM is a transaction that lowers your team’s potential wages relative to the rest of the league’s potential wages (all things equal). As an example, and as a first order, trading GAM/TAM assets to another MLS team in exchange for a player’s current contract with said team is at face value an inefficient way to optimize your team’s competitive position, in that you are increasing the other team’s total potential wages and decreasing your own team’s potential total wages. In the last article I posited that the only scenario in which a trade might make sense would be if the player’s current contract is “favorable” (e.g. player is good enough to make $250K/year, but is making $100K/year and has time remaining left on the contract). But ultimately, I concluded that because the market for MLS caliber players is much larger than just the sum of all current MLS players, it follows that the GAM/TAM that is sent in this scenario to acquire a favorable player contract from another MLS team could just as easy be used to “buy down” a portion of a “market value” contract for a player transferring in from overseas to where the net effect might be the same hit to the salary budget charge, with the added bonus of not increasing your opponents’ total potential wages relative to your own.

Some things I did not mention in the last article but that I think are worth mentioning:

  • The argument that the total pool of MLS caliber players is much larger than the current MLS player pool is dependent upon a team’s availability to information on players in this larger pool. Information on MLS players is naturally more available to a team than it is for foreign players in other leagues. As such, the total pool of MLS caliber players is only significantly larger to a team than the current MLS player pool if the team is willing to spend real money on scouting and analytics, things which close the information gap for MLS players vs import players. It follows that the decision point between trading GAM/TAM to another MLS team in exchange for a player you have easily available information on versus using GAM/TAM to sign a similar player from another league might come down to a tradeoff between 1) spending league money (no incremental cost to owner) accompanied by lowering your team’s wage bill relative to other teams to acquire a player and 2) spending real money (incremental cost to owner) on scouting and analytics so that the team can maintain a higher wage bill relative to other teams to acquire a player. Ultimately, this suggests club ambition and owner finances come into play as it relates to which strategy a club pursues.
  • Further, stocking one’s team with more international players than other teams have on their rosters comes at a nominal cost: a trade with another team to acquire an additional international slot (above the baseline 8). Historically these slots trade on the “open market” for somewhere in the range of $50K-$70K of allocation money but draft picks can also be used. So it should also follow that trading GAM/TAM assets to another team in exchange for additional international slots might be acceptable in that it frees a team up to not send even more GAM/TAM to other teams in exchange for players. But importantly, it might be more efficient to trade Super Draft picks instead, given the level of uncertainty involved in SuperDraft picks.
  • Additionally, MLS has some strange rules around player discovery which require a nominal amount of allocation money to exchange hands whenever a player is signed by one club but the player has been identified as a discovery player by another club. So allocation money has trade value in these situations.

Other Prickly elements of fiat currency (and thus GAM & TAM): Inflation

Because GAM and TAM are fiat currency, created out of thin air by the central MLS governing body (backed solely by the League itself for the ultimate use of increasing a team’s wage bill above preset limits), the fair market value of a dollar of TAM or GAM has the potential to act erratically, fluctuating based of the actions of the governing MLS body – principally its ability to increase or decrease the supply of TAM or GAM. This may or may not be manifesting itself at the present moment as we witnessed deal after deal at the close of the most recent MLS transfer window involve higher amounts of allocation money than we would’ve previously seen (had these amounts been as transparently reported by the league as they are today). The word on the street is that there is another round of TAM injection coming into the league, and perhaps in addition to this, an added optional TAM purchase options for clubs (spend incremental owner real dollars to acquire incremental TAM dollars used to increase team wage bill legally). And perhaps, what is only speculation by folks like me is confirmed behind closed doors by various MLS owners. If in fact, a new injection of TAM is on the horizon, and importantly, one that is larger than we’ve seen in the past, than we would expect to see some inflation in the going rate of player contracts or other MLS assets as priced in TAM.

Note: Sam Stejskal released this very good piece on TAM inflation as I was writing this piece. He tackles some really interesting wrinkles I did not pick up on, related to wages right around the max charge and inefficiencies in the market there.

Player contracts are messy and hard to value for many reasons, the least of which being we don’t have full access to the number of years left on any given deal. More significantly the fair wage valuation of a player is very subjective. But we do have some theoretically easy to value assets we can look at, to see if inflation is creeping up on allocation money.

