I thought it might be helpful to post this out on Dynamo Theory as a follow-up to a twitter discussion. There is always a bit of confusion regarding how players are signed by certain teams in MLS. It can be confusing, but keep this one concept in mind and it may make more sense: MLS is a Single Entity and as such tries to mitigate teams bidding against each other for players. Players sign directly with the league, not each team. It is in the best interest of the league to get the best "deal" possible when signing a player as it sets a precedent for future signings and transfers. (This is the same reason they approve transfers out of the league). They cannot negotiate the best deal when two or more of their own teams are bidding each other up. So each of these mechanisms are designed to allow equal access to players without creating a bidding situation:
Allocation Order: This is used for returning US National Team players. We used to assume it was for all returning players, but after Dempsey and Bradley we have learned this process is used for all returning National team players unless that player meets some sort of threshold (unpublished). Frankly, it likely comes down to if the player has a big enough marketing impact, we will let him negotiate with the team of his choice or let multiple teams make an offer to the league. Just assume that ALL USMNT go through this process; and the league will determine if they actually require an allocation spot or can go directly to a negotiated team.
Weighted Lottery: This is a bit of a catch-all but essentially is used for guys that were drafted or offered a deal with MLS in the past, but did not sign. It is in place so these players cannot skip the draft and negotiate with specific teams on their own.
Discovery Tag: This essentially applies to most foreign signings. Discovery does not mean that you actually discovered the player. Teams simply put there "claim" to a player (not covered by the two mechanisms above) and they are processed in order should the player actually sign with the league. There are limits on how many Discovery tags you can have active and how many you can sign in a given year; so a team cannot place tags on the top 75 players.
Directly Sign: So in theory you can simply negotiate with a player and sign him as long as he is not a returning USMNT or qualify for the weighted lottery process and where no one has a discovery claim. The vast majority of mid tier (in terms of salary) talent that enters MLS probably comes in this manner. Your risk is someone places a Discovery Claim just before you begin to negotiate.
Directly Sign/retaining rights: Again, in order to keep players from leaving and returning to the league to negotiate directly with teams, the MLS rights to a player are maintained after a player leaves provided a few things happen. In essence, the teams must have made a league approved offer to keep the player. If the player still leaves, and the team did not get any compensation, they maintain the rights. Rico is an example of this, while Cameron is an example of the Dynamo receiving compensation so not retaining the rights.
Wait, what about Designated Players? Well, while the details of every signing are not published; even the DPs should fall under one of the above scenarios. Remember Boyd and the first round pick we took from Portland for that DP? That was because of our Discovery claim.
What about the league paying part of DP player costs? This seems to be unrelated to how they are acquired. Although I think it is safe to assume a returning USMNT player big enough to warrant league assistance would likely meet the threshold for avoiding the allocation order process (Dempsey). Since this is reportedly money from the sale of a portion of SUM, that can be used at the investors discretion there is no written approach that we know of on this topic. I feel safe in assuming they could do it for a USMNT player, a DP signed via discovery, or even if there is some big player in the future that snubbed MLS as a youth and could qualify for the lottery. In essence, I don't think they are directly related, they can spend that money as they choose (as a group of Investor/Owners).
Other Mechanisms: I am not touching on the draft, Generation Adidas (actually they are either drafted or weighted lottery if they sign late), waiver wire, etc. But I suggest if you are interested you take a look at MLS Roster Rules. They are NOT THE COMPLETE SET OF RULES! Like other leagues, they are an abridged set of the rules for public consumption but they are pretty good compared to other North American leagues.
Here is a quick flow chart:
** Information is based on what we know now from the Roster Rules and press releases after Dempsey, Bradley, Edu, and Boyd.