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MLS 101: Allocation Money

How do MLS clubs use the different types of allocation money?

MLS: Columbus Crew SC at Toronto FC Kevin Sousa-USA TODAY Sports

In light of Grant Wahl’s report yesterday that Major League Soccer will be significantly increasing the amount of Targeted Allocation Money in the league, now is the time to dig deeper into the world of MLS allocation money and how it works. You might want to take some ibuprofen now, this could give you a headache...

What is allocation money?

MLS teams use allocation money to acquire new players or to bring down a salary cap hit of a player on the roster. There are two types of allocation money, General Allocation Money (GAM) and Targeted Allocation Money (TAM).

Let’s start with how it is used then we will get into how it is distributed by the league.

Transfer fees can be paid for using allocation money. When teams have to come out of their pocket on a transfer fee, that amount becomes part of the player’s salary cap hit. When it comes to Designated Players, that does not matter as they have a maximum threshold. For others, allocation money is very important in reducing the salary cap impact of a transfer.

Teams can also “buy down” a player’s salary using allocation money in order to lower their salary cap hit. It can be used to buy down a non-Designated Player to the league minimum for salary cap purposes, or to bring a Designated Player down to a minimum cap hit of $150,000 and open up a Designated Player slot.

Allocation money can also be traded within the league.

Another important element of allocation money is that teams cannot blend allocation monies in a deal, they can only use either TAM or GAM on a player’s salary cap hit per season.

Where does Atlanta United stand with allocation money?

With reports that Atlanta and Minnesota will have approximately $3 million in allocation monies to work with to build their rosters, let’s take a look at what has been rumored about for Atlanta’s spending of it:

  • Sent $50K GAM to Seattle for opportunity to sign Miguel Almirón for Discovery rights
  • Potentially sending GAM to Chicago for Sean Johnson
  • Potentially sending unspecified allocation money to Columbus for Michael Parkhurst
  • Potentially sending unspecified allocation money to Philadelphia for Kevin Kratz

What is Targeted Allocation Money?

TAM was developed to give teams an opportunity to make a strategic investment in their roster below the Designated Player level. It also solved a problem during the middle of the 2015 season as some teams were struggling with the salary cap after the new Collective Bargaining Agreement resulted in a smaller than expected salary cap increase.

When the TAM process was created in July 2015, MLS executive vice president Todd Durbin told FOX Sports:

“It is very clearly earmarked for players in an area where we believe we need to have more players. We believe we need to have more players and greater roster depth. We believe we need to have more players who earn between $450,000 and $1 million per year.”

Here is how it has been doled out:

  • $500,000 over 5 year period was initial allotment (2015-2019)

  • $800,000 in 2016 (must be *committed by 2017 summer window)
  • $1,200,000 in 2017 (must be *committed by 2018 summer window)

(*committed: can be used to sign players that might not actually join during that window, like pre-contracts for players who will join during the following window)

TAM can be used by teams in four different ways:

  • Use TAM to sign a new player whose salary and transfer fee is more than the maximum salary budget (around $480,000 in 2017).
  • Re-signing a current player provided he is earning more than the maximum salary budget.
  • Use TAM to buy down a Designated Player’s salary cap hit to below the DP threshold. If TAM is used to add a Designated Player slot, the club must simultaneously sign a new Designated Player at a total cost equal to or greater than the player TAM bought down.
  • Clubs retain the ability to convert a player bought down with Targeted Allocation Money into a Designated Player if that club has a free Designated Player slot.

TAM can be used on players making more than the maximum salary cap hit, but less than $1M per year. It can also be traded to other teams within the league. It can also be used ahead of schedule, up to $1,300,000.

The initial outlay of TAM (the $100,000 per year from 2015-2019) must be used by the year following its allotment. For example, a team did not have to use the 2015 allotment in that season, but it had to be used or traded (and then used by the new team) by 2016. It is unclear if teams have to trade the new allotments (the $800,000 in 2016 and $1,200,000 in 2017) if they are not going to use them.

Some TAM success stories since its creation: Jelle Van Damme, Ola Kamara, Luciano Acosta, Bradley Wright-Phillips, Osvaldo Alonso, and Roman Torres.

What is General Allocation Money?

GAM is the OG of MLS Allocation Money. It is awarded to teams for seven different reasons:

  • Annual allocation money (was $150,000 in 2016)
  • Teams that miss the playoffs receive an allocation
  • Teams that qualify for the CONCACAF Champions League receive an allocation. Group Stage participants get an award, Knockout Round qualifiers get an additional award.
  • Expansion teams in their first season
  • When teams transfer a player outside of the league for value
  • Teams can trade in 2 of their 10 "Off-Budget" (non-cap) roster spots for allocation money. These are the reserve and supplemental roster spots.
  • Teams that have yet to purchase a 3rd Designated Player Slot split the money paid by teams getting their 3rd slot as allocation money.

GAM can be used in several ways:

  • Reduce the salary cap hit for a non-Designated Player down to the league minimum salary.
  • Reduce the salary cap hit for a Designated Player down from the maximum cap hit to a minimum of $150,000.
  • Change a player’s designation from a Designated Player Slot into a normal player slot (by reducing the salary below $457,500).
  • Cover the transfer fees or salary of a player brought in from outside MLS.
  • Re-signing a current player on the roster.

Just like TAM, GAM can be traded. One major difference is that GAM does not have expiration dates, whereas TAM must be used on certain timelines.

Why is this so confusing?

These are rules built on top of rules, with some new adjustments made on-the-fly to fix mistakes. That’s not an excuse, just the reality of the situation. Personally, I am all for the day when it is easier to follow the MLS Silly Season. I hope this helps make some sense of everything Atlanta United is having to consider as they build their roster.