Major League Soccer
MLS Allure: Why Wages Are Only Part of the Story
September 14, 2015
IN JULY THE MLS PLAYER'S UNION released salary information showing that the average guaranteed compensation of its members increased from $207,832 in 2014 to $282,088 in 2015—a 35% lift that made MLS the 18th highest-paying soccer league in the world according to Sportsmail.
Academics and industry experts attempting to compare MLS to other leagues have seized upon salary data as a proxy for MLS’ quality (or lack thereof) relative to other leagues and found that higher payroll correlates to better performance. While it is generally true that better players earn higher salaries, there are at least two reasons that the salary numbers provide only a rough indicator of MLS’ quality among the world’s leagues.
First, many soccer leagues do not actually pay their players the salaries they publicly report. Second, though salary size correlates to a soccer league’s quality, it is not a linear correlation. To put it another way, though the average salary in the Premier League is twice that of La Liga, this does not mean the Premier League has twice the quality of La Liga.
The reason this is true is that wages are only part of a soccer player’s true income. In economics, non-monetary income represents a large proportion of the overall income received by a worker. Because the consumption potential of non-monetary goods is difficult to measure, those who attempt to evaluate the “quality” of a league tend to use a player’s wages to represent his full income but doing so may result in false conclusions. In evaluating how MLS stacks up against other leagues, one should take into consideration total wage differential, i.e. the total monetary and nonmonetary advantages and disadvantages among leagues that compensate for more or less attractive work.
There are both monetizable and emotional income flows that are essential dimensions of income despite the fact that they are non-wage income. All the non-monetary benefits that MLS affords its players have a shadow price that may be compensated for by a lower income than would be expected in other leagues. Below we’ll explore some of the factors that analysts could use when attempting to compare leagues across countries and continents if they want to more fully capture the true income of an MLS player.
The Path to Citizenship
For the first time in MLS history, more than 50% of the league’s players were born outside the United States. There are 160 international roster spots divided among the 20 clubs in MLS, with each slot being a tradable asset. Many MLS players born outside the United States do not occupy an international roster slot because they have a green card or have become naturalized U.S. citizens. For players interested in acquiring citizenship to the country in which they play, it is easier for foreign players to do so in the United States than in Europe. For players coming from dangerous or impoverished countries, U.S. citizenship is a valuable asset, not the least of which because their children born in the U.S. automatically become citizens. Many MLS players born outside the U.S. have applied for or have already become U.S. citizens, including Osvaldo Alonso (Cuba), Darlington Nagbe (born in Libera, raised in the U.S.), Kekuta Manneh (Gambia), Danny Mwanga (the Congo), Kei Kamara (Sierra Leone) and Roger Espinoza (Honduras).
The U.S. Citizenship and Immigration Services issues athletes four basic types of visas: O-1, P-1, H-2B, or B-1/B-2. Most international MLS players are issued a P-1 Visa. To qualify for a P-1 visa, athletes need only establish that they have an MLS contract. Of the approximately 140,000 U.S. citizenship slots allocated to those with employment-related visas, P-Visa employees receive both the largest number of slots (40,000) and the highest priority for U.S. citizenship. Once a player has a P-1 visa, he can apply for an “adjustment of status” under the Immigration and Nationality Act (Pub. L. 89–236, 79 Stat. 911) to obtain a green card, provided he has an employer (MLS) willing to file a Petition for Alien Worker on his behalf. Once a player has a green card for five years he can become a U.S. citizen. MLS teams regularly obtain green cards for their players in order to open up international roster slots. For example, Republic of Ireland National Team captain Robbie Keane has a U.S. green card, as do Aurélien Collin, Paulo Nagamura, and many others.
Workers within the European Union are able to move freely between EU member states without the need for work permits and visas but soccer players from outside Europe are required to obtain a work permit to play professionally in the EU. While EU countries issue visas to athletes they also impose more stringent requirements for obtaining visas than does the U.S.