Study: Inflation in the GAM/TAM exchange rate for International Slots / Spots

If we look at the market for International Spots, we can see an increasing trend within this season. It’s possible that this is demand-side inflation as teams MUST comply with the roster requirements as the transfer window begins to shut, but I don’t have a mental model to think through it… seems to me like unused IS spots should decline in value as the transfer window comes to an end, just as the teams who need IS spots start to really, really need them…in my mind there’s an equilibrium here, but I may not have it right. Anyhow, assuming that demand-side inflation is minimal, I thought we’d look at the available data of pure play International Spot deals to see if there’s some supply side inflation as the season has progressed. By my count there have been 15 trades involving international spots since the league started disclosing the general terms of trades between its members this year. From December 2016 until now only 7 of these have been straight swaps of international spots for allocation monies. Here they are:IntlSpotInflation

For deals done in the summer months I’ve multiplied the price of the GAM/TAM by two since the team acquiring the international spot is basically only acquiring half a season (or less) worth of it. What we find is that the price of international spots has risen as the season has kicked on. With smaller subleases going for full annual prices this summer, reflected above as increased prices in the chart. It’s a small sample size but I think it’s something. Notably, with the exception of one deal between Atlanta and NYC, these are all GAM deals, which tells us that the inflation is not due to the expiry of the assets themselves (TAM assets which have a shelf life would theoretically lose value as they approach their expiration dates (remember, they die after 4 full transfer windows and so one would expect unused TAM that’s about to expire to be given away freely at the close of a transfer window).

Again, it’s possible this is a natural demand-side phenomenon with teams *needing* to comply with the roster rules in a timely manner and the teams with unused spots sitting back and laughing at them…but again, unused Intl Slots are worth $0, so it’s difficult to prove.

What of it? The Perhaps Very Important Stuff

I suppose the next question though is, what if there’s some inflation in TAM or in GAM due to teams expecting a fresh injection of funds into the league in the coming years? Does it change the conclusions we’ve already reached regarding “good” and “bad” ways to use allocation moneys? What are the broad market impacts of said inflation?

I may have to get into this deeper next time, but I see the impact being completely different for the non-international player market compared to the international player market. There is a basically finite supply of MLS caliber non international players in MLS. Each year some of them retire, some come up through academies or through the SuperDraft — others drop to lower leagues. So my gut is that an increase in TAM injections would be highly inflationary as it relates to non-international player wages (and yes trade fees, if you want to call them that), when we talk about the final use of TAM – which is the paying down of wages and transfer fees to meet cap rules. For the international player market, I think it’s completely different. Remember, TAM & GAM aren’t ever traded outside the league – they don’t exist. They are traded within the league, or they are USED (dead). Will teams looking to buy foreign have more funds to play with (and still comply with roster rules)? Yes. But will this have a huge impact in the global market for footballers? I don’t really think so. The supply is vast. To my eye the implications of this disparity for front offices in MLS is massive. If the price in allocation moneys for a non-international player is inflating but the price in allocation moneys for paying down an international players wages is NOT, it seems obvious that there’s a market inefficiency here that can be translated into a big competitive advantage.

Columbus Crew Vacuuming Up Minnesota United’s Pennies

Let’s take one of these recent trades and use it as an example. The opening assumption here is subjective, which is that Minnesota has overpaid the Columbus Crew for Ethan Finley. Don’t get too hung up on whether you disagree with that. Let’s just follow the math. Minnesota got Finlay (on a salary of $290K a year – is he worth more than that?) in exchange for $425K of total allocation monies ($100K TAM in 2017, $250K TAM in 2018, $75K GAM in 2018) paid to Columbus. If this price reflects the inflation of non-international players denominated in TAM assets because of a looming $2M TAM injection in 2018 — and I believe it does), just think what Columbus can do with these fiat funds on the international market. Because while there’s a finite supply of mid 20s American wingers (and thus his price in TAM is inflated), for that money they can replace him with an international player on $100K more wages per year (if they get him on a free), or they can use allocation money to buy down a transfer fee for a player on similar wages. Put another way, they can sell their asset (Finlay’s player contract) in an inflated fiat currency (TAM) and purchase a better one with a stable global currency ($USD) and then use the TAM to pay down the player’s wages $ for $ (without the inflation). This seems like a bit of arbitrage to me, but please let me know if I’m missing something.

