In our first MLS 101 we covered MLS structure as single entity, the salary cap and designated players. Here we dive into General Allocation Money (GAM) and Targeted Allocation Money (TAM). What is allocation money? Basically it allows a team to buy down the salary cap hit on a certain player. Why would a team want to do that? There are a few reasons, but the easiest one to think about is a 4th DP player. Recall the maximum salary any player can make in MLS is $480,626 except for three DP players per team. Each DP player’s salary can be as high as the team negotiates, but they only create a $480,626 salary cap hit. Still with that cap hit any MLS team with three DP’s are spending 37.5% of their salary cap on those three players. If they want another quality player that would be half their $3.845 million salary budget on just 4 players leaving less than $2 million to sign the remaining 26. But with allocation money they can sign a player for say a million, but use $900,000 in allocation money to buy that contract down to create a cap hit of only $100,000. This would free up an additional $380,626 of salary cap space to sign other players. It’s like an accounting trick.
General Allocation Money (GAM): Money made available to MLS clubs as a way to buy down the Salary Budget Charge of any player on their roster, or to help offset the Acquisition Cost of signing a player from outside the league. Each club gets an allotment of GAM at the start of each year and can also receive it for failure to make the playoffs (trying to keep league competitive), qualifying for the CONCACAF Champions League, and the transfer of a club’s player to a club outside of MLS. GAM is tradeable between MLS clubs. No one really knows how much GAM there is as it is not something MLS discloses.
Targeted Allocation Money (TAM): Money made available to MLS clubs as a way to buy down the Salary Budget Charge of those making more than the league-maximum salary. Like GAM, TAM is tradable between MLS clubs. In December the league announced each team will get $1.2 million in TAM from the league. More importantly, each team has the right to spend an additional $2.8 million of TAM on their own. That $4.0 million should have a major impact on rosters as TAM is now greater than the salary cap. Essentially a team could use all of it sign another highly paid DP. Toronto for example could use all of it to sign a player for $4.4 million to add to the triumvirate of Altidore, Bradley and Giovinco. The 4.0 million in TAM would reduce the salary cap hit on that $4.4 million player to just $400,000, keeping him below the league maximum salary of about $480,626. A better strategy might be divide it up more evenly and sign four additional players at $1.4 million each taking a quarter of the $4 million in TAM to reduce the salary cap hits to $400,000 each. It will be interesting to see what clubs do.
The most recent example of allocation money was Atlanta’s acquisition of Darlington Nagbe. To acquire the USMNT player Atlanta traded Portland $750,000 in General Allocation Money, $300,000 in Targeted Allocation Money and an International spot. Don’t worry we’ll get to international spots and allocation order in a future lesson. Nagbe makes more than the maximum allowed salary in MLS so Atlanta will still have either designate him as a DP or buy down is salary budget hit with additional allocation money.
How Nashville SC will build its first MLS roster is a huge question. The two most recent expansion teams have gone about it in drastically different ways. Atlanta used all 3 DP slots while Minnesota didn’t use any. When asked about it over the summer Minnesota United President Nick Rodgers said, “The first two seasons before we get to our new stadium, we don’t think of as a soft launch in any way, shape or form, but the reality is that there is a finite amount of resources that we’ve got to figure out how to allocate.” I would be furious if I was a fan. The team had the second worst goal differential in the league despite playing in the far easier Western Conference last season. While there were three other clubs last year that also basically spent the bare minimum on player salaries none of them are teams you’d want to be compared with. Sure the franchise fee and stadium costs are substantial, but that’s what you signed up for. Don’t cry poor in year one. I’m pretty confident Ingram will excite fans with a competitive roster the first year. Especially if Nashville SC plays its first year in Nissan. That’s a lot of extra seats you can fill with an exciting team. Also, keep an eye on the salary budget and allocation money the next two years. It’s not just franchise fees that are exploding in MLS. Now if the league can just work on bumping up that minimum salary some more. But that’s a rant for another day. Happy New Year everyone. As great as 2017 was, the next few years should be even better!