What’s Wrong with MLS, if Anything? (Part I (cont.): Understanding MLS Acquisition Rules)

This is the second installment of Part I of the article series entitled “What’s Wrong with MLS, If Anything.”  The first installment of Part I can be found here.

The first installment of this series reviewed the roster rules under MLS’s 2013 “Roster Rules and Regulations,” which are referred to as the “MLS Rules.”*  This second installment reviews the acquisition provisions under the MLS Rules, and then considers the issues that cause the MLS Rules to be the catalyst for so many heated discussions about MLS (sometimes referred to herein as the “League”).mls

C.  ACQUISITION RULES

There are 9 methods or “Player Acquisition Mechanisms” by which a MLS club may acquire players: (1) the Allocation Ranking, (2) the Designated Player rule, (3) the SuperDraft and Supplemental Draft, (4) the Homegrown Player rule, (5) the Weighted Lottery, (6) the Discovery process, (7) trades (of players, money, draft positions, etc.), (8) the Re-Entry Draft, and (9) waivers.

1.  Allocation Ranking

MLS employs an Allocation Ranking system to determine which MLS clubs have first priority to acquire players from one of three categories:

a)      U.S. National Team players who sign with MLS after playing abroad;

b)      Former MLS players who sign with MLS after having transferred to a club abroad for a transfer fee; and

c)      A player on whom more than one MLS club made a Discovery Claim (as discussed further below) on the same day when the Discovery Period opened in December.

The Allocation Ranking is reset at the beginning of each MLS season, with MLS clubs ranked in reverse order of their finish in the previous season (and accounting for playoff performance).  After a club uses its Allocation Ranking spot to acquire a player, the club drops to the bottom of the Allocation Ranking list.

Clubs can trade Allocation Ranking spots for any player or asset that may be traded under the MLS Rules, assuming that the other club in the transaction is trading its spot in the Allocation Ranking.  By virtue of this corollary, each MLS club has a single Allocation Ranking spot at all times.

2.  Designated Player

As noted in the first installment of this Part I, it is useful to think of the Designated Player rule as an exception to MLS roster rules, allowing clubs to sign players with salaries that exceed the Maximum Budget Charge.  As a Player Acquisition Mechanism, it is the least restrictive of all methods of acquiring players.  That is, a club may be limited only by its salary budget (in relation to the Maximum Budget Charge) and its willingness to meet a player’s wage demands and potentially his former club’s transfer fee.  There is also the possibility that a MLS club may be precluded from signing a player under the Designated Player rule if another MLS club has first made a Discovery Claim on the same player.

When Seattle Sounders F.C. acquired Clint Dempsey from Tottenham Hotspur last summer, the Designated Player rule demonstrated its broad reach.  Generally, a U.S. National Team player who signs with MLS after playing abroad is allocated to a MLS club through the Allocation Ranking.  (Dempsey previously played for the New England Revolution before being transferred to Fulham F.C., but New England did not retain a right of first refusal on Dempsey when he returned to the League because the club received Allocation Money in connection with Fulham’s payment of a transfer fee to MLS).  When Dempsey signed with MLS last summer, the Portland Timbers were ranked first in the Allocation Ranking and the Seattle Sounders were ranked second.  Portland never had the opportunity to negotiate with Dempsey.

In response to questions about how Seattle acquired the U.S. National Team captain despite the Allocation Ranking, MLS issued the following statement: “For new players signed by a MLS club as a Designated Player, the allocation process does not apply.  Examples of this include previous high profile player signings like David Beckham, Thierry Henry, Robbie Keane and US national team player Claudio Reyna when he signed with New York.”  When Business of Soccer first discussed Dempsey’s transfer last August, we noted the peculiarity that the Designated Player rule caveat to the allocation process was not spelled out in the MLS Rules.  The League, however, was shedding light on the importance and the flexibility of the Designated Player rule as a Player Acquisition Mechanism.

In a confusing change of policy, however, the Philadelphia Union announced on Monday that it acquired U.S. National Team player Maurice Edu on loan from Stoke City via the Allocation Ranking.  The Union had acquired the top spot in the Allocation Ranking from D.C. United prior to the 2014 MLS SuperDraft.  Edu signed with the Union as a Designated Player.  How are Dempsey’s and Edu’s situations distinguishable?