In short, in this new environment of domestic TAM inflation, not only does it continue to make sense for the most ambitiously competitive teams to spend real $ on scouting & analytics and in doing so, maximize their GAM/TAM via *using* it to pay down player salaries rather than trading GAM/TAM, but in addition, it also makes sense to SELL domestic at inflated TAM rates, to then turn around and BUY international and USE TAM to buy down the international players purchased at normal rates.

Bullet points for my working MLS front office manual for a highly ambitious club.

  • Spend GAM/TAM primarily to buy down player wages/foreign transfer fees below roster caps.
  • Do not trade GAM/TAM in exchange for MLS player contracts (lowers overall competitive ability due to relative wages)
  • To achieve the above two bullet points, real investment in scouting and analytics / recruitment departments is important to close the information gap for international player market compared to current MLS player market.
  • In inflationary TAM environment, selling non-internationals (fixed supply) for TAM makes sense to then buy internationals, using the TAM you received to buy down their wages/transfer fees below the caps. (sell high, buy low)
  • Acquiring future international slots now at nominal rates might make sense to achieve the above strategy of exploiting the two separate player markets. If you can trade draft picks to acquire these international spots, do that.

Thoughts?

 

The Economics of GAM and TAM

Trying to figure out how General Allocation Money and Targeted Allocation Money work in Major League Soccer has been an adventure for me.

MLS Salary Budget Rules Overview – skip it if you know it

MLS is a single entity owned jointly by its members – who are owners of the teams competing in the league. All the owners agree (and jointly with the MLS players union) on how much is going to be spent on players in a given season, and then the league sets the rules around roster construction and provides all the teams a specific amount of money to spend based on these rules. There are specifics and then crazy specifics, but as a general rule, it works like this: Each MLS team is made up of 28-29 players, the wages for 20 of which (the senior roster) are governed by the Salary Cap. Each of these 20 players will carry a salary cap charge between the senior minimum ($65K) and the maximum budget charge ($480K), for a total of $3.8M in salary budget. In order for a team to sign a player making more than $480K (or to sign a player by paying a fee + wages greater than $480K), while still making use of these shared League funds (i.e. not opening up the individual team owner’s pocket book), it has to use up some of its “Allocation Money” (also handed out by the League to each of its member teams based on #rules), which comes in two forms: General Allocation Money and Targeted Allocation Money.

General Allocation Money (each team receives $200K of each year +/- amounts triggered by a variety of achievements and/or other events) does not expire and generally doesn’t have any additional restrictions with it. You use it to bring your roster in line with the salary budget when it exceeds it, either for an individual player charge, or more generally for the team’s total budget.

Targeted Allocation Money is like GAM except it can only be used for players making between $480K and $1M, and it is given out in tranches (agreed to on an ad hoc basis by the league, it would seem ) which each expire after 2 transfer windows. A summary of the recent TAM injections are as follows:

  • 2015 – $500K per club
  • 2016 – $800K per club (expires at the end of 2017 season)
  • 2017 – $1.2M per club (expires at the end of 2018 season)

GAM and TAM are tradeable between MLS teams, and GAM and TAM cannot be combined together to pay down any player’s contract or transfer fee.

Importantly, if a team wants to sign a player above the max budget charge of $480K AND it doesn’t want to (or can’t) spend allocation money (GAM or TAM) to “buy the budget charge down to $480K, it can pay for the salary (or transfer fee) in excess of $480K out of its owner’s own pockets (for up to 3 players) and the player’s budget charge would remain the max of $480K. Such players are known as Designated Players. And the budget charge for a designated player can be less than $480K if a player is 23 years of age or younger.

Other Background Reading on the topic from some immortals: Doyle, Stejskal, and I will add some more here.

Edited to add: Somehow I missed linking to Jared Young’s comprehensive CAP review at AmericanSoccerAnalysis, here.

