Inflated salaries, terrible timing show the other side of MLS’ TAM initiative
It looks like MLS is set to introduce another round of Targeted Allocation Money in time for next season.
Every MLS team received $1.2 million in TAM this year, a huge sum in the league’s salary-cap system. According to FourFourTwo’s Paul Tenorio, that number could increase to $2 million next season, with MLS considering a measure that would give clubs the option to purchase an additional $800,000 in TAM on top of the amount they received this year for 2018.
For the most part, the extra cash has been a big positive for MLS. TAM has allowed teams to sign more quality players from abroad, made it easier for clubs to retain their existing impact performers and served as a new, valuable asset that stoked a very active trade market this summer.
On balance, it’s made the league better. But it does have some serious inefficiencies – one of which has given general managers and technical directors minor headaches, and another that some are starting to exploit to their advantage.
Give us a little notice, please
The headaches have mostly been a function of timing. Counting its initial introduction in the summer of 2015, MLS has given TAM to its clubs on three separate occasions. The first injection came in the middle of the 2015 summer transfer window, while the subsequent two additions came less than a month before the start of the 2016 and 2017 winter windows. With most clubs designing their transfer plans a window or two in advance, those late, unexpected additions of cash, while mostly welcome, fundamentally altered which players teams targeted and rendered months of work less meaningful.
Chicago Fire general manager Nelson Rodriguez (below), who spent much of 2016 trading assets to acquire TAM, recalled being frustrated when MLS announced last December that it was upping the amount of TAM given to each club from $800,000 to $1.2 million per year.
“We actually thought that was a competitive disadvantage for us,” he said. “We had worked our plan to have more money than anybody in the marketplace to ensure that if there was something that we really wanted to do and could only be done through MLS resources, we would have the upper hand. And that was disappointing. Where I think most people would say, ‘Wow! More resources, awesome,’ we were like, ‘OK, more resources, but make it 2018 because we just built a plan based on everything we thought would be available and it’s changed.’”
Of course, Chicago was able to adapt just fine, making a slew of key additions this winter that have transformed the club from bottom feeder into contender. Plenty of other clubs have done the same, though there is a sense among club executives that they could do even better with more notice.
“Every time you add money, you’re shopping in a different market for players, and you want to make sure you learn that market and you do a deep dive on it,” said one high-ranking club executive, who asked to remain anonymous. “Look, that money would be better spent with more lead time, but it is what it is. I understand, too, that where we don’t want to be is in the business of decrying the addition of resources to the league. At the end of the day, more money is good. More resources are good. It’s incumbent upon us to figure it out.”
When it costs less to pay more
According to that source and one other at a different club, some teams are starting to “figure it out” in a particularly interesting way: Intentionally paying players more than their market value.
That sounds counterintuitive, but because TAM isn’t as valuable as General Allocation Money (which is both more scarce and can be used more broadly than TAM), overpaying can actually help teams manage their salary cap.
This is most relevant for players making slightly less than the maximum budget charge of $480,265. It can be beneficial for teams to raise those players over the max, then use TAM – which can’t be used on players making less than the max – to lower their cap hit more than they otherwise could have.
Consider a player with a market value of $450,000. A team could choose to pay him his market value and keep him under the max, or they could pay him $500,000 and take him over. If he’s paid $500,000, his team could use up to $350,000 of TAM to take his cap hit as low as $150,000. But if he remains under the max at his market value of $450,000, his team would have to use $300,000 in GAM in order to get him to that same $150,000 cap hit. The two sources said that $300,000 in GAM is far more valuable than $350,000 in TAM, meaning it often makes salary cap sense for teams to overpay players.
From a league perspective, that’s inefficient. It inflates player salaries across the board, wastes owners’ money and could easily cause problems down the road.
From the perspective of individual teams, it’s good cap management. As long as that continues to be the case, expect clubs to continue the practice.