MLS 101: Allocations, Lotteries, DPs, Discoveries and Home Grown Players

HOUSTON, TX - AUGUST 20: Alex Dixon #19 (R) of the Houston Dynamo runs off the field after scoring the game-winning goal against Real Salt Lake in the ninetieth minute as teammate Bobby Boswell #32 follows at Robertson Stadium on August 20, 2011 in Houston, Texas. The Dynamo beat Real Salt Lake 3-2. (Photo by Eric Christian Smith/Getty Images)

The MLS 101 series will be a "living/breathing document" in that I will continue to edit and update these post to keep up to date with the inevitable changes that MLS will make. I encourage you to bookmark the post so you can use them as a reference going forward.

Yesterday I discussed some of the basic roster rules in MLS and how it ties in with the salary cap. Hopefully the swelling in your brain has reduced sufficiently to allow you to move forward with your lessons as I attempt to help you further understand (to the best of our ability), the league's various roster mechanisms.

This time out, I'm going to discuss the Allocation Rankings/Money, Allocation Lotteries, Designated Players, Discovery Claims and Signings, and Home Grown Players.

No doubt by the time I'm done you'll need a glass of whiskey and a couple pain pills to ease the aching in your brain, but hopefully I'm able to simplify this stuff a bit for you. The goal is of course to allow fans to have a greater understanding on how the MLS system works and act as a reference going forward when various situations arise concerning the Dynamo.

So let's get started!

Feel free to take notes as this could be on the final exam...just kidding...maybe.

Allocation Ranking

No doubt you've at least heard the term "allocation" in connection with the Dynamo. The allocation ranking system is used by MLS to determine with team has first priority in being able to sign US National Team players who sign with the league after playing abroad OR a former MLS players who returns to the league after having gone abroad in a transaction that involved a transfer fee. It's also applicable if two teams file a request for the same player on the same day.

The allocation rankings are reset every season and are in the reverse order of of the previous season's results (playoff performance is included). So we can assume that in 2012, the Dynamo will 18th in the allocation rankings at the beginning of the year. The expansion Montreal Impact get the top spot in the 2012 allocation rankings, it pays to be the new kid of the block.

If a team uses it's position in the allocation rankings to acquire a player, they drop to the bottom automatically. In addition, the ranking position can be traded as long as part of the received compensation for the trade is the other team's position in the rankings. Is your head spinning yet?

Freddy Adu was the most recent player that went through this process. When a player goes through this system, the option to sign the player starts at the top. A team can pass on the option of signing a player, if so, the next time in the rankings has the opportunity to sign the player. If a team passes, they retain their position in the rankings. The players goes down the allocation ranking list until he is signed by a team.

I have no clue what happens if every team passes on a player, I don't think that's ever happened. Why? Because any player coming back probably has assurances that at least one team is willing to add them to their roster.

Allocation Money

In addition the the rankings system, there is a magical and mysterious element of the financial system within MLS called allocation money. This is a resource made available to the clubs by the league that is in addition to their salary budgets. Teams may be awarded allocation money by the league for the following reasons:

  • Failure to qualify for the MLS Cup Playoffs
  • The transfer of a player to a club outside of MLS for value
  • Expansion status
  • Qualification for the CONCACAF Champions League
The MLS Competition Committee determines the allocation amount to be made available to each club each season on a case by case basis. Just like allocation rankings, the money can be traded by clubs but allocation money DOES NOT have to be sent in return.

Allocation money can be used by clubs for the following:

  • To sign players new to MLS (that is, a player who did not play in MLS during the previous season).
  • To re-sign an existing MLS player (subject to League approval)
  • To "buy-down" a player's salary budget charge below the League maximum of $350,000.
  • In connection with the exercise of an option to purchase a player's rights or the extension of a player's contract for the second year provided the player was new to MLS in the immediately prior year.

You've likely heard me mention using allocation money to "buy-down" salaries before. This means that a team can use allocation funds to pay off a portion of a player's salary to get them below the league maximum level, thus avoiding having to use a DP slot for the player. For example, if the Dynamo sign Player X and agree to pay him $500,000, they can use $150,000 in allocation money to get his salary down to the league maximum against the cap.

Teams can also use allocation money to "buy-down" the cap hit a designated player has on their cap. For example, if the Galaxy only wanted David Beckham to cost $200,000 against their cap, they could use $150,000 in allocation money to "buy-down" his salary hit.

MLS does not release allocation money data and the teams are not permitted to discuss it openly. The reasoning is to protect the interests of the league and the club during negotiations.

Lottery Allocation System

In addition to the Allocation rankings, MLS can use a lottery system to allocate incoming players to a team. This is one of the more ridiculous systems and generally comes under a lot of scrutiny whenever it's utilized. Lee Nguyen was the latest player to be assigned to a club via this system.