For example, in England a player must have played for his country in at least 75% of its competitive first-team matches for which he was available for selection during the two years preceding the date of the application and the player’s country must be at or above 70th place in the official FIFA world rankings when averaged over the two years preceding the date of the application. These requirements have stalled numerous players, including Juan Agudelo, from playing in England. Visa applicants need to prove they have a contract with a team and may also have to show their salaries will exceed a threshold minimum amount. Depending on the country, visa holders may need to apply for a new work permit whenever they switch clubs whereas visa-holders do not need to do so when they play in MLS (one upside of the single-entity structure). Further, if a club wants to renew its contract with the player, in certain countries the player has to reapply and meet the same requirements as if he was applying for the first time.
In EU countries, at some point after a player has a visa, he can apply for “permanent residence” status or citizenship. Under the Maastricht Treaty (which formed the European Union in 1992), every country in Europe determines its own residency requirements for naturalization (Maastricht Treaty, Declaration 2 on Nationality of Member State). However, almost every country in Europe with a major soccer league imposes additional requirements for obtaining EU citizenship than does the United States. For example, Germany requires that aliens maintain permanent residence for eight years before applying for citizenship: Italy requires 10 years, etc. Since players cannot count on their careers in the Bundesliga or Série A to last that long, citizenship is not feasible for many soccer player born outside Europe. While there are exceptions—Ireland and Latvia, for example only require five years of residency—these countries do not have leagues that employ a significant number of international soccer players. In rare instances, European citizenship may be granted to a player for making a “contribution to an EU country” but that exception only applies to superstars.
The Security of Contracts
Outside MLS and England, there is a widespread problem of clubs failing to pay players their salaries in a timely fashion. Some are paid late and sometimes not paid at all in places as far-flung as Spain, Italy, Turkey, Russia, Brazil, Argentina, Ukraine, Australia, Greece, Cyprus, Mexico, Scotland, China, Uzbekistan, Qatar, Nigeria, and Ghana, among others.
Historically, leagues without salary caps also have a greater propensity to spend beyond their means, which increases the risk that a club in arrears will never pay its players—the greater the debt burden of a club, the less likely a prospective owner will be to assume that debt, which increases the likelihood of dissolution.
For example, Parma FC players went unpaid last year in Série A for the entire season. Weighed down by $220 million in debt, Parma FC declared bankruptcy earlier this year and is now playing in Italy’s fifth division. Eight other Italian clubs at different levels either declined promotion this year because they could not meet the financial requirements of the next level or folded entirely.
In Spain, La Liga’s players have gone on strike on more than one occasion to protest unpaid wages. Many clubs have entered administration or otherwise been subject to bans or other sanctions for “overdue payables” for failing to pay player’s wages, including Atletico Madrid, Elche CF, Malaga, Racing Santander, Cartagena, Lucena, Real Betis, Real Zarazoga, Deportivo La Coruna, and El Sardinero. According to a 2012 FIFPro Report (“Pay the player or 2012 season will not begin”), 300 players in the Primera and Segunda Divisions in Spain were not paid by their clubs in 2012.
Up to 90% of the professional clubs in Brazil have problems paying their players’ wages and as many as 50% of players are currently unpaid. At the end of October 2014, at least 28 of the 40 clubs that play in Campeonato Brasileiro Série A and Série B were late in their salary payments to players and the current wage obligations by clubs in Brazil far exceed the revenue being generated in the Brazilian leagues.
In 2013, FIFPro issued a recommendation that players not sign contracts in Turkey, Greece, or Cyprus because there was a 50% likelihood that players would encounter problems getting paid. One response in the Turkish Süper Lig has been for players to terminate their contracts over unpaid wages. The most high profile of these cases was Frank Ribery, whose unilateral termination of his contract was upheld by FIFA’s Dispute Resolution Chamber in Galatasaray v. Ribery & Olympique Marseilles, after FIFA found that Galatasaray had failed to pay Ribery’s wages for four months. (Wesley Sneijder, Kris Boyd, Michael Klukowski, and Umar Aminu have had similar experiences in Turkey.)
