In Major League Soccer, allocation money represents an amount of money teams can use to sign players and/or allocate to their salaries to get under the salary cap.
Obtaining allocation money
Allocation money given to teams for eight reasons:
- Annual allocation money for each team ($200,000 general allocation money, $100,000 targeted allocation money, and $1,200,000 additional targeted allocation money for each team in 2017)
- Failure to qualify for the MLS Cup Playoffs ($200,000 general allocation money for each team)
- The transfer of a team's player to another club outside of MLS (up to $650,000 general allocation money for each transfer)
- Qualification for the CONCACAF Champions League ($100,000 general allocation money for each team)
- Advancement to Knockout Stage of CONCACAF Champions League ($200,000 general allocation money to be split between all advanced teams)
- Additional allocation money in expansion year ($1,100,000 general allocation money for each expansion team, $100,000 general allocation money for each existing team)
- Losing a player in the Expansion Draft
- Third Designated Player charge distribution (in form of general allocation money to be split between all teams with two or fewer designated players)
General allocation money can be used in several ways:
- Reduce the amount that a non-Designated Player costs against the salary cap down to the league minimum salary ($65,000 in 2017).
- Reduce the amount that a Designated Player costs against the salary cap down to $150,000.
- Sign players new to MLS.
- Re-sign an existing MLS player.
- Off-set acquisition cost (loan and transfer fees).
- In connection with the extension of a player's contract for the second year provided the player was new to MLS in the immediately prior year.
- Trade it to another team.
General allocation money must be used within 30 days of the close of the third full MLS transfer window after it was acquired. If a quantity of general allocation money is not used within that timeframe, it's halved by the league. That halved amount is then available for use during the next two transfer windows. If it's still not used after those transfer windows, the quantity is no longer available for use.
Targeted allocation money can be used in several ways:
- Sign a new player to MLS provided he is earning more than the maximum salary budget charge ($480,625 in 2017) up to $1,000,000.
- Re-sign an existing MLS player provided he is earning more than the maximum salary budget charge ($480,625 in 2017) up to $1,000,000.
- Convert a Designated Player to a non-Designated Player by buying down his salary budget charge to below the maximum salary budget charge provided the club then signs a new Designated Player at an investment equal to or greater than the player he is replacing.
- Sign new homegrown players to their first MLS contract using up to $200,000 of targeted allocation money.
- Trade it to another team.
Targeted allocation money must be applied, if not necessarily used, within four MLS transfer windows of its acquisition. In this case, "applied" doesn't mean a team actually has to use the amount within four windows. Rather, they merely have to notify the league of how they plan on using their expiring targeted allocation money - allocating a specific amount to a specific player - in the following window by the end of the fourth window after it was acquired. If they don't do that, that amount expires.
Targeted allocation money and general allocation money may not be used in combination when signing or re-signing a player. Either targeted allocation money or general allocation money may be used on a player in a single season, not both.
Amounts of allocation money held by each team are not disclosed to the general public. Only in the case of a trade will the amount of allocation money involved be made public.
Twice in league history, an allocation received for a lost player was used on the same player upon his return to the league: by the Chicago Fire on Ante Razov and by the New England Revolution on Daniel Hernandez.
Allocation money is not to be confused with the MLS Allocation Order, which is a ranking used to determine which MLS club has first priority to acquire a player who is in MLS allocation list. MLS allocation list contains select U.S. National Team players and players transferred outside of MLS garnering transfer fee of at least $500,000. Along with Allocation Money, Allocation Order rankings can be traded, provided that part of the compensation received in return is another club's Allocation ranking.