Sound Off! Seattle Signs Dempsey to MLS-Record Contract with Salary Cap Exceptions

USMNT captain Clint Dempsey, the Sounders' newest acquisition, standing with majority owner Joe Roth, GM/owner Adrian Hanauer, and president Peter McLoughlin. Courtesy: The Seattle Times.

On the heels of an analysis of the NBA salary cap, we now bring you a similar look at certain salary cap provisions in Major League Soccer.  For all of you who still consider the world’s most popular sport to be little more than a high school activity for those whose parents refuse to sign the football permission slip in the fall, don’t stop reading just yet.  With the United States growing as a legitimate international contender and with ticket sales for individual MLS games in “smaller markets” justifying the construction of stadiums larger than basketball and hockey arenas in the biggest U.S. cities, we could be seeing the next big boom market in sports.

This idea is supported by this month’s signing of U.S. National Team captain Clint Dempsey to the Seattle Sounders FC.  Dempsey’s signing marks two new MLS records – (1) the $9 million transfer fee due to Dempsey’s existing club, Tottenham Hotspur FC of the English Premier League, to acquire the player’s rights (reports vary as to whether this is being paid by the Sounders or MLS), and (2) his reported base salary of $6.86 million per year over the next three-and-one-half years.[i]

Soccer fans have felt the pressure of MLS’ tight salary cap, which is one of many factors that have perhaps caused MLS teams to struggle keeping up with its European counterparts.  MLS Player Rules and Regulations set a 2013 salary budget of $2.95M for the players occupying “roster spots 1-20” of the maximum 30 slots, which money can be allocated across roster spots 1-18 if spots 19 and 20 are not filled.  There is also a detailed Allocation Ranking system, which is “the mechanism used to determine which MLS club has first priority to acquire a U.S. National Team player who signs with MLS after playing abroad, or a former MLS player who returns to the League after having gone to a club abroad for a transfer fee.”[ii] These are only some of the rules governing the signing of players like Dempsey.

The LA Galaxy used the Designated Player provision to sign David Beckham to the largest MLS contract of its time.

So how did the Sounders manage to sign such a high-profile players to such an unprecedented salary?

Just like their friends in other leagues, MLS has a number of exceptions to its salary cap.  The Designated Player Rule, nicknamed the Beckham Rule in reference to the popular international phenom who was the first to be subject to it, allows clubs to acquire certain players in excess of their salary cap restrictions.  Under the rules, “[e]ach club has two Designated Player slots and clubs are allowed to ‘purchase’ a third Designated Player slot for a one-time fee of $150,000 that will be dispersed in the form of allocation money to all clubs that do not have three Designated Players.”[iii] Dempsey is reported to fill the Sounders’ third and final “Beckham” slot.  Using this Designated Player approach, the Sounders also avoid the allocation ranking order as it would otherwise apply to Dempsey.  One other interesting component to Dempsey’s supposed contract: he is permitted to go on one “off-season loan” to a European club, which some say he will do in early 2014 to prepare for the World Cup — other stars including Thierry Henry and Landon Donovan have similar provisions in their MLS team contracts.

Dempsey’s return to MLS came as a surprise to some –- he left MLS once already and although his last season with Tottenham was somewhat of a disappointment, few disagree that the 30-year old U.S. National Team captain is still in his prime.  To others, this big-name contract was less of a shock.  Historically seen as either a “stepping stone” to more prominent leagues, or more recently a “Senior Tour” for those like Beckham whose Premier League years are behind them, MLS’ popularity is a reflection of its increased level of talent.  Dempsey’s decision to join one of the most fan-loyal franchises in U.S. soccer certainly represents a substantial milestone for MLS and its future.

The league has already flourished with increased attendance, marketing revenue, and merchandise sales, and Dempsey’s #2 Sounders’ jersey has already hit store racks with a full head of steam.  We may be seeing the next stage of MLS competing with other leagues on the global market. From a business standpoint, the money is already there – as Sports Illustrated put it, “[t]he Sounders are willing to spend like they’re in another country as well.  Backed by film producer Joe Roth and minority shareholders Paul Allen, the co-founder of Microsoft, and comedian Drew Carey, Seattle has been restricted only by MLS’s salary budget and the limit of three designated players per team.”[iv] The question moving forward is whether the MLS salary cap system will adjust to keep up with the league’s apparent growth potential.

[i] Wahl, Grant.  How Seattle’s Stunning Clint Dempsey Deal Got Done

[ii] 2013 Major League Soccer Player Rules and Regulations

[iii] 2013 Major League Soccer Player Rules and Regulations

[iv] Straus, Brian.  Shocking Transfer has Dempsey Headed to Seattle Sounders.  August 2, 2013.

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One Response to Sound Off! Seattle Signs Dempsey to MLS-Record Contract with Salary Cap Exceptions

  1. UPDATE: “The MLS Players Union revealed an updated list of salaries Friday afternoon that included Clint Dempsey’s windfall deal with the Seattle Sounders, which will net the U.S. national team captain $5,038,566.50 in guaranteed compensation per year.

    That figure represents the fourth-largest annual wage in MLS history, behind David Beckham’s initial $6.5 million salary with the Los Angeles Galaxy, the $5.6 million Thierry Henry earned in his first two-plus years with the New York Red Bulls (he’s now on $4.35 million) and the annualized $5.54 million Rafa Márquez squeezed out of the same club in 2010.

    Dempsey’s annual compensation falls short of the $6.86 million reported Monday by The transfer fee paid to Tottenham Hotspur to secure Dempsey’s rights (reportedly $9 million) almost certainly is the reason for the gap. A player often will receive a percentage of the transfer fee — a bonus that doesn’t appear on his contract — and which therefore, in this case, will go unreported by the union.”

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