Editor’s note: Rhys Lenarduzzi is a final semester Bachelor
of Law (LL.B) and Bachelor of Philosophy (B.Phil.) student, at the University
of Notre Dame, Sydney, Australia. As a former professional athlete, then
international sports agent and consultant, Rhys is interested in international
sports law, policy and ethics. He is currently undertaking an internship at the
T.M.C. Asser Institute with a focus on Transnational Sports Law.
In 2019, training
compensation and solidarity contributions based on FIFA’s Regulations on the Status and Transfer
of Players (RSTP) amounted to US$ 75,5 million. This transfer of
wealth from the clubs in the core of the football hierarchy to the clubs where the
professional players originated is a peculiar arrangement unknown in other
global industries. Beyond briefly pointing out or reminding the reader of how these
systems work and the history behind them, this blog series aims to revisit the
justifications for FIFA-imposed training compensation and the solidarity
mechanism, assess their efficacy and effects through a case study of their
operation in the African context, and finally analyse the potential impact of upcoming
reforms of the FIFA RSTP in this context.
First,
it is important to go back to the roots of this, arguably, strange practice. The current transfer system and the legal mechanisms constituting
it were largely the result of a complex negotiation between European football’s
main stakeholders and the European Commission dating back to 2001. The conclusion
of these negotiations led to a new regulatory system enshrined in Article 20 and
Annex 4 of the RSTP in the case of training compensation, and at Article 21 and
Annex 5 in the case of the solidarity mechanism. Before paying some attention
to the historical influences and how we arrived at these changes, as well as the
justifications from the relevant bodies for their existence, let us briefly recall
what training compensation and the solidarity mechanisms actually are.
1.
FIFA’s training compensation and solidarity mechanism:
A very short introduction
Training
compensation is the obligation
of an acquiring/buying/signing/new club to compensate the training clubs of a
player. A training club is considered to be the clubs of the player between the
ages of 12 and 21, though the obligation to compensate continues if either of
the following two instances take place, up until the season of a player’s 23rd
birthday: i) “[A] player is registered
for the first time as a professional” or, ii) “a professional is transferred between
clubs of two different associations…”. The obligation does not arise if a
former club terminates a player’s contract without just cause, when a
professional reacquires amateur status in moving clubs, or when a player transfers
to a category 4 club. Regarding the categories, this is important because the amounts
owed to a training club hinge on where clubs fall within four categories (For
more on the four categories see HERE).
There are some
regulatory differences between the EU/EEA and the rest of the football world. A
significant distinction is that without sufficient justification that it is
worthy of compensation, a former club will not be owed by a “new club”[1] if they have not offered a
contract of equivalent value to the player in question.[2]
The Solidarity
mechanism provisions stipulate that when a player moves to a new club, mid
contract, for a fee agreed between the new club and former club, then 5% of
that fee is designated as a solidarity contribution, and each of the player’s
training clubs will receive a portion. The apportionment varies depending on
what age the player was registered with the training club (further information
on apportionment can be found HERE). This obligation arises when a
player is transferred definitively or on loan, between clubs from different
associations, as well as when a transfer takes place within the same association,
but a training club of the player is affiliated to another association.
For both training
compensation and the solidarity mechanism, the regulations provide that the
national association will instead receive the money when the club owed “has in
the meantime ceased to participate in organised football and/ or no longer
exists”.[3] In cases as such, the
compensation is to be used for youth football development.
Disputes can arise when
the new club does not pay on time or at all, or if there is a disagreement on
the amount owed, as well as when a new club attempts to make the case that a
player has already terminated his training period prior to age of 21. Given
the above explanation of the systems is brief, further detail may be found
within the relevant articles and annexes (see HERE for the full regulations).
2.
A brief history: From the ‘retain and transfer system’ to
the FIFA RSTP 2001
Much of the current framework
is the product of various events surrounding the birth of the regulations in
2001, though the ideas and concepts it captures go way back beyond this time. The
English Football League’s registration system that would go on to be touted as
the ‘retain and transfer system’ dates
back to at least 1893.[4] Both this system and the
American Baseball ‘reserve rule’ system are often mentioned in the same breath.
As Sloane pointed out in 1969: “The justification for the reserve rule and the
retain and transfer system lies in their alleged function in bringing about a
more or less equal distribution of playing talent between clubs, whilst, their
advocates argue, free competition would lead to a concentration of 'star'
players into a few rich clubs.”[5] Both systems were the target of an array of challenges
over the years, though up until ‘free agency’[6] in the case of American Baseball
(much earlier) and Bosman[7]
in football, each system remained largely the same in existence and
justification.[8]
To further emphasise that the issues recognised, and in turn the ideas and
justifications pertinent to the current system are hardly new, the Chester Report of 1969 on the
situation regarding employment and transfers in football in England had
striking similarities to much of what was raised within the European-level negotiations
that lead to the changes in 2001.[9]
With the momentous Bosman
case in 1995, the previously commonplace practice of an out of contract player
being retained and unable to transfer (regardless of that player’s preferences)
was found contrary to EU law. Importantly for the subject of this blog, the
court also recognised that “encouraging the recruitment and training of
young players must be accepted as legitimate”[10] aim, on the basis of which the free movement rights of players could in
principle be restricted. Thus, leaving an opening for a
regulatory system that would support the “recruitment and training of young
players”[11] and restrict free movement in a proportionate
way.