In Russia, Fabio Capello went unpaid for almost a year as the coach of the Russian National Team while other soccer coaches in Russia skipped a Euro 2016 qualifier protesting unpaid wages. The collapse of the ruble has impaired the ability of clubs to pay the wages promised to their players, causing some (such as Ivan Franjic) to quit rather than wait in perpetuity for their wages to be paid. Other foreign players in the Russian Super League may soon have their contracts unceremoniously terminated following Russia’s July 1 adoption of a federal law authorizing the Sports Ministry to limit the number of foreign players to five per team.
MLS encountered its own version of franchise collapse recently with Chivas USA. However, when Chivas USA ceased operations in October of 2014, a number of its players were spared the axe and instead were picked up by other clubs via the dispersal draft and expansion draft. Those who were not picked up were waived and have since moved on. Significantly, MLS paid the salaries and health benefits of Chivas USA players (and staff) through the end of the 2014 season, regardless of whether the players were picked up by another team.
The Lower Tax Burden
In general, European countries have higher top tax rates than the United States. Thus, high-income players pay more in taxes than their counterparts in MLS. There are exceptions, notably Russia and Ukraine, which have very low tax rates. If you are Zlatan Ibrahimovic then your team pays your taxes for you. But for those who are not Ibrahimovic, the relative tax burden of working in Europe versus MLS impacts a player’s take-home pay.
On average American income tax rates are slightly lower than in Europe though these rate gaps fluctuate widely given varying state tax rates in the U.S. and regional tax rates in Europe. Top federal tax rates are 52% in Spain; 47.475% in Germany; 46.29% in Italy; 45% in England; 45% in France; and 39.6% in the United States. The gap in the payroll tax rate (which in most countries is borne partly by the employer and partly by the employee) is enormous: Payroll taxes are 66% in France; 41% in Germany; 36.25% in Spain; 25% in England; and between 15-17% in the United States.
Calculating the monetary value of a lower tax rate for an athlete is pretty easy. Let’s assume we have a player who can earn $5 million dollars playing anywhere he wants in the world. A six percent difference in federal tax rates amounts to paying $2,250,000 in federal taxes versus $1,950,000, or $300,000. A 12% difference (the difference between Spain and the United States) amounts to paying $2,400,000 in federal taxes versus $1,950,000, or $450,000. Of course, some countries also have trouble collecting the taxes owed to them from soccer players. That being said, it’s never smart to stiff the tax-man. Just ask Lionel Messi.
The American tax system is also rife with idiosyncrasies which many professional athletes exploit to lower their tax burden. For example, state/regional taxes exist in both Europe and the United States. However, in the U.S., many professional athletes claim residency in Florida, which has no state income tax. The United States also has a lower capital gains tax rate than many European countries which, for high net worth individuals with substantial investment portfolios, is perhaps the most significant tax rate—the U.S. capital gains tax rate is 19.1% for the highest income-earners whereas it is 44.5% in Italy, 31.3% in France, 28% in England, and 21% in Spain.
The Right to Be Let Alone
To describe the soccer cultures of the U.S. and Europe as different is an understatement. In the United States and Canada, soccer is a sport. In Europe and South America, it is a religion.
These different attitudes toward the beautiful game lead to different types of psychic income for players. Psychic income refers to the subjective satisfaction one gains from an activity—that which satisfies one’s emotional and psychological needs. It includes things like power, prestige, fame, safety, privacy, respect, piety, challenge, opportunity for autonomy, control over one’s environment, self-signaling, the opportunity to live in a given community, the desire to master one’s craft, the improvement of one’s self-image, being appreciated by one’s employer and flexibility in one’s work schedule.
The soccer leagues of Europe offer different forms of psychic income to players: high levels of fame, challenge, prestige, and power but very low levels of privacy and control over one’s environment. Further, players can max-out on the types of psychic income they earn in the upper echelons of European soccer.
Players like Kaká, Steven Gerrard, David Villa, Frank Lampard, and Andrea Pirlo have all reached the highest level of fame achievable by soccer players. Gerrard captained Liverpool and England and won the Champion’s League. Pirlo won the World Cup and the Champions League and is widely considered one of the living geniuses of world soccer. None of these players can achieve a greater level of fame or prestige because they are known by almost everyone in their respective countries and have won the most prestigious trophies the sport can offer them. Since any additional psychic income that can be earned by these players in Europe is marginal, it makes sense for them to seek out forms of psychic income they cannot earn in Europe, such as privacy.
