MLS 101: What is Targeted Allocation Money?

NEW YORK --

MLS executives devote a considerable amount of time to assessing players and pondering how to use resources effectively. Those evaluations include several different data points and produce an honest assessment of where MLS and its players stood in relation to other leagues around the world.

Those studies reflect a complex reality for a league with considerable work ahead to improve the quality of play. MLS is a league with a vast assortment of players on its rosters -- the gamut ranges from inexperienced rookies with minimal technical ability to established stars with Champions League credentials -- and it suffers from all of the problems created by such disparity. In order to smooth the curve and strengthen rosters from top to bottom, MLS deploys several measures to develop prospects, encourage efficient spending and entice better players to the league.

“It is very clearly earmarked for players in an area where we believe we need to have more players,” MLS executive vice president, players and competition Todd Durbin said on Wednesday. “We believe we need to have more players and greater roster depth. We believe we need to have more players who earn between $450,000 and $1 million per year.”

The path toward that objective is a fairly complex and uncertain one. This initiative isn’t just an injection of capital. It is a specifically tailored method to help clubs attempt to attract better players and fit them within the salary budget system.

When did the MLS Board of Governors first introduce Targeted Allocation Money (TAM)?

MLS approved the concept for the first time in July. The terms of the initiative were fairly simple: Clubs received $500,000 in TAM over a five-year period ($100,000/year) to strengthen their rosters with players who made more than the maximum salary budget charge ($436,250 in 2015) and less than $1 million.

TAM EXAMPLE #1 -- SPREAD THE WEALTH

What is the purpose of TAM?

MLS wants to improve the quality of players available in the starting XI. Designated Player slots take care of the top two or three slots for most teams and tempt players capable of featuring in superior leagues. There are also a handful of other accomplished options -- whether acquired through traditional means or developed within the system -- contributing on rosters below that point.  

By introducing TAM, MLS hopes to improve the cut of players just below the DP level. Instead of spending $250,000 or so on a player overseas, the TAM initiative allows clubs to offer more competitive deals and perhaps tempt better players to the league without feeling the full budgetary impact of those decisions.

“If you look at our spending, we’re obviously spending a lot on our Designated Players and we’re spending a lot on the couple of spots below that,” Durbin said. “What we’re really trying to do is trying to drive up the average spend on the quality of players in that next layer of roster spots, which is what we believe is going to have the greatest short-term impact on product quality.”

What are clubs able to do with this money?

They are allowed to convert Designated Players to non-Designated Players (in conjunction with another immediate DP signing), land new players with salaries higher than the maximum salary budget charge, re-sign existing players to new contracts or trade it to other teams.

Wait ... Why can teams trade their TAM?

In short, MLS wants to promote the efficient use of the funds committed to player salaries, according to Durbin.

“The importance of allocation money -- and also the importance of what we’re doing in the TAM space -- is specifically that the money is tradable,” Durbin said. “That is by design. One of the things we wanted to ensure -- as opposed to just simply having an increased salary budget, for example -- is that it allows a portion of the resources to be moved in an efficient manner. In some situations, team may believe they need to go and acquire more players in the international transfer market. In certain situations, teams may believe the money is better spent via trade -- they’d rather have an existing player in the league.”

Why did the MLS Board of Governors approve the initial outlay during the middle of the season?

Some clubs were in a desperate situation because the Collective Bargaining Agreement negotiations resulted in a smaller-than-anticipated increase in the salary budget.

TAM EXAMPLE #2 -- DIVIDE AND CONQUER

The predicament left some teams with little flexibility to make moves during the summer. It proved particularly troublesome because the majority of transfers in Europe and South America take place during the busy summer window.

In order to facilitate immediate signings, MLS opted to introduce the mechanism then instead of waiting until the offseason.

How is TAM any different than allocation money?

It falls into a separate category. There are two important distinctions between the two pots: (1) Clubs are limited in how they can use TAM, while allocation money is much easier to use; (2) Clubs receive the same amount of TAM, while the distribution of allocation money hinges on league performance (every team received at least $150,000 before the 2015, while teams who missed the playoff received additional funds), player sales and other mechanisms.

Those distinctions were enshrined in one facet of the rule: Clubs cannot blend allocation money and TAM to reduce the budget charge of one player. It’s one or the other.

So why would MLS go to all of this trouble instead of just raising the salary budget?

MLS and the MLS Players Union agreed to a five-year CBA before the start of last season. The agreement includes specified salary budget numbers during that particular term.

TAM EXAMPLE #3 -- REWARD YOUR CURRENT STARS

The theory is relatively straightforward: If MLS just raised the salary budget number, then clubs might not use the money for its intended purpose and would not necessarily receive the same sort of benefits they will receive under the specific terms of the TAM program.

How did the Board of Governors expand and change the TAM program during this offseason?

MLS approved a $32 million investment over the next two years to provide clubs with more TAM. Each team is in line to receive $800,000 in TAM funds in each of the next two years (2016 and 2017).

Are the initial funds still in play?

You bet. Those TAM funds still exist in accordance with the original five-year program, if teams have not spent them.

Does the new wave of TAM funds expire?

Yes. TAM funds provided in 2016 must be committed by the end of the secondary transfer window (summer) in 2017. TAM funds provided in 2017 must be committed by the end of the secondary transfer window in 2018.

What do you mean by “committed”?

Clubs can use those funds to sign players who will not necessarily join during that window (e.g., pre-contract agreements for the following window).

How does this new influx help teams?

TAM EXAMPLE #4 -- ONE MISSING PIECE

Will the introduction of more TAM help rank-and-file players?

Nope. In fact, it’ll likely hurt them. Players who are acquired using TAM money still carry a budget charge. The introduction of more high earners -- even if clubs choose to buy a player’s charge all the way down to the established minimum of $150,000 -- leaves less room for others under the $3.66 million salary budget for next season.

Are there any current players likely to benefit from the new rule?

At the very least, the new mechanism offers established players and agents another way to lobby for a pay increase. But those benefits only manifest to a relatively small swath of the players in the league. Most of them will instead find themselves squeezed by the new reality.

Will it work?

TAM EXAMPLE #5 -- SAFETY IN NUMBERS