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A salary cap is standard practice in the four major leagues in the USA. In the world of football, however, this is unusual, and the way it is implemented in basketball, American football, ice hockey or baseball is actually unthinkable in top-flight European football. Yet the MLS is one of the few leagues that combines football with a salary cap. In this article, we explain how the salary cap works in the MLS, what special rules apply, and what benefits it is intended to bring to the clubs and the league itself.
MLS Salary Cap Structure: Budget Limits, Roster Rules, and Maximum Salaries
In principle, the squad of each club in the MLS consists of a maximum of 31 players. The squad will be split into two parts. The first part consists of squad places 1-20 and is called Senior Roster. Each team has a salary budget of $6.425 million for the Senior Roster. If you want to read more about squad costs you can find an detailed analysis of La Liga’s squad cost limit here. A player may earn a maximum of $803,125 per season (should a player join a club during the current season, this is only half the maximum). Each team does not have to register the full 20 players on the Senior Roster, but can only register 18 players. This then has an effect with a reduction in the salary budget.
In addition to the Senior Roster, there is also the Supplemental Roster with squad places 21-31. All players from the Supplemental Roster do not count towards the Salary Budget. Slots 21-24 are for players who are Homegrown players, Generation adidas players or players drafted in the expired MLS Draft. A homegrown player is a player who is either a U.S. or Canadian citizen, or who has transferred to an academy of an MLS team at the age of at least 15 and signs his or her first MLS contract. Generation adidas players are US players who were signed by an MLS team before the draft. The draft is briefly explained as a selection process in which teams are allowed to select the best college players (who have registered for the draft). The order here is such that the worst team gets to vote first. Players in slots 21-24 earn a fixed salary of $113,400 per season. Slots 25-30 are for Homegrown players who may not be 24 years or younger. Players in these slots earn $88,025. The 31st and final slot is for a player who is loaned to a club in a low league in the USA or Canada, is no more than 24 years old and earns a maximum salary of $113,400. This player may not be used by the respective MLS teams in the current season.
How MLS Clubs Increase Their Salary Cap Using General Allocation Money (GAM)
As described above in the text, each MLS club has a salary budget of $6.425 million because players who are not on the senior roster are not included in the salary cap. This will be expanded to include the so-called General Allocation Money for each club. Each club receives an additional $3.28 million in General Allocation Money per season. In addition, each club can receive up to an additional €2 million in General Allocation Money if, for example, they do not qualify for the MLS Cup Playoffs, a player is transferred to a club outside the MLS, or a club qualifies for the CONCACAF Champions Cup. This additional allocation money is also distributed each season that another expansion team is added to the MLS. Then all clubs receive an equal share, each team that loses one player in the expansion draft loses further money and each expansion team loses its own amount of money. An expansion draft happens when a new club is added to the MLS like San Diego FC was added recently (you can find a detailead analysis of Right to Dream where SDFC is part of in this article). In general, clubs can trade their additional general allocation money in the form of trades (player swaps or draft picks) in order to reduce or increase their overall salary cap.
In addition to General Allocation Money, there is also so-called Targeted Allocation Money. This targeted sum is money that each club can only use for certain things and cannot exchange in the form of trades. Each MLS team has $2.125 million available for the 2026 season. This money may only be used for players whose salary and acquisition costs are above the valid maximum salary and who are newly signed or whose contract is renewed. A club may also use its Targeted Allocation Money for a Designated Player to convert it into a Non-Designated Player.
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Designated Player Rule Explained: High‑Value Contracts and Special Exceptions
The rules of the MLS stipulate that each team may have 3 Designated Players. These Designated Players are players whose salary may be above the maximum salary cap salary. They must also be at least 24 years old. If they are younger, then the clubs must pay a penalty of $150,000 (for those under 21) or $200,000 (for those 21–23). The penalty is deducted from the salary cap. In addition, Designated Players may only be signed via the so-called Discovery List. This is a list of players who are currently being scouted or signed by clubs. On the Discovery List, each club is allowed to retain or reinstate 5 players, with no maximum number of players allowed to be signed from the list. Players who are currently playing in the MLS or are without a contract may not be included on the list. This also applies to players who can be assigned to MLS clubs via the draft. If several clubs want to put the same player on the Discovery List, then the club that registered the player first is awarded the contract. If clubs register the player at the same time, the club that has fewer points in the current season will be awarded the contract. Should a club sign the player from the Discovery List from another club, they must first pay $50,000 to the club to put the player on their own Discovery List and ultimately sign the player. The squad cost ratio rules by the UEFA can be find here and are completely contrarian tot he MLS rules.
Injury Rule Exceptions: How MLS Teams Manage Roster Spots and Cap Relief
Clubs generally have several options for removing a player from the squad. You can fire, sell, borrow or buy the player out of their contract. If a club releases a player, the amounts guaranteed in its contract will continue to charge the club’s salary cap, unless another MLS club signs the player, which would then eliminate the guaranteed amount. If a player is sold or loaned out, his salary on the salary cap is waived, with 95% of the income from these transfers being able to be added to additional General Allocation Money (up to a maximum of $3 million). Before a player can be bought out of his contract, he must first be released to make him available to other MLS clubs. In general, a club is only allowed to buy 2 players per season from its contract. In addition, the second transfer window must be closed to buy a player out of the contract.
There are special rules for injured players, which means they can also be removed from the squad and do not further burden the salary cap. To do this, the player who is injured must be out for the entire remainder of the season and registered on the list for players with season-ending injuries. Then this player may no longer play in the current season and the club may sign a replacement. The substitute falls under the salary cap and the club must also pay the full fees for the injured player. In addition, the substitute may only be signed until the date of the squad stoppage (this season on October 9, 2026). The substitute player may also not charge the salary cap a higher amount than the injured player, which also applies to designated players, whose spot may also be replaced. A club may only sign one player per season as a substitute. If a player is briefly injured and is out for at least 6 MLS games, they can be placed on the short-term injured player list. Once a player is listed there, the club can get a free spot in its squad. However, the player’s salary remains in the salary cap.