Maurice Edu, playing for the U.S. Men's Nation team against Antigua and Barbuda during a FIFA World Cup Qualifier June 8, 2012 in Tampa, Florida. (Photo by J. Meric/Getty Images)

Maurice Edu, playing for the U.S. Men’s National Team against Antigua and Barbuda during a FIFA World Cup Qualifier June 8, 2012 in Tampa, Florida. (Photo by J. Meric/Getty Images)

As it turns out, the situations are not different.  The League simply changed the rules.  In the aftermath of the Dempsey transfer, the League stated that the Allocation Process did not apply to Designated Players, whether those players are U.S. National Team players or not.  At some point since August, the League altered that approach such that even U.S. National Team players that sign Designated Player contracts are allocated to clubs via the Allocation Ranking.  A MLS spokesperson stated: “As with most aspects of the business, the league, in consultation with the clubs, reviews the roster rules on an annual basis and reserves the right to modify them prior to each season. The amendment to the assignment mechanism for Designated Players will be reflected in the 2014 roster rules that will be released prior to the start of the season.”

In short, the current rules require that, absent some other exception (such as a MLS club retaining a right of first refusal), U.S. National Team players that sign with MLS will be allocated to clubs through the Allocation Ranking.

3.  SuperDraft and Supplemental Draft

Each year, MLS holds two drafts: the SuperDraft (which was held on January 16 in Philadelphia, PA) and the Supplemental Draft (which was held by conference call a few days after the SuperDraft).

The SuperDraft consists of two rounds with 19 player selections in each round (a total of 38 draft picks).  The first 9 selections of the SuperDraft are awarded to clubs that did not qualify for the 2013 MLS Playoffs, beginning with the clubs with the fewest regular season points and ending with the club with the most regular season points from that group.  The final 10 selections are awarded to clubs in order of their exit from each round of the MLS Playoffs, again ranked by fewest points won during the regular season.  MLS clubs may trade their SuperDraft and Supplemental Draft spots.

MLS clubs may nominate players to be included on a draft-eligible list, and clubs may only draft players from that list.  Three categories of players may be selected in the two drafts:

a)      NCAA college seniors who have exhausted their college eligibility;

b)      Generation Adidas Players; and

c)      Non-collegiate international players.

MLS clubs retain a right of first refusal on players who the club drafts, but who do not sign with MLS.  The player is placed on the club’s “College Protected List,” and the club retains the rights to that player until the second December 31 following the draft in which the player was selected.

4.  Homegrown Players

In 2006, MLS implemented the Homegrown Player rule, which allows MLS clubs to sign a player to his first professional contract if the player trained for at least 1 year in that club’s youth development academy.  A player is eligible to sign a Homegrown Player contract with the club if (1) he resides in the club’s “Home Territory” (the definition of which is discussed in more detail here) for at least 1 year prior to being added to the club’s Homegrown Player list; and (2) the club adds the player to the Homegrown Player list prior to the player entering a four-year college.

There is no restriction on the number of Homegrown Players that a MLS club may sign, but roster rules can hamstring MLS clubs.  MLS clubs may not roster more than 2 Homegrown Players above the League minimum salary as Off-Budget Players.

5.  Weighted Lottery

MLS uses a Weighted Lottery to assign two categories of players to MLS clubs:

a)      Generation Adidas players who sign with MLS after the SuperDraft; and

b)      players who were eligible to be drafted in either draft and to whom a MLS contract was offered, but who did not with MLS prior to the drafts.

The MLS Rules do not specify how the lottery is weighted, instead stating: “The weighted lottery takes into consideration each team’s performance over its last 34 regular season games and the most recent postseason. The team with the worst record over its last 34 regular season games (dating back to previous season if necessary and taking playoff performance into account) will have the greatest probability of winning the lottery.”  If a team is assigned a player through the Weighted Lottery during the MLS season, the club will not be assigned another lottery player that season until all MLS clubs have either received a lottery player or waived their right to participate in a lottery.

According to the MLS Rules, the purpose of the Weighted Lottery is “to prevent a player from potentially influencing his destination club with a strategic holdout.”  That is, the Weighted Lottery is designed to ensure that players that would otherwise be eligible to be drafted in either the SuperDraft or the Supplemental Draft cannot hold out until after the drafts to sign with MLS in an effort to avoid or increase the chances of being allocated to a particular MLS club.

6.  Discovery

Among the most discussed and criticized of Player Acquisition Mechanisms, the Discovery process permits MLS clubs to make “Discovery Claims” on players who are not yet under contract with MLS.

At any one time, each MLS club may have up to 10 Discovery Claims on unsigned players, and clubs may add and release Discovery Claims at any time so long as they do not exceed the Discovery Claim limit.  If multiple clubs file Discovery Claims for the same player, the first club to make the claim has first priority to sign the player.  Discovery Claims expire at the end of each MLS season.  If the player on whom a MLS club has a Discovery Claim does not sign with MLS during the season, the MLS club that first filed the Discovery Claim will retain a right of first refusal if the player later signs with MLS.

