MLS’ complicated pay structure means teams have to get creative

Galaxy Coach and General Manager Bruce Arena, center, has maneuvered through MLS' ever-evolving salary guidelines to bring in top-tier talent like former Liverpool captain Steven Gerrard.

Galaxy Coach and General Manager Bruce Arena, center, has maneuvered through MLS’ ever-evolving salary guidelines to bring in top-tier talent like former Liverpool captain Steven Gerrard.

(Jae C. Hong / Associated Press)

Galaxy defender Todd Dunivant has an economics degree from Stanford and is a longtime member of the executive council for the MLS players union. But even he throws his hands up in surrender when asked to explain the league’s Byzantine pay structure.

“It’s complicated,” he said.

There’s a salary cap and rules that allow teams to avoid it. There are regulations for signing homegrown players and others for signing foreign players. There are minimum wages and maximum wages and wages determined by where a player stands on his team’s roster.

And as if all that wasn’t confusing enough, the league added another wrinkle this month by approving a rule that allows teams to spend up to $500,000 in league funds over five years to skirt all those other regulations.


Since the establishment of the Designated Player exemption in 2007, teams have been able to sign up to three players to contracts that exceed the league maximum of $436,250 a year. And that’s worked: This season, MLS clubs are carrying a record 47 DPs, 21 of whom make at least $1 million. Ignored, in the league’s eyes, are players who fall just short of that class.

So to deepen the high end of its rosters, MLS is investing $10 million in targeted allocation money over the next five years to incentivize teams to invest in players earning more than maximum but less than $1 million.

“It’s a mandatory spend. Everybody gets the same amount of money,” said Seattle Sounders General Manager Garth Lagerwey. “So I think it’s pretty tough to argue it favors anybody more than another. For me, it’s basically updating the DP rule.

“I think everyone will use it to sign new DPs. That was the point.”

How that happens depends on the ingenuity of the individual clubs. And not surprising, the Galaxy was the first to try out the new rule, spending allocation funds to pay down the money remaining on Omar Gonzalez’s $1.45-million DP contract and create a spot for Mexican player Giovani dos Santos, who last week signed a four-year contract worth about $27 million.

“That was the final piece,” Galaxy President Chris Klein said. “There was nothing we could do if the league didn’t have a mechanism for us to open up a roster spot.”

According to Klein and Bruce Arena, the Galaxy’s coach and general manager, Dos Santos and the Galaxy began talking in 2011, when the player was threatening to leave Tottenham of the English Premier League. He eventually signed with Spanish club Mallorca instead.

Negotiations resumed two years later, when Dos Santos was preparing to leave Mallorca. Again he chose Spain over Southern California, signing with Villarreal.


But Jovan Kirovski, the Galaxy’s technical director, kept in touch with Dos Santos’ family and his agent, Vicente Montes. And in May, Kirovski came back to Klein and Arena and said the player was ready to move again.

“As we got closer and closer, the deal came into sight,” Klein said. “We had been through it before. We knew what was important to them. They knew what was important to us.

“It’s one thing to have interest in a player. It’s another thing to get that interest to be able to have a deal where it’s worth it for the player [and] it’s worth it for the club to be able to sign that player.”

The fact the Galaxy, the richest and most successful club in MLS history, used the new Targeted Allocation Money regulations to land a high-profile player quickly led to charges that the rule, negotiated with the union during collective bargaining talks last winter, was designed primarily to help the league’s wealthiest teams. Those charges are off-base, said a rival general manager.


“At its root, it’s actually really simple,” said the GM, who did not want to be quoted by name speaking about league policy. “It’s just an accounting mechanism. They give us a little more money and they say, ‘If you use the money, you have to pay this player, who makes between $500,000 and $1 million, and buy him down.’

“What this rule actually does, in reality, is frees up these DP slots. That was the point. They wanted to figure a way to freshen up the DP rule.”

Not everyone is happy with how the league chose to do that, though. Because while one GM insisted on speaking off the record, two other teams declined to talk about the new rule at all.

Like it or not, there is a strategy to the new guidelines, which make the Galaxy’s signing of Dos Santos a gamble. Less than two weeks after the rule went into effect, the Galaxy has already spent all five years of its allocation money and filled all three of its DP slots, leaving it once again without any room to maneuver. And it still has to open an international spot on the roster for Dos Santos, something the team hopes will happen when Brazilian-born defender Leonardo secures his green card — something Robbie Keane, Juninho and Baggio Husidic have already done.


“I’ll be the first to admit that we don’t have a whole lot of a big cushion left in our salary cap,” Arena said. “But we made it work.”