Not all the reasons why players could be subjected to this system are known, but here are the two reasons the league has identified:

  • Generation adidas players signed after the MLS SuperDraft.
  • Draft eligible players to whom an MLS contract was offered but who failed to sign with the League prior to the Draft.

The lottery is weighted and the team's place in each lottery is determined by their performance over the last 30 matches (regular season and playoffs). The team with the worst record over that stretch has the greatest probability of winning the lottery. Teams are not required to participate in every lottery, but if you attain a player via this system, you're not eligible to enter another lottery the rest of the season.

So why have this weird system? According to MLS, the lottery is used "to prevent a player from potentially influencing his destination club with a strategic holdout."

I guess that makes sense, but it still is one hell of an odd way to allocate a player. Imagine if you signed with a company with offices across the country. When you are hired, the office you would work in would be determined by the combination of who wanted you and how poor the recent performance of that office has been. It really doesn't equate to real life and it's unlike any system in soccer I'm aware of. This is one of the side effect's of the league's single entity system that prevents true free agency.

Designated Player Rules

Each MLS team is allowed to acquire up to three players under the designated player (DP) rule. These players salaries exceed their salary cap limits and the club is required to handle the compensation above the league maximum amount that hits the cap. Teams can use their DP slots to sign players new to MLS or retain a current player (with league approval).

A DP's salary in 2012 will cost $350,000* against a team's salary cap, unless the player signs in the summer transfer window, in which case the salary cap hit is $167,500 (2011 amount). These amounts are subject to change as the salary cap changes season to season. Any amount paid to a DP beyond the $350k cap hit is completely up to them, but they are solely responsible for funding the additional money.

A team is given two DP slots automatically and can purchase a third from the league for a one-time low, low price of $250,000. That money is re-distributed between all other teams in the league who don't have three DPs on their roster. Call it a "Robin Hood" tax.

In addition, MLS added a Youth Designated Player initiative to encourage teams to invest in younger talent (23 and under), rather than just the aging "big named" superstar. The rules are essentially the same, but how these signings hit the cap is different. If the player is under 20, the cap hit is only $150,000. If the player is 21-23, the cap hit is $200,000. There's one more cool element to this. If you sign an under-23 player as your third DP, you don't have to pay the $250k tax. Nice right?

By the way, Designated Player slots are not tradable and teams are under no obligation to use any of their allotted slots. It's an entirely optional system.

Discovery Claims and Signings

MLS allows clubs to make discovery claims on players that are not yet under contract with the league and not subject to the allocation rankings or lottery system. Each team can make six discovery signings per season (expansion teams get 10 in their inaugural season).

They may also keep an on-going list of Discovery Claims that can include up to 10 un-signed players. Names can be added or removed at any time by the teams. All discovery claims must be made by the roster freeze/trade deadline date each year (typically in September).

Any player signed via the discovery process must fill a senior roster spot. In addition, if multiple teams claim the same player, it's a first come, first serve system....basically whomever filed the claim first gets first crack at signing the player. Just to add to the confusion, all discovery claims expire at the end of the season. If the league and a "discovered" player can't come to terms on a contract, the team with the claim keeps the first right of refusal should the player be later signed by MLS.

The league will not publicize the names of players on team's discovery list, but the team's can discuss it if they chose, but it's not common. Since the claims expire each year, you don't want to tell other clubs who you have your eye on, since you'll probably want to add them to your discovery list again in the new year.

Home Grown Players

This is a newer part of MLS and it's fairly simple...or at least it should be. Basically the Home Grown Player rule says that if a player has trained for at least one year in a team's youth development program and meets league criteria, that player can be signed by a club to his first pro contract without the player having to go through the SuperDraft. Sounds simple right?

The tricky part is that not all clubs have full youth development programs, or academies, either because they haven't been fully funded and organized yet, or it's a new club to the league. Thus there are exceptions. Several players have been signed despite the fact they don't fit the league's published rules. Basically, the league made exceptions based on a case-by-case basis. Jose Villarreal signing with the Galaxy and Brent Richards signing with the Timbers are recent examples of this.

Teams can sign as many Home Grown Players each year as they like, as long as they have the roster space to accommodate them. This system was designed to encourage teams to build developmental academies and seek out young talent on their own. It's a good idea and a good system that is still being ironed out, but it's definitely a positive.

The Dynamo are one of the teams that have worked hard and invested in building a youth development system, and it's already paid off with the signings of Tyler Deric, Josue Soto and Alex Dixon. In addition, players like Sebastien Ibeagha and Patrick Wall could be signed by the club without them having to go through the draft.

--

So there you have it, some more insight in to the confusing world of just how MLS operates. There are still a few things to discuss like injury replacements, the wavier system and the "right of first refusal", but we'll save that for the next installment of this series.

As always, let me know what you think and I'll do my best to answer questions in the comments. I hope this has helped further your understanding of MLS' system and it didn't give you too big of a headache.

*$350k cap hit comes from Adrian Hanauer during an interview on Nos Audietis.

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