Happy Friday Sounders fans! To provide a little break from the good injury news (Ozzie! Air Marshall!) and the bad (Dempsey), I’m posting an excerpt to a solid article written by Joseph Mondello on S2 and MLS. Mondello explores the value and vagaries of MLS’s economic reality, a league with a strict salary cap in a market of rampant salaries.
Mondello makes the interesting point that MLS has finally found a way to print its own money. He discusses Seattle’s own DeAndre Yedlin, signed on the cheap and then sold to Spurs for big money. If other MLS teams can start farming their own talent and getting such returns on investment, we may have found another pillar in the foundation of MLS’s financial sustainability. Here’s what he says:
Some major constraints that MLS clubs must operate within are the financial structure of the league, coupled with a unique salary cap requirements that clubs must work around. As a league with an ambitious long-term vision, the owners have agreed to a financing structure aimed toward steady growth in a variety of markets rather than rapid expansion in key markets. This decision is influenced by the specter of Pele and the New York Cosmos, and the subsequent crash of the North American Soccer League after his departure. The current salary cap is a meager $3.1 million, with a restriction that the team’s highest-earner make no more than $387,500 annually. Within this agreement is the Designated Player Rule, which allows each club to sign three players to higher contracts that are not counted against the salary cap. Additionally there is the inclusion of allocation money in financing. Clubs can sell players, as well as Superdraft, Expansion draft, and allocation draft picks for this allocation money. In MLS, allocation money holds heavy importance in a conservative league built for expansion — it can be used for anything from player contracts, to improving youth academies and reserve teams, or even building state of the art facilities to attract top-notch players.
The important role of allocation money in MLS success makes sustainable youth development even more paramount. Clubs can sign players to cheap homegrown contracts, and receive massive returns on investments in the form of allocation money from transfer fees. The current financing structure of MLS is based on long-term sustainability, genuinely passionate local and global fans, and a foundation that markets the league as a brand with low risk and exponential returns for investors in the future.
A success story that increased importance of youth development and the Homegrown Contract program is that of Seattle Sounders right-back DeAndre Yedlin, whose impressive performances at this summer’s World Cup led to a transfer to Premier League club Tottenham Hotspur. The reported 4.6 million pounds Seattle received from the transfer fee will likely be invested in the newly formed S2 and their youth academies. In a developing league with high ambitions and a restrictive salary cap, talented and cheaply produced young players are incredibly valuable assets. A club can sign a player from their academy to a contract ranging from 50 to 80 thousand dollars a year, and potentially sell them for millions of dollars.
The whole article is definitely worth the read. But I do take a little umbrage with Mondello when he lists Seattle with Portland, Salt Lake City and Kansas City as “smaller markets.” Seattle/Tacoma is the 15th largest metro area in the US and booming. We’ll be ranked higher soon as Detroit (currently 14th) is shrinking and decadent eastern seaboard cities, such as Boston and Philly, have seen their growth slowed to a crawl. The other “smaller markets” Mondello lumps us with: Portland (24), Kansas City (30), and Salt Lake (48). I realize “smaller” is a relative term, but c’mon man. My city’s filthy.