Editor’s Note: This is a guest post by Gaurav Vedak(@gvedak), Paul Foster(@gringofoster), Nikhil Swaminathan(@sw4mi) explaining the intricacies of the MLS Salary Cap.

As we approach 2017, soccer fever is beginning to take over our city. Thousands of fans showed up for the MLS Atlanta announcement, and more than 19,000 people have already put down a deposit for Atlanta United FC season tickets. Some of these people are new to soccer, and to MLS, and had questions regarding the salary situation and how the teams are assembled.

Here is our (relatively) simple explainer:

Total Roster Spots: 28

Senior Roster: 20

Game Day Roster Spots: 18

Total Salary Budget in 2015: $3,490,000

Max Salary for one “regular senior roster member: $436,250

The maximum number of players on an MLS team is 28. Players occupying roster spots 1 to 20 are considered a club’s “senior roster.” The players in positions 1 to 20 count against your salary cap, which at the start of the 2015 MLS season was $3,490,000. Roster spots 19 and 20 are not required to be filled, so teams may choose to use the full $3.49 million only on those first 18 members. The eight remaining roster spots, 21 to 28, are considered the “supplemental roster” and DO NOT count against the cap.

For each match during the regular season and playoffs, all of the 28 players are eligible for selection to the 18 player squad.

Designated Player

A question we’ve been asked many times is how the designated player process works. Quite simply a team can have three designated players, team members whose salary exceeds the salary budget. Instead of the full amount they are paid being counted against the total salary budget, only a portion of their salary, based on their age, counts. If a player is 23 years or older, $436,250 is counted against the budget. (That is the same amount as the maximum salary for a single, non-designated player.)

Recently, MLS instituted the Young Designated Player Initiative in order to encourage teams to invest in young talent instead of only pursuing older/established stars. This designation incentivizes MLS clubs to acquire and develop young, overseas players because their full salaries don’t count toward the salary cap. Under that provision, if a player is under 20 years old, only $150,000 of his salary is counted against the team’s budget; if the player is between the ages of 21 and 23, a total of $200,000 is counted against the budget. Players signed to Young Designated Player contracts over the last few seasons include Fabian Castillo at FC Dallas and Erick Torres at Chivas USA (RIP), both of whom have developed into young stars. Each team has two DP slots and has the option to “buy” a third slot for an annual fee of $150,000. DP slots cannot be traded between clubs, and teams are under no obligation to utilize them.

How MLS clubs sign these DPs can vary. The most common method is via the Allocation Ranking List, which comes into play when a designated player is new to MLS. This is the method by which most big name DPs come into the league, for example David Beckham joining LA Galaxy, Thierry Henry going to the NY Red Bulls, and more recently, Toronto FC’s signing of Sebastian Giovinco and Orlando City acquiring Kaka.

A DP can also be a player who re-signs with a team he’s already been playing for, which most often happens to keep some of the better MLS players in the league. Matt Besler (Sporting Kansas City), Graham Zusi (Sporting Kansas City), and Omar Gonzalez (LA Galaxy) all saw their stocks rise after winning MLS Cups with their clubs and playing large roles for the US Men’s National Team in the 2014 World Cup. As interest from clubs in foreign leagues increased, Besler, Zusi, and Gonzalez were all signed to DP contracts by their respective teams, keeping their salaries competitive with what they would have made elsewhere.

Finally, a more opaque avenue for a club to sign DP is via the somewhat mysterious discovery process. We’ll address this in another section.

Allocation Money

On top of the designated player process, MLS also doles out allocation money ($150,000/team) to aid in keeping the league competitive. This money is not counted against the salary budget and is given out according to three guidelines: 1) if a club fails to make the playoffs, 2) if a club has a player transfer outside the MLS, and finally, 3) if a club qualifies for the CONCACAF Champions League, a tournament featuring the best teams from all the leagues in North and Central America.

Allocation money can be used to sign players new to MLS—meaning any player who did not play in MLS during the previous season—to re-sign players currently on a team’s roster, or to “buy down” the amount that a player’s salary counts against the cap. (In the last instance, it would typically be used to bring a salary above the $436,250 cap max to that level and save the team from having to use a DP spot). For example, if Atlanta United FC were to sign Benny Feilhaber in 2017 and agree to pay him $600,000, they can use allocation money to have his salary count for $436,250 against the cap.