When Major League Soccer (MLS) was founded in 1996, the founders of the league organized it as a single entity. The idea was that as a single entity that owns all of the teams and player contracts, the league would be better able to control its costs because the individual team owners would not compete against each other for players' services. However, our analysis of MLS payrolls from 2004 through 2011 brings us to the conclusion that, despite its single-entity model, MLS players' salaries show a very impressive growth.
For example, the lowest guaranteed team payroll rose from $846,765 in 2004 to $2,690,688 in 2011. This represents a gain of over 217% or nearly 18% on an annualized basis in the period at issue (see Chart A).
The trend in payroll growth is similar for the average guaranteed team payroll which totaled $1,395,286 in 2004 and $4,712,144 in 2011. This corresponds to a gain of nearly 238% or 19% on annualized basis in the period at issue (see Chart B).
The MLS top team payroll also increased. In 2004, the highest team payroll totaled $1,941,783 and was paid by DC United. In 2011, the highest team payroll increased to $14,661,977 and belonged to LA Galaxy (see Chart C).
In order to truly appreciate how fast MLS team payrolls grew consider that the average rate of inflation between 2004 and 2011 was only 2.5% and the average wage index rose only 2.94% from 2004 to 2010. There is no doubt that, by all measures, MLS payrolls are on the meteoric rise.
This must bode well for MLS ability to attract new talent, retain current players and improve the game quality. We also speculate that the rise in salaries indicates that MLS business prospects and financial condition are steadily improving.