clock menu more-arrow no yes mobile

Filed under:

Could Baseball's Luxury Tax System Work For Major League Soccer?

Major League Baseball is the only major sports league in North America without a salary cap structure, instead using a luxury tax system. Could that same system work for MLS?

Adam Hunger-USA TODAY Sports

You probably know Eric Wynalda in one of two ways: one of the best USMNT players of all time, or a Major League Soccer analyst with plenty to say against the growth of the league. Lately, it's probably been the latter.

But while Wynalda often says things that don't quite make much sense, something he said while speaking at the NSCAA convention in Baltimore this past week did stand out to me as something that actually -- gasp -- is kinda worth considering:

For those unfamiliar with baseball's luxury tax system (and I'm sure very few of you are), let me give you a quick rundown: Baseball is the only of the major North American sports to not have a salary cap. However, in 2003 it implemented a luxury tax as a way to keep higher spending teams in check.

As explained by Fan Graphs:

Technically called the 'Competitive Balance Tax', the Luxury Tax is the punishment that large market teams get for spending too much money. While MLB does not have a set salary cap, the luxury tax charges teams with high payrolls a considerable amount of money, giving teams ample reason to want to keep their payrolls below that level.

In 2015, the luxury tax threshold was set at $185 million -- teams that exceed the threshold for the first time must pay 17.5% of the amount they are over, 30% for the second consecutive year over, 40% for the third consecutive year over, and 50% for four or more consecutive years over the cap. Only five teams -- the Yankees, Dodgers, Red Sox, Giants, and Tigers -- went over that tax in 2015. Those same five teams, as well as the Angels, are the only six to ever go over (the Yankees have gone over every year since the tax was implemented).

As for MLS, in 2015 it went by a salary cap of $3,490,000 for roster spots 1-20 on a club's roster, referred to as the Senior Roster. There are plenty of ways to get around that hard cap, of course -- Homegrown and Designated Players, regular and Targeted Allocation Money, Generation Adidas, and so on and so forth.

DP signings are players whose salary rises over the cap charge of $436,250. Clubs are allowed up to three DP players on their roster, and the introduction of TAM in 2015 has let clubs throw more money into their rosters while being able to spend under the salary cap.

Over the course of time, if MLS is to rise to the levels of its counterparts in Europe, the salary cap structure is going to have to go away -- or at least rise enough to compete with the Premier League and the Bundesliga (and that'll take some time).

MLS is built on parity, and of course this would bring the worry that without a salary cap, teams like the LA Galaxy, NYCFC, soon LAFC, Orlando, etc. will outspend the league every year and bury them with talent. I believe that if owners want to spend, nothing should hold them back. It's their right as an owner to operate their team as they please. But a luxury tax would, at the very least, attempt to keep them in line by forcing them to pay more on every dollar they spend over the cap.

It's not an idea that MLS will be able to implement in the short term, but it's something that should be considered in the long term as the league continues to grow and find more ways to spend more money.