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The Most Important Graph in MLS

After talking about it for nearly two years, I’ve finally made an electronic version of a graph that reveals the incentives behind one of the trickier bits of MLS’s notoriously-difficult roster strategy

Where it all started: on a periscope with Quakes fans with just a legal pad and a pen

MLS has a complicated set of roster rules that deeply constrain what clubs can do with their money, and what is to their advantage vis a vis the salary cap. It’s no accident: every rule encourages acquisition of a type of player the league considers strategically important.

Homegrown players and Generation Adidas players are off the cap entirely because they help grow the domestic pipeline to the national team. The Designated Player rule encourages teams to spend as much as they can afford on just a few players in order to lure marketable stars. Targeted Allocation Money can only be used on players from the game’s global middle class, the kind that aren’t likely to draw huge crowds but are essential to smoothing the gap between superstars and minimum salary scrubs.

What that mishmash system creates, however, is an odd structure of incentives compared to a purely capitalistic market, since only some dollars “count” against the cap, and others don’t. Even in a free market, some teams are better at squeezing value out of every marginal dollar than others, but these peculiar MLS mechanisms create “artificial value” at three specific spots of the roster: near the minimum threshold, just above the DP threshold, and super-sized DP deals.

I’ve illustrated it in the graph below:

Some technical background (you can skip this paragraph if you want to get right to the analysis): The y-axis is the percentage of a given players salary that counts against the MLS cap, and the x-axis is their actual salary. My starting point has $60,000 salaries as “100% off cap” because only the top 20 salaries count in MLS, and I’m not aware of any teams for whom the 20th highest salary is less than $60,000. That means that the only thing that alters a player’s salary hit is marginal (or additional) dollars beyond that $60,000 threshold, and that’s what I’m counting as their effective “on-cap” salary. Further, once the DP threshold has been breached and TAM is usable, I deducted a further $337,000 from the salary (the distance between the DP threshold and the minimum charge for a TAM player of $150,000) to reflect the likely use of TAM on those players, and counted every dollar beyond the threshold as on-cap since it represents a TAM dollar that could have been used elsewhere to buy down from the cap, but instead was just buying out of a DP slot with no cap effect.

Assuming teams can afford to spend more than the official cap (as it appears all 22 can do), the goal should be to minimize the amount of your spending that actually hits the cap. The graph shows that the three areas I mentioned above are indeed the best three areas for this sort of efficiency. If we stepped in a hypothetical world where a player’s salary is perfectly reflective of his ability, those three spots would be the only places you’d want to invest in your roster, since they present the highest value.

Of course, that’s not true in our world. Some players (say, Innocent) get paid giant sums of money but deliver almost no value, whereas others (say, Fatai Alashe) get paid a relatively paltry sum yet are starting XI staples. So there are absolutely going to be times when investing outside of those three exact areas is useful, and when investing in those areas won’t be.

This system has some weird impacts: A player making $480,000 per year is a terrible value (in fact, the very worst possible value), but a player making $500,000 per year is amongst the very best possible values. That creates a bizarre perverse incentive to pay a player a bit more than he’s worth so as to make his salary hit go down dramatically. It’s things like this that drive close followers of MLS nuts.

I haven’t done an analysis of every team through this lens, but I can speak to the San Jose Earthquakes as a case study, having covered them extensively for three years. Players like Jean-Baptiste Pierazzi were right in the “death zone” below the DP threshold, and therefore represented poor value. Simon Dawkins is in the new, second “death zone” that’s a bit too high for optimal use of TAM, and therefore leaves the team a bit stuck with constructing a roster around him (although to be fair to the Quakes, TAM has really taken flight after that signing was confirmed, and is changing constantly, so would’ve been hard to factor in). As important as Clarence Goodson, Marvell Wynne, and Victor Bernardez have been, the team has always seemed to carry quite a few large-salary-but-not-DP guys, and I don’t think it’s an accident that San Jose has struggled mightily with squad depth over the last few years.

So to win in MLS, you have to get good value per dollar that you spend, just like in every sport. You have to nail the completely off-budget rules (Generation Adidas and Homegrown players), because they’re basically freebies. But you also have to focus on those three spots of the roster, and avoid the two troughs, since MLS has decided to give you a mathematical advantage in those places.

My theory is that teams who consistently succeed have lots of players in the categories I highlight, and that teams who consistently struggle seem to ignore this insight. San Jose would appear to validate that theory, but I’d love for the other SB Nation blogs to apply this methodology to their team as well.

What do you think?