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MLS Offseason Crash Course 5: Monetizing the Allocation Ranking Order

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Whatever that is

FC Dallas v Toronto FC Photo by Vaughn Ridley/Getty Images

Welcome Back

Yea, remember I introduced this Offseason Crash Course series and I was pumping them out like once a week maybe and then everything fun started happening so I put that on pause. Well now, the Nagbe piece is done, and Barco Watch is boring. So in an effort to jinx it all into firing back up again, I’m going to pick up where we left off. As a reminder, here was the syllabus:

  1. Introduction & Framework (completed)
  2. Allocation Money as Increased Budget (completed)
  3. Designated Players and Young DP Savings (completed)
  4. The Option Value of Loans and Subsidized Wages (completed)
  5. BONUS FIELD TRIP: Why Nagbe? (completed)
  6. Monetizing Allocation Order Ranking (WTF IS THIS)
  7. Differences between GAM and TAM
  8. International Slots & Investing in Scouting/Analytics
  9. Limited value of SuperDraft picks
  10. The real benefit of Homegrown Player Contracts

Wait, what is this thing?

OK, this one is just weird. Basically there’s a ranking/priority order for MLS teams chasing USMNT players or other good players that used to play in MLS but who’ve left and want to return to the league. Basically if you want to bring one of these players into the league, everyone in front of you in the ranking order has dibs before you can sign the player. This order resets each season in a worst to first ordering (giving bad teams the first crack at utilizing this mechanism in the offseason) with expansion teams automatically getting the first pick. So a couple features to this thing that are really important. First, it appears to me that at any given time, the only spot in this ranking that has significant value is the #1 pick as the #1 pick has right of first refusal whenever there’s a player trying to reenter the league.

Second, as the summer transfer window closes (halfway through the MLS season), the market value of any allocation order ranking should start to disappear because if the team in the #1 spot doesn’t use the mechanism it doesn’t get to hold onto it: the order will reset the following year and they’ll likely lose that spot. Third, the timing of when players decide they want to come back to MLS and whether these players meet the needs of MLS teams matters and is somewhat random. Fourth, just from looking at recent transactions and the valuations inherent in them, this thing matters, and clubs place significant value on it.

Valuing the #1 Spot in the Allocation Ranking Order

Here are the 2017 allocation order uses and trades:

  • Chicago trades GAM (undisclosed) + 1st round pick + 3rd ranking spot for Minnesota’s #2 spot (Juninho)
  • Atlanta signs Brad Guzan (free transfer) with the #1 Spot
  • VAN trades $225K + International Slot to Minnesota’s #1 Spot (Freddy Montero loan)
  • DC trades $175K + 9th spot in the order for Dynamo’s #1 spot. (Deshorn Brown)
  • NE trades $175K + 5th spot in the order for San Jose’s #2 spot.
  • NE trades $400K + 2 years of intl slots to CLB for rights to Kriztan Nemeth through CLB’s #1 spot in the order

And so far in the 2017/2018 offseason, we’ve seen LAFC trade its #1 spot, $250K GAM, and $250K TAM for Walker Zimmerman and the #11 spot in the allocation ranking order.

Just eyeballing it, that looks like basically if a decent player is on the line, we’re talking about the #1 ranking having a trade value somewhere in the range of $300K – $600K in allocation money. Additionally, similar to the principles we discussed earlier around TAM, the type of player you bring in through this mechanism is either a high value TAM player or a DP — my point being if you trade for the #1 pick, you’re trading a bunch of allocation money and then needing to use more allocation money to pay the wages of the player you’ve acquired.

While I don’t know for sure, I can’t imagine any team would trade league assets to another league team in order for the rights to then pay a hefty transfer fee to a foreign club for the rights to pay a hefty wage to the incoming player. But, I’m sure this has happened. What’s probably much more common is that teams monitor the allocation list for players whose contracts are expiring. As an example, Atlanta United were able to use their #1 ranking in the allocation order to sign Brad Guzan on a free transfer (i suspect he’s on $700K wages or around there).

