Why The New Price Of MLS Talent Has European Clubs Hunting For Bargains
For the National Basketball Association, it has been a turn-around of a situation it has long held advantage of. In the last couple of weeks, the league has seen several current players or draft picks decide to turn down the chance to play in the NBA in order to move to, or stay in, Europe, and more are rumored to be considering the same. What makes this unusual is that these are late first-round picks or, in the case of Josh Childress, a career 11 point, 6 rebound per game player. In other words, not players existing on the league’s fringes. What has caused this? One reason is an increase in money available to European clubs from richer owners.
But there is a second reason, and its one that is also set to take a bite out of Major League Soccer as well. Darren Rovell, sports business expert for CNBC, called it a potential ‘great equalizer’ in player salaries. That reason? The recent steep decline of the US dollar.
Certainly, the US dollar has traded unfavorably with the Euro, the standard currency of most of Europe, for roughly the last six years. However, it has now quickly reached a level that seems shocking to believe. At this time in 2006, the going exchange rate was around $1.25 to 1 Euro. Now, the exchange rate stands at $1.57, a jump of over 30 cents during that time span.
How does this affect MLS? Two ways. First, it makes it cheaper for European clubs to match up or exceed the salaries that MLS offers to its players. Currently, the maximum salary allowed in MLS for a non-designated player is $300,000. Two years ago, equalling that salary took just over 238,500 Euros. Last year, it would have taken 218,800 Euros. Today, matching the league maximum will only set a club back 191,300 Euros; a greater than 12% drop in the last year, and a 20% decrease over two years.
Second, it makes it cheaper for European clubs to make large transfer offers for higher-end talent. Last month, Jozy Altidore transferred from New York Red Bulls to Spanish side Villareal for $10 million, the highest fee ever paid for an MLS player. On the day the contract for the move was completed (June 11th), 10 million dollars was the equivalent of 6.4 million Euros. Go back to the same day last year, and that same $10 million would have cost Villareal 7.5 million Euros instead.
With less currency needed to match salary demands and transfer payments, there is now less risk and more upside than ever before for European clubs to make deals for MLS talent. And recent transfers show that clubs are beginning to pounce. Just in the last month, we had the Altidore deal. Elsewhere, FC Dallas midfielder Juan Toja is reportedly being scooped up by Romanian side Steaua Bucharest, while teammate Kenny Cooper is being hunted by multiple clubs. And Brad Guzan, for the second time, is awaiting a move to England’s Aston Villa. Go back to this past off-season, and you’ll see a lineup of European travellers that includes Bryan Arguez, Chris Gbandi, Eddie Johnson, Pat Noonan, Clarence Goodson, and Nate Jaqua, who all jumped to bigger money at Fulham, Hertha Berlin, Austrian side SCR Altach, and three different Norwegian clubs.
The good, and bad, news is that the exchange rate, in current trading, looks to remain flat for the next 18 months. Futures contracts trading today for December 2009 have an exchange rate of $1.53 per Euro. That means the price won’t get cheaper for European clubs, but it also means that the current discount on MLS players will be available for the forseeable future. So, MLS now faces two possibilities: either increase the amount of money it is spending to keep its current crop of players, or accept that European clubs will continue to scour the league for more bargains in the forseeable future. Either way, the current currency crunch will leave a heavy mark on the league for years to come.