Each MLS club can make up to 6 Discovery Signings per season, and expansion teams can make up to 10 Discovery Signings in their inaugural season.  Any Discovery Signings must be made prior to the MLS Roster Freeze Deadline, and any Discovery Signing must be for a senior roster spot.

In order to “protect interests of MLS clubs in scouting and negotiations with prospective players,” the League office does not divulge the names of players on whom MLS clubs have Discovery Claims.

7.  Trades

Under the MLS Rules, clubs can trade any of the any of the following to any other MLS club, subject to approval by the League:

a)      players;

b)      draft picks (SuperDraft and/or Supplemental Draft);

c)      Allocation Ranking spots;

d)     Allocation Money (discussed further below); and

e)      international player spots.

MLS clubs may not execute trades after the League’s roster freeze deadline.

8.  Re-Entry Draft

After the MLS Cup, MLS clubs participate in a “Re-Entry Draft” in which MLS clubs have the opportunity to sign players that were under contract with MLS in the previous season.  As with the Allocation Ranking and SuperDraft, MLS clubs’ priority for selection is based on the reverse order of their finish in the previous season (and accounting for playoff performance).

Three categories of players are available in the Re-Entry Draft:

a)      Players who (1) are 23 years old or older, (2) have a minimum of 3 years experience in MLS, (3) whose clubs declined to exercise their option.  These players are available in the Re-Entry Draft for their 2014 option salary, a bona fide offer pursuant to the Collective Bargaining Agreement (“CBA”).

b)       Players who (1) are 25 years old or older, (2) have a minimum of 4 years experience in MLS, (3) who are out of contract, (4) whose clubs decline to re-sign the player at their previous salary.  These players are available in the Re-Entry Draft for at least their 2013 salary, a bona fide offer pursuant to the CBA.

c)      Players who (1) are 30 years old or older, (2) have a minimum of 8 years experience in MLS, (3) who are out of contract, (4) whose clubs decline to re-sign the player.  These players are available in the Re-Entry Draft for at least 105% of their 2013 salary, a bona fide offer pursuant to the CBA.

The Re-Entry Draft has 2 stages.  In the first stage, MLS clubs can claim players by exercising the players’ current options or extending a bona fide offer as required under the CBA.  MLS clubs that select players in the second stage of the Re-Entry Draft have 7 days to make a bona fide offer to the player.  If the parties cannot come to terms, the selecting club will hold a right of first refusal for that player if he signs with MLS in the future.  Any player not selected in the first 2 stages of the Re-Entry Draft is available to MLS clubs on a first-come, first-serve basis.

9.  Waivers

MLS clubs may claim a player off of waivers through what MLS terms a “Waiver Draft.”  The waiver claiming period begins the business day after the League delivers notice to teams that the player has been placed on waivers, and ends after 48 hours.

The following 5 categories of players may be selected via a Waiver Draft:

a)      any player waived by a MLS team in the current MLS season;

b)      a player who completed his college eligibility within the past season, but who was not made available for the SuperDraft or the Supplemental Draft;

c)      a player with remaining college eligibility, but who the League “at its discretion and after taking into account exceptional circumstances” determines may be offered a contract with MLS;

d)     a player who previously played in MLS where his previous MLS club elects not to exercise its Right of First Refusal (discussed further below), except for U.S. National Team players that are assigned via the Allocation Ranking; and

e)      a player drafted in the SuperDraft or Supplemental Draft who, after a trial with the drafting club, is not offered a contract by the first Monday of June of the year he was drafted.

The Waiver Draft priority is based on average points per game after all MLS clubs have played at least 3 MLS season games or, if the waiver takes place before that point in the season, the priority is granted based on prior year performance.  Distinguished from other performance-based priority rankings like the Allocation Ranking or the SuperDraft, the priority ranking for the Waiver Draft goes to the top performing MLS club, “taking playoff performance first, with teams eliminated from playoff contention at the same stage separated according to points totals through the end of the regular season.”  New expansion teams are placed on the bottom of the Waiver Draft priority list, and after a club selects a player off waivers, it moves to the bottom of the priority list for subsequent waiver selections, regardless of current season points-per-game results.

There are three key rules to remember when it comes to the impact of waiving a player on a team’s salary budget:

(1) Players with guaranteed contracts will have their salary charged to the waiving club’s salary budget, unless a settlement with the player is reached.

(2) Players with semi-guaranteed contracts can be waived on July 1 and the salary will not thereafter be charged to the waiving team’s salary budget.

(3) If a player with a semi-guaranteed contract is waived after July 1, his salary will be charged to the waiving club’s salary budget.  Any settlement between the waiving club and the player will be charged to the waiving club’s salary budget.

10.  Allocation Money

Allocation Money is a tool by which MLS clubs can work around roster rules and acquire new players or re-sign or exercise options on current players.