Louis Brandeis and Samuel Warren first articulated the notion of a right to privacy in 1890 when they wrote in Harvard Law Review about the right of every citizen “to be let alone.” People assign different value to the right of privacy but it is undoubtedly true that the private sphere for a soccer player at a prominent club in Europe is limited. Players cannot expect to walk the streets inconspicuously and the media, particularly the English media, is positively predatory when it reports on these athletes.
For a player who has experienced the benefits of public attention, the prospect of an anonymous life could be, if not a relief, at least intriguing. A number of MLS’ new designated players have commented on how remarkable it feels for them to walk the streets of their respective MLS cities without being accosted by fans.
“It has been nice for the first time to take the kids to a fairground on Santa Monica pier,” Gerrard told USA Today. “It is something I’ve never been able to do in England. It’s good that not many people notice me out here, because away from training and the games it is nice to go and spend some quality time with your family as well. That has been a surprise for me.”
Much was made of Landon Donovan’s decision to play in MLS when he could have done so in Europe. For Donovan, the psychological gains of playing near his family in his hometown and in a city where he could maintain his private life far outweighed the fame and prestige afforded by playing abroad.
“The difference between Italy and here is that here we can enjoy time with family, time with friends,” Toronto FC’s Sebastian Giovinco told the Guardian. “So after training, we can just go for a walk, we can go for an ice cream with the family, shopping, whatever. And when we do get stopped by fans, they are very respectful, and they are not so touchy and aggressive. So it’s a different lifestyle, and I’m definitely enjoying it.”
It is difficult to monetize the value of privacy because the nature of psychic income is such that outside observers cannot assign its value to the one who earns it. But it is safe to say that for someone like Gerrard, who has only known fame since adolescence, the value of relative anonymity is worth more to him than it would be to you or me, just as for you and me, who have privacy but have never known fame, the experience of being worshiped by thousands of fans would be worth more than it is to Gerrard.
Support and Solitude
Designated players in MLS occupy a unique role among global soccer leagues. They are qualified to outperform their teammates and depended on to do so; they are asked to serve as models of professionalism to legions of young players; and they assume more responsibility for the team’s performance than their teammates. In short, they are more important to their MLS teams than they would be to teams in Europe.
European leagues produce the world’s best soccer but they do not always do a good job of making players feel needed or appreciated. Rich clubs blithely stockpile and then dispose of their talent. When Javier “Chicharito” Hernandez was asked why he chose Bayer Leverkusen among his transfer options he said, “They made me feel wanted.” Gerrard said something similar at his first L.A. Galaxy press conference, noting that management “made me feel very important and wanted.”
For Giovinco, who went from being a bench player at Juventus to the most important player on his team in Toronto, he undoubtedly feels a sense of regard that he did not feel in Italy. MLS teams’ heightened “need” for their foreign players is one important form of appreciation from their club that they may not have had in Europe.
MLS fans are also far less critical of players than their European counterparts. During filming on the MLS Insider series, cameras documented a public autograph session in Toronto where an orderly queue of fans waited patiently for Giovinco to sign shirts for them. Giovinco turned to the camera with a wide gaze and said, “People are very polite and respectful… In Italy, it’s impossible to do something like this.” Not only is there is no hooligan tradition in MLS or a history of violence associated with soccer, MLS fans by and large are very positive and supportive of players, which many players have identified as a bonus to playing in MLS.
In fact, many players coming from abroad experience a sense of relief when they realize that fans approach the game as a game and do not pillory players as they do in Europe:
“Here it is different because people actually just watch sports like another sport,” Kaka told MLSSoccer.com. “So this is what I like here. We still have pressure to win and the responsibility to win, and we certainly want to win, but we don’t have that pressure that if you don’t win you are not worth anything, and if you do win, you are the best in the world.
“Soccer is just soccer."
Wendy Thomas is an attorney and contributor to American Soccer Now. Follow her on Twitter.