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What does adoption of training compensation, solidarity payments mean for MLS?

The North American player development landscape has changed significantly with the announcement that MLS, as of April 12, will begin adhering to FIFA's Regulations on the Status and Transfer of Players (RSTP). That means MLS teams will be allowed to start collecting training compensation and solidarity payments for the first time in its history.

Of course, as with anything related to MLS and FIFA, the particulars can get complicated in short order, so here's a quick Q&A as to what took place, and what it means.

What is RSTP, and how do training compensation and solidarity payments fit into it?

RSTP is a set of regulations that FIFA uses to help govern the eligibility and movement of players across the globe. One element of RSTP is for clubs to be compensated for training and development costs if one of their players signs a contract in another country.

In 1995, the rules were forced to undergo an overhaul. The European Court of Justice ruled that because of existing law that allowed for freedom of movement of workers in the European Union, European clubs could no longer charge a transfer fee for players whose contracts had expired. The impact of the so-called Bosman decision -- after the player whose case sparked the ruling -- was significant. Not only did this allow for greater freedom of movement for players, but smaller clubs in the business of developing players were now deprived of a critical source of revenue.

FIFA attempted to reach a compromise through new regulations, and introduced two mechanisms to help compensate clubs for development costs. These took the form of solidarity payments and training compensation.

Solidarity payments are paid whenever a player is transferred to another club prior to the end of their contract, and that transfer involves moving to another country -- a "change of association" in FIFA parlance. Five percent of the transfer fee is paid to the youth clubs responsible for the player's development between the ages of 12 and 23. The rules also stipulate that when a player signs their first professional contract with a club, and that club operates in a foreign country, the professional club is obligated to pay training and development compensation to the youth clubs that developed the player between the ages of 12 and 21. Training compensation is also due when a player is transferred to a club in another country up until the season of his 23rd birthday.

How much money are we talking about?

In the case of training compensation, FIFA spells out how much can be charged. It categorizes clubs in each confederation from Category I to Category IV. It will be up to the U.S. Soccer Federation (USSF) and the Canada Soccer Association to determine what categories its clubs will be placed in. If a 17-year-old had spent six seasons at an MLS academy and then signed a professional contract with a Category I club in Europe, the training compensation would be computed as follows. Between the ages of 12 and 15, every club would be considered Category IV. That would amount to €40,000. For the final two years the total would €180,000, making the total cost €240,000, or around $247,000 paid to the MLS club.

In era of multi-million-dollar transfer fees, that might not seem like much, but it's not peanuts either, and it adds up over time as more players move. It also serves as an incentive for MLS teams to continue with their academy programs.

Schalke's American midfielder Weston McKennie was the hero vs. Lokomotiv Moscow with an 88th-minute winner.
Weston McKennie's move from FC Dallas to Schalke 04 would now be subject to training compensation and solidarity payments.

In the case of solidarity payments, the cut is obviously dependent on the size of the fee, which is prorated across all the clubs the player played with based on how long they were there. In the case of Christian Pulisic's $73.1 million transfer from Borussia Dortmund to Chelsea, one of his youth clubs, PA Classics, stood to make, at minimum $548,000. For a youth club, that is a considerable windfall, although PA Classics told ESPN FC last year that it wouldn't seek any solidarity payments related to Pulisic's transfer. Obviously, not every fee is that large, but solidarity payments can easily exceed $100,000.

Okay, so why wasn't MLS adhering to some elements of RSTP?

Basically, because the USSF said it couldn't. As for why the USSF was opposed, its rationale has shifted over time. For years, the USSF contended that a consent decree contained in the case Fraser vs. MLS -- which stipulated that MLS would not require a transfer fee to be paid for out-of-contract players -- prevented it from enforcing RSTP, although it eventually moved away from that reasoning. Other reasons offered up were that RSTP violated U.S. child labor laws, or that adhering to RSTP would result in litigation on anti-trust grounds from various stakeholders opposed to training compensation and solidarity payments, such as the MLS Players' Association.

The USSF contends that a meeting of stakeholders in 2015, opposing viewpoints among youth clubs, professional leagues, and players' unions left it caught in the middle.

"Since that time, U.S. Soccer has maintained a position of neutrality on the issue of training compensation and solidarity payments and, accordingly, will not be a party to enforcement of those regulations," the USSF spokesperson told ESPN FC.

The spokesperson later added, "We will, however, continue to pass through any claims made by clubs as required by FIFA regulations. This position remains the same regardless of the affiliation of the club making the claim."

In MLS' early years, the lack of training compensation/solidarity payments wasn't an issue. MLS almost exclusively acquired players from abroad who were out of contract, and considering no fee was involved, no solidarity payments were required either. And when its players were transferred abroad, MLS was allowed to pocket the 5 percent that was supposed to go towards solidarity payments.

Was there ever any pushback?

Indeed, there was, although not from MLS. Youth clubs operating outside of the MLS circle, but who in some cases were part of the USSF Development Academy program, saw players they developed -- like Clint Dempsey and Michael Bradley -- being sold for millions of dollars in transfer fees, but no solidarity payments were being sent their way. So the clubs in question began demanding from the USSF their cut of the funds.

This didn't go over well with the USSF, who in one instance threatened the Dallas Texans -- one of Dempsey's youth clubs -- with expulsion from USSF-sanctioned events if it continued to seek solidarity payments. The youth clubs also dispute the USSF's statement that it was neutral on the issue, contending that the USSF was an impediment after 2015.

Some clubs were undeterred, and eventually took their case to FIFA's dispute resolution chamber. The cases included those related to transfers involving Bradley, Dempsey, DeAndre Yedlin, Alejandro Bedoya and Rubio Rubin.

So what happened with those cases?

For years they were mired in red tape and delays, but in recent months a few cases have been ruled upon. The Dispute Resolution Center (DRC) ruled