Some Takeaways

So, it’s important to point out that a team does not have to sign any designated players. They can play with “League money” only — let’s call it $5.2M ($3.8M budget + $1.4M in estimated annual allocation money). In fact, 1 of those 3 potential designated player slots costs a team that uses it $150K, which is paid to the League, and then distributed as additional GAM to all teams who do not use up all 3 designated player slots. But most importantly, in light of all of this, if a team does not “use” its allocation money, it should consider it a real economic cost, since it is already paid for. Use it or lose it. Alternatively, it can trade away its allocation monies, potentially operating on a senior roster of wages totalling as low as $3.8M. But my important takeaway from all that is that anything within the $5.2M umbrella is all “MLS Money.” There’s no way to exchange it for outside dollars, and it’s already been paid for (by the league, or by each member contributing the required annual amounts to the league, or however they settle it). To some extent it is a sunk cost. Anything above that $5.2M threshold – the DP money – is real money, real incremental dollars – real economic decisions to be made by a rational club owner.

And given that it’s included in the “MLS money” umbrella, and not in the “outside money” (or “real money”) bucket, GAM and TAM are endlessly interesting to me. I want to explore the question: what is the best (most efficient?) way for an MLS club to use GAM and TAM? As a reminder/checkpoint, here’s what you can do with GAM and TAM.

  • Trade it to another club in exchange for things such as Players, other allocation moneys, International Spots, Draft Picks, Allocation/Waiver Priority.
    • As an example, Orlando City could trade $400K of General Allocation Money and $500K of Targeted Allocation Money to Sporting Kansas City in exchange for the rights to Dom Dwyer’s contract ($680K/year salary with 1-2 years left).
  • “Buy down” a salary budget charge for a DP to below the max charge (and to no lower than $150K)
    • As an example, Atlanta United could sign Chris McCann for $570K and spend $90K of TAM to buy McCann’s budget charge down to $480K (keeping the DP tag off of him).
  • “Buy down” a salary budget charge to no less than half the original charge
  • “Buy down” a transfer fee or loan fee so that it does not count towards your salary budget (either at an individual level or a team level.
    • As an example a team could pay a $500K transfer fee to foreign club for a player on $400K/year in wages. The team could spend $500K in TAM or GAM to eliminate the transfer fee from being included in the team’s salary budget.

Fiat Money

It’s important to point out that for the purposes of understanding how GAM and TAM function in MLS, both types of asset are what’s known as “fiat currency” — currency whose value is backed solely by the entity that issues it. In other words it is Monopoly money. It is both created and destroyed by MLS. It has value to MLS teams because MLS is the league they compete in and it is used to subsidize MLS salary caps. Under no circumstances could TAM or GAM be sent to a team outside of MLS; they simply would not accept it. It doesn’t exist. When MLS creates new TAM, it simply decrees that TAM has been created and it can destroy it as well.

Since TAM and GAM are fiat, it is also true that in only 1 of the above 4 uses of allocation money, does the allocation money survive the transaction (if it is traded). If it is spent buying down salary budget charges or buying down a transfer fee, it disappears into the ether, decreasing the overall aggregate supply of allocation money in the league. Allocation money can exchange hands in MLS, but its final resting place — its ultimate purpose is to be destroyed/spent in exchange for a given MLS team being granted the ability to invest slightly more into its senior roster than otherwise is permitted. Further, TAM will even die of old age if it is not destroyed within 4 transfer windows (a 2 year shelf life).

With this in mind, I have a hunch about how allocation money is best used, and how it’s not. Let’s do some accounting homework.

Scenario Analysis

MLS Team A needs a striker, and they’re considering two potential options.

Option A:  Striker John Doe, 26 years old from the Championship in England. He can be signed by paying his current club a $1.6M transfer fee and he wants a contract worth $400K per year. To comply with MLS roster rules and not make John a designated player (i.e. not spend any outside “real money” but just “MLS money”), MLS Team A would need to spend (send to MLS HQ) $1.6M in allocation money to eliminate the transfer fee from the budget, so they can sign him and slot his $400K of wages into the $5.2M-ish MLS budget.

Option B: Striker Dom Doe, 26 years old and currently on MLS Team B’s roster. He can be traded for by paying his club $400K of GAM, $1.2M of TAM and he’s on a contract worth $400K per year. MLS Team A would need to send $1.6M of allocation money to MLS Team B, and then Dom Joe would fit into MLS Team A’s senior roster budget just fine ($400K is below the maximum MLS salary budget charge).

Assuming MLS Team A has enough cap room and allocation money to execute either option and assuming John Doe and Dom Doe are of equal talent, health, work ethic, and potential, and that both qualify as international players under MLS rules, which transaction (Option A or Option B) should MLS Team A go through with?