Optimal Strategies

The question though is, what’s the best thing a team can do with a high allocation order ranking? It appears to me that if you’re going to exercise your privilege from the top spot of the allocation order, you have to strike it big and you have to find a player who is out of contract (Brad Guzan is a good example). But there are generally, more efficient plays. Namely:

  1. Trade the allocation ranking down to another team who has their hopes set on an available player.
  2. Collect allocation money and other assets from that team, thereby necessarily increasing your team’s potential wage bill relative to your competition’s (all at zero actual additional cost).
  3. Use the allocation money you received to sign a player with similar or better qualities than the players available on the allocation list.

Because the #1 ranking is the only one with real value at any given moment, an ideal string of transactions would be finding yourself at the #1 spot multiple times in a given season, by trading the #1 spot down for the #3 spot let’s say + allocation money. Then after one more team uses their position, you’re back in #1 and ready to fleece the next team for allocation money should a big name be available. All the while, you would have to keep an eye on the clock and realize that your allocation order will not carry over to next season. This all assumes that the value of a player on the allocation order is somewhat arbitrary based on his USMNT status. Theoretically, you can find comparable players in the global transfer market. If there’s someone truly rare on the allocation list, then this is the only way to get him. But if not, why not trade out your rights to a player from an arbitrary list for money to spend on a player from the vast global transfer market.

While Atlanta’s Brad Guzan signing was certainly a success, what Minnesota did was also very interesting and in my mind, clever. They started the season in the #2 spot, but on Dec 23 traded the #2 spot to Chicago for the #3 spot + allocation money (undisclosed) + a 1st round draft pick . Then After Chicago took Juninho and Atlanta took Guzan, Minnesota had the #1 spot and traded it to Vancouver for $225K + a 2017 international slot. So the basic concept is there, so long as you hold teams near the top of the order hostage for the highest possible ranking spots, you can put the league through the windmill so to speak, repeatedly landing yourself back atop the order and demanding more assets to let other teams go after their guys, all the while increasing your league-funded team wages relative to your competition by buying TAM not selling it. There’s some nuanced game theory in there somewhere, but at least as a framework this should be the goal. LAFC, read this paragraph again.

LAFC’s Walker Zimmerman Trade

So, I guess we should give LAFC a report card on this move. Some people seemed to really like it.

Zimmerman is a 24 year old domestic (doesn’t use an international slot) centre back who played 22 times for Dallas in 2017 and 32 times in 2016. LAFC acquired him and the #11 allocation ranking order in exchange for the #1 spot (which we might value at $500K), $250K in GAM, and $250K in TAM. So basically they gave up assets worth $1M for Zimmerman and an outside shot at getting back to the top of the allocation order in late summer. So on the one hand, LAFC traded the allocation order ranking away (which seems like a good move as it’s an arbitrary list of players, players who LAFC potentially looked at and said “Na”). Did they get the trade right though? Is Walker Zimmerman a $1M player?

Remember, Darlington Nagbe just went for basically the same amount. Could LAFC find a better centreback on the global transfer market for $1M? Zimmerman’s making $200K at the moment, which isn’t too terribly expensive, so perhaps there is value in a favorable and fully transferable, but it’s mainly a function of what’s available out there. A good measuring stick might be Leandro Gonzalez Pirez, who was signed by Atlanta United in their expansion year, and who makes $250K according to the Players Union September release, but whose transfer fee we cannot be sure of. If there are players like LGP out there for $1M or less, I think you’re better off monetizing the top allocation spot and using the funds to chase after someone else. Because centre backs are hard to evaluate and I don’t know a ton about WZ, I’ll just leave it at that.

Actually, no, I’ll leave it at this. What’s particularly unique about Walker Zimmerman that made it worth giving up the chance to accumulate assets? Another way to think about this trade would be to say LAFC “used their #1 spot and then paid a $500K transfer fee to acquire Zimmerman (pretend he was playing overseas). At least with Guzan, there was some layer of rarity to a player of his quality (Premier League) at a position of great impact (goal keeper).

Next week, I think we’re scheduled to look at differences between GAM and TAM, but I may skip it and take a closer look at international spots. That said, it’s up to you. Just let me know if there’s something you want covered.

Email me at TiotalFootball@gmail.com or tweet at @tiotalfootball. There’s a summary of the overall Front Office Manual over at ATLUTDinsight.wordpress.com but I’ll touch on all of that and more over here as the MLS offseason rolls on.