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Listening to the @scuffed episode on USL prospects and am now inspired to write this Twitter dissertation on "The Market Inefficiency of the USL to MLS Pipeline" so here we go!
Fact) The USL to MLS Pipeline is poor. Like really poor. In most countries, the second division is a
Fact) The USL to MLS Pipeline is poor. Like really poor. In most countries, the second division is a
large source of talent for the first. In MLS, reserve side in USL going to parent club is becoming more common (i.e. Aaron Long) but raiding a outside USL club (i.e. Mark Anthony-Kaye) is very rare. Question is why?
Fact 2) There is a large inefficiency in the valuation of USL
Fact 2) There is a large inefficiency in the valuation of USL
prospects by MLS sides. Let's call this the Gallegos-Busio Theorem. I think we can assume that the price for Gallegos from SA is somewhere between $0.5-$1m. But let's assume that Gallegos was actually on Houston instead. What would his price be then, with the same performance?
The answer is likely what we see from SKC with Busio, easily in the $3m+ range. So the same player could have widely different valuations. So what's preventing an MLS side cashing in on this gap?
Fact 3) MLS Salary Cap rules are a major barrier. The salary cap hit is crudely
Fact 3) MLS Salary Cap rules are a major barrier. The salary cap hit is crudely
described by this formula (transfer fee + total salary in the contract) / total years in contract. So imagine Gallegos wants $300k/yr for 3 years. Add $1m transfer fee. That's a salary cap hit north of $600k .. or a designated player unless you're using GAM.
Fact 4) This is why Miguel Ibarra went to Liga MX instead of MLS back in the day. Even though he was called up by USMNT, MLS sides decided that he, as a USL player, wasn't worth the assets a team would have to go up, even though he clearly was good enough for MLS
Fact 5) This is barrier is more a mentality and bias instead of a real bias against USL. MLS sides give up assets like this for unproven talents all the time. The cost of a high draft pick is $300k in allocation. Portland paid $300k TAM for the rights to Williamson. RBNY is
using a DP spot for Yearwood who has only really played in League One. But theres a mental block preventing GMs to pull the trigger.
Fact 6) There is also work needed to be done to show the top USL talents that they won't lock them up and not develop or sell them. Let's call
Fact 6) There is also work needed to be done to show the top USL talents that they won't lock them up and not develop or sell them. Let's call
this the Jonathan Gomez conundrum.
Solution) A club making a bet on taking advantage of the USL MLS Pipeline Inefficiency. They are willing to spend 400-500k in allocation for talent. They also sign the players in "poison pill" contracts .. just like Reggie Cannons contract
Solution) A club making a bet on taking advantage of the USL MLS Pipeline Inefficiency. They are willing to spend 400-500k in allocation for talent. They also sign the players in "poison pill" contracts .. just like Reggie Cannons contract
where the salary is backloaded which incents the MLS team to sell. There's no reason why a club like Cincinnati or Colorado couldn't do this as a corner stone of their transfer strategy.
Thanks for attending my Ted Talk!
Thanks for attending my Ted Talk!