In my mind, the answer is clear, but this might be a controversial opinion, I’m not sure. Under both scenarios, Team A gains the striker, loses $400K of cap space, loses $1.6M of allocation money, and loses 1 free international slot. But if Team A trades for the striker with Team B, they transfer “MLS money” (fiat assets) to a competitor plus the competitor gains $400K of cap room to replace the striker), whereas if Team A buys the striker from England, Team A *uses* the MLS money– they use it up. It is destroyed. It returns to the earth from whence it came, and no other MLS teams can use it to improve their squad. See the difference? Allocation Money’s ultimate use is to be torn up into shreds in exchange for allowing a club to field a more competitive side by increasing the total wage bill without breaking the salary budget rules. You can either *just do it* and sign a player, and comply with the rules by using GAM/TAM to lower your charges, or you can transfer said GAM/TAM to an opponent in order to get your player, and that other team will replace him with A) the salary budget room they just added in his absence + B) the new allocation money which can allow them to pay his replacement even more!

So, why would Team A ever trade MLS Money to another MLS team to acquire the other team’s striker (if the global football market surely provides a supply of similar players that this hypothetical assumes) and if in doing so, they benefit the other team? I can think of one scenario that makes sense, and that’s when the other MLS team has locked up a favorable contract with said player (because MLS is a single entity, contracts do not get ripped up upon trades between its member teams). So if Dom Doe deserves to be paid $650K but he’s making $400K with MLS Team B, and since MLS is a single entity and contracts transfer between teams, MLS Team A might be willing to “pay” for the favorable contract (to get a guy worth $650K but only pay him $400K, and only take a $400K budget charge). Since MLS Team B will be shipping out a player worthy of $650K/year but is only taking a $400K budget charge, they may only be willing to part with the player if they are compensated for the fact that they will have to replace the player worthy of $650K with a player to be paid $400K (to continue compliance with MLS roster rules). So what would the value of this contract be? What might the two teams agree to as a fee? Maybe its $250K multiplied by the remaining years on the contract, maybe its $300K per year (a little extra for the hastle?).

But again, instead of doing this whole thing, can’t Team A simply sign a player from overseas who makes $650K and buy down $250K of the contract with allocation money if they need to fit him into a $400K budget hole? The result seems similar. I suppose it comes down to valuations. If you value the contract higher than the $300K they’re asking for, you do it.

In the end, MLS is unique from other American sports where trading is more frequent. In those sports , virtually the full labor market for a given sport exists under one collective bargaining agreement, and all the players you would want to sign player for teams in your league, your competitors. In MLS, you can sign a player from anywhere in the world, so there is no need to grease the wheels of other MLS teams to acquire their contracts when you can go out and sign your own. The supply of players is nearly infinite but the supply of GAM/TAM is … not, at least not yet?

OK, just going to publish this now. Let me know your thoughts please. I’m 100% certain I got some big stuff wrong in here, but how else will we figure this stuff out, except by trying.

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Late Edit after some feedback on Twitter:

Some things that have been pointed out are:

  1. To assume you’ve got an endless supply of replacement players in the global market, you have to account for the real world cost (real $ not MLS $) of hiring scouts, more of them, and better ones, and analytics departments and all sorts of other things that cost real money. Inherent in this is the admission that a player you are familiar with (by way of seeing him in MLS and knowing he can produce at this level) is more valuable than a mystery player. So the tradeoff is basically, you can spend more real world money in order to close that information gap (of a foreign playe relative to an existing MLS player) and hope to maximize your cap room / wage bill relative to the rest of the league’s wages, or you can save the real world money (don’t use it on scouting etc) and use the MLS money (by trading it) to acquire the player you have more info on.
  2. On that point, it has been suggested that a better way to phrase the argument is that by trading GAM/TAM to another MLS team you are actively shrinking your team’s wage bill relative to the wage bill of the rest of the league (all else equal, like say if you take DPs out of it, or assume everyone spends big on DPs).
  3. It was brought up that allocation money is perhaps *more* valuable for lower spending teams who do not plan to spend on DPs, which could create some interesting value disparities and therefore trade opportunities when it’s a big spender dealing with a low spender.