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Revisiting FIFA’s Training Compensation and Solidarity Mechanism - Part.1: The historical, legal and political foundations - By Rhys Lenarduzzi

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.

[1] “New club” is the language used in the RSTP.

[2] “[I]n writing via registered post at least 60 days before the expiry of his current contract” per RSTP Annex 4 (6) ‘Special provisions for the EU/EEA’.

[3] RSTP - Annex 4 (3) 3; Annex 5 (2) 3.

[4] Sloane, P. J. (1969), The labour market in professional football, British Journal of Industrial Relations, 7, 181-199.

[5] Ibid.

[6] Established from the decision in Curt Flood v. Bowie Kuhn, et al. 407 U.S. 258.

[7] Case C-415/93 Union Royale Belge des Socie´te´s de Football Association and others v. Bosman and others, ECLI: EU: C:1995:463

[8] Gerrard, B. (2002), The Muscle drain, Coubertobin-Type Taxes and the International Transfer System in Association Football,  European Sport Management Quarterly at 50 – “High Court in England ruled in 1963 that the retain-and transfer system was a restraint of trade. This led to a progressive relaxation of the transfer system with players being given more freedom to move between teams at the end of their contracts while transfer fees remained payable”.

[9] Per Sloane (1969) – “Contracts should have a terminable date and be renewable only on the consent of both parties… The committee did, however, suggest that a special levy should be imposed by the Football League on transfer fees, in addition to the present arrangement and graded according to the size of fee at a progressive rate. This levy could be returned to clubs for the purpose of ground improvements and would thereby tend to offset the tax advantage which clubs derive by signing players, since such payments, unlike the cost of ground improvements, are tax allowable.

[10] Bosman, para 106.

[11] Ibid.

[12] Case C-325/08 Olympique Lyonnais SASP v Olivier Bernard and Newcastle UFC, ECLI: EU: C:2010:143

[13] Ibid para 45.

[14] Pearson, G. Sporting Justifications under EU Free Movement and Competition Law: The Case of the Football ‘Transfer System’, European Law Journal, Vol. 21, No. 2, (March 2015) pp. 222.

[15] Opinion of Advocate General Sharpston in CJEU case C-325/08 Olympique Lyonnais SASP v Olivier Bernard and Newcastle UFC, para 46.

[16] Ibid para 47.

[17] Opinion of Advocate General Lenz CJEU case C-415/93 Union Royale Belge des Socie´te´s de Football Association and others v. Bosman and others, para 239.

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