MLS’ Targeted Allocation Money fund is a flawed approach to growth

After weeks of speculation, Major League Soccer revealed on Wednesday a new funding mechanism intended to encourage clubs to invest in players that cost more than the league’s maximum salary budget charge of $436,250.

In essence, the league is enticing its teams to utilize both of their Designated Player slots in exchange for $100,000 of ‘Targeted Allocation Money,’ over each of the next 5 years, for use in paying an additional player more than the max salary.

Any effort to increase available salary funds and encourage teams to seek higher quality players is a step in the right direction and should be applauded, but this plan adds another overly-complicated instrument to the already byzantine MLS salary rules and, more important, offers too little money to make much of an impact.

Take the case of the Los Angeles Galaxy, for whom this rule seems designed to aid in its quest to sign Mexican star Giovani dos Santos.

The Galaxy already have the maximum number of 3 designated players on its books, so in order to bring in dos Santos the club will need to make room for him.

The new Targeted Allocation Money fund offers the Galaxy an opportunity to buy down the salary of it’s lowest-paid designated player, Omar Gonzalez, and free up a DP spot for Dos Santos.

But according to the salary list released by the MLS Players Union, Gonzalez was paid $1.25 million in 2014 and it is reasonable to assume he is being paid at least that much this year.

Since the 2015 season is half over, the Galaxy would need to buy down the second portion of Gonzalez’ 2015 salary from $625,000 to one-half of the Designated Player threshold, or $218,125.

That will cost the Galaxy $406,875 in Targeted Allocation Funds, and it is important to note that MLS specifically prohibits this new money from being used in conjunction with General Allocation Funds.

So the only way the Galaxy can use the Targeted funds to buy down Gonzalez’ contract is to borrow from future years (this was announced as a 5-year program so the team has $500,000 to work with).

That would solve this year’s problem but would leave the Galaxy in a tough spot in 2016 and beyond.

The team would have to get rid of one of it’s Designated Players or trade for Targeted Funds from other clubs in order to keep Gonzalez beyond this year. But remember, reducing a full year of Gonzalez’ $1.25 million salary to below the DP threshold would cost $813,750 – an amount that would be difficult to acquire through trades.

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