I’ve noticed that the release of the Major League Soccer salary information was met with much fanfare from our friends in the United Kingdom this time around. It was Tweeted out by several major journalists and is currently featured #1 on the Guardian list of favourite things, despite it being a biannual thing.
It must seem strange to see a team in which one player will be paid $50,000-a-year and another over $1 million. That’s because MLS does things a little differently. The single entity format can be a little tough to understand for those used to the European system, so I thought I would offer a quick and easy explanation for how it all works.
Single Entity Ownership Class A shares
In Major League Soccer, all teams are owned by a series of investors. Class A shares are owned by the league and its subsidiaries, and are split into three sub-categories: Class A1, Class A1b, and Class A2b. Class A1 shares are owned by state governments and the local muncipality in which the stadium is located, unless the state congress votes on a 2/3rds majority to allow the municipality to own the shares outright.
Class A1b shares are collateralized shares owned by all major US investment banks pari passu, although there are several exceptions based on geographical location (we don’t need to get into that here).
Class A2b shares are preferred stock divided among all the owner-investors who co-invest (but do not own) the respective teams in MLS. However, there are some individual exceptions—the New York Red Bulls are exempt from Class A1b, and instead held in perpetuity by the government of Austria.
I drew this diagram to help illustrate how Class A shares work and their permutations within MLS. It’s a little complex but should help:
Single Entity Ownership Class B shares
This gets just a little more tricky, so bear with me. Class B MLS clubs shares are owned by investors who partner with MLS and its subsidiaries to own 2/3rds of each specific club. In fact, each class of share is divided according to specific clubs assets in a series of tranches, with dividends based on apportioned team profits, which are divided into transfer holdings, gate sales, television rights, commercial deals (although specific sets of merchandise are excluded as per the last collective bargaining agreement) and 32% of total revenues going back to MLS as part of a league-wide revenue sharing.
These tranches (not traunches, very common mistake) will be divided differently based on asset class performance, and some will be reinvested basked on marketability. There are roughly 140 sub-class divisions on these shares, as illustrated in the diagram below (sorry, I don’t know how to do the click-to-enlarge thing):
Salary Cap and Designated Players
The salary cap is determined in three part voting stage that involves the MLS board, club executives, and the player union. Voting is done on a quarterly basis, in accordance with provisions in the CBA that will award greater weight to each vote roughly depending on the league average club-to-revenue turnover. Clubs will lose voting rights once allocation money reaches a 25% of wages for the preceding three seasons. I know, that was the simple part!
The Designated Player is determined as percentage of the total value of Class A1b shares and a portion of the Class B shares. There can be three, and sometimes there are four, depending on the total club salary as a percentage of the league total. There was an exception to the share division, which later came to be known as the Tim Cahill Rule. Rather than pay the fourth DP through league revenue, the player would be determined by the club’s success in a Bond Swap Strategy in which Bond Yield exceeded the median club salary in the previous calendar year.
And I mean, that’s basically it. I don’t know how to make this any simpler. Ask any questions below and I’d be glad to try and answer them for you.