The MLS Competition Committee determines how much Allocation Money is made available to MLS clubs.  MLS clubs may receive Allocation Money for any of the following:

a)      failure to qualify for the MLS Playoffs;

b)      transfer of a player to a club outside of MLS for a transfer fee (note: if a club receives Allocation Money in connection with a transfer fee, the club does not retain a right of first refusal to the player if he returns to MLS);

c)      expansion club status;

d)     qualification for the CONCACAF Champions League; and

e)      payment from the $150,000 fee paid by a MLS club to obtain a third Designated Player.

The League does not publicly disclose the amount of Allocation Money provided to each MLS club in order “[t]o protect the interests of MLS and its clubs during discussions with prospective players or clubs in other leagues.”

MLS clubs can use Allocation Money:

a)      to sign players who did not play in MLS in the previous season;

b)      to re-sign an existing MLS player, subject to League approval;

c)      to buy-down a Designated Player’s salary budget charge from the Maximum Budget Charge to a maximum of $150,000; and

d)     to exercise an option to purchase a player’s rights (for example, at the end of a player’s loan term) or the extension of a player’s contract for a second year if the player was new to MLS in the prior year.

E.  THREE CORE PROBLEMS WITH THE MLS RULES

For many readers, much of what has been discussed in Part I over the last two weeks is review, and all of the information is publicly available.  This is not a pioneering effort to describe the MLS Rules.  Many predecessor authors on the subject have provided more comprehensive discussions of individual rules and their practical application.

Fair enough.

For this series, setting forth the information we know is instrumental to understanding what we do not know.  Further, this summary provides the basis from which to determine what’s wrong with MLS, if anything.

There are three core issues arising out of the MLS Rules that are the catalyst for agitation among supporters, MLS clubs, and players:  MLS club autonomy, League transparency, and the granting of player rights to MLS clubs under circumstances that clearly (and intentionally) limit players’ freedom of movement within MLS.

First, the MLS Rules allow the League final, subjective approval over a number of decisions that fans, and perhaps the clubs themselves, believe should be within the sole discretion and autonomy of MLS clubs.  For example, MLS maintains the final say with respect to transfers and loans of players to teams outside of MLS, the signing or retaining of Designated Players, and the use of Allocation Money to re-sign existing MLS players.

Second, transparency is not paramount in the MLS Rules.  A perfect example is the recent change in policy for signing U.S. National Team players to Designated Player contracts and the exemption of such players from the Allocation Ranking.  The only difference between the Dempsey and Edu signings—other than several months—is what appears to be an arbitrary decision to change the rules.  Moreover, the League is not transparent in its less publicized decision-making: the amount of Allocation Money distributed to MLS clubs is not publicly available, and neither is the list of players who are on club’s Discovery Claim lists.

Third and finally, the MLS Rules govern MLS clubs’ rights to players in a manner that restricts each player’s ability to select their club destination when they sign with MLS.  The Discovery Process is a prime example of just such a restriction, allowing an MLS club with no connection to a player to “claim” that player and retain the right to sign the player.  Surprising as it may be, during the 2012 MLS season, the New York Red Bulls made a Discovery Claim on former AC Milan star Alessandro Nesta, a World Cup champion with Italy, 2-time FIFPro World XI player, and 4-time selection to the UEFA Team of the Year.  Before the Montreal Impact could sign Nesta, it had to first trade Allocation Money to the Red Bulls to obtain the right to sign Nesta.  In the soccer world, it seems peculiar that a team could make such a “Discovery Claim” on one of the world’s best-known and most revered defenders, without any say by the player.

Moreover, as discussed here, MLS clubs retain rights of first refusal to add players to their roster in circumstances where (1) the club tried to, but failed to re-sign the player before the player went abroad; (2) the club drafted but did not eventually sign a player from the SuperDraft or Supplemental Draft; and (3) the player was transferred to a club outside of MLS but no portion of a transfer fee was paid to the MLS club as Allocation Money.

These issues are not new to MLS or to discussions about the way MLS is run.  They are the foundation of most arguments criticizing the League.  Often, critics refer to these issues in a short-hand way, attacking MLS’s status as a “single-entity.”  In Part II of this series, which will be published next week, I will provide some historical context for MLS’s status as a “single-entity” and attempt to explain the practical impact of that status on the way the League is run.

 

*Author’s note: I received some feedback regarding my decision to describe the 2013 MLS Rules instead of framing this discussion in the context of what will happen in 2014.  As the Edu situation demonstrates, the MLS Rules are a moving target.  A discussion of the MLS Rules is most accurate when based on facts that we know, and not on assumptions that the rules will remain the same.

 

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