In 1998, the European
Commission decided to open an investigation against FIFA based on competition
law concerns linked to its then applicable RSTP. This decision brought FIFA, UEFA and FIFPro to
the European Commission’s negotiating table to hammer out a compromise that
would satisfy their divergent interests and be compatible with the EU’s
antitrust rules. The regulations as they now stand, aside from some minor amendments,
reflect the outcome of those negotiations. The final press release of the European Commission
concluded that FIFA’s new regulations would have to reflect a set of principles
in order to be deemed compatible with EU competition law. In particular it
accepted that:
- in the
case of players aged under 23, a system of training compensation should be in
place to encourage and reward the training effort of clubs, in particular small
clubs;
- creation
of solidarity mechanisms that would redistribute a significant proportion of
income to clubs involved in the training and education of a player, including
amateur clubs;
These are in fact quite
faithfully transposed in the FIFA RSTP provisions discussed
above. Since then, the Bernard[12]
ruling of the CJEU further clarified that the societal significance of sport,
rendered the incentivisation of training legitimate. In its ruling, the court
specified that in order to comply with EU law, a training compensation system ‘must
be actually capable of attaining that objective and be proportionate to it,
taking due account of the costs borne by the clubs in training both future
professional players and those who will never play professionally’.[13]
This remains the main benchmark that any FIFA training compensation system must
meet in order to comply with EU law.
As we have
shown in this section, the shape of the current FIFA training compensation
system and solidarity mechanism are very much a direct result of the EU’s
interventionism in the regulation of football in the aftermath of the Bosman
case. In doing so, the EU institutions also recognised that the idea of
redistributing funds to compensate the costs incurred by the training club in
instructing a player is a legitimate one.
3. Justifying redistribution: Sharing the costs of training
Why do football
institutions want this system in place and how was it justified? As was alluded
to above, these ideas are not new ideas and are rooted in tradition.[14] Football and its intricacies
have been deemed in need of protection for a long time, at least from within. More
importantly for this blog, there is a desire for wealth to be redistributed in
the form of compensation to the training clubs, to manufacture solidarity
between the different levels of football and to incentivise goals such as training,
education and development. This justification for FIFA’s redistributive systems
is largely connected to the recognition that sport is important for the social
fabric, and that incentivising development and training clubs goes beyond
football and has societal benefits.
These objectives are
reflected in the compromise agreed between FIFA and the EC in 2001. The
latter’s press release emphasised that
training compensation was “to encourage and reward the training effort of
clubs, in particular small clubs“. Similarly, FIFA stated in Circular no. 769; “This system is
designed to encourage more and better training of young football players, and
to create solidarity among clubs, by awarding financial compensation to clubs
which have invested in training young players.” Thus, it is clear that both the
football authorities and the EU institutions recognise that the core aim of the
FIFA’s training compensation and (though less obviously) its solidarity
mechanism are to support the recruitment and training of young professional
footballers. In fact, the CJEU’s advocate general in Bernard later
recognised that training compensation rules “ensure that clubs are
not discouraged from recruitment and training by the prospect of seeing their
investment in training applied to the benefit of some other club, with no
compensation for themselves”.[15] She went on to emphasise
that “there is a broad public consensus that the training and recruitment of
young players should be encouraged rather than discouraged”.[16]
At the heart of these
rationalisations lies the core belief that failing to compensate the club that
has helped a young player grow into a professional player is unfair and would
discourage the club’s future effort to train players. Whether a training
compensation system is necessary to attain such an objective is, however, far
from evident. As was pointed out by advocate general Lenz in the Bosman
case, such objectives could as well “be attained
by a system of redistribution of a proportion of income, without the players'
right to freedom of movement having to be restricted for that purpose“.[17]
Nevertheless, the idea of redistribution between clubs remains the
fundamental policy objective that underpins both FIFA’s training compensation
system and solidarity mechanism.
Concluding remarks
and subsequent blogs
This blog has highlighted that FIFA’s training
compensation system and solidarity mechanism were introduced, after lengthy
discussions with the European Commission and relevant stakeholders, in order to
create a solidarity and redistributive relationship between the club where a
player was trained and the club were a player pursues his
professional career. The core justification behind them is that the training
clubs provide an important educational service and that their work would be
discouraged if they would not be enjoying some economic returns on their
investment (in time and resources) to train players that go on to play
professionally for a bigger/richer club.
While this objective is certainly respectable,
there are, however, questions that remain regarding the adequacy and necessity
of these systems to effectively redistribute funds between clubs. First, one
should always keep in mind that training compensations are restricting the players’ freedom
to move between clubs. Second, as we will see in the coming blog focusing on
African players and clubs, it is questionable whether the current FIFA rules
are in practice achieving their main redistributive function. Third, if these mechanisms are
necessary to encourage training, it is as well remarkable that they are not also
introduced in the context of women professional football, as will be discussed
in our third blog. Finally, my last blog will assess how the coming changes to
FIFA’s RSTP will affect the structure and operation of both the training
compensation system and the solidarity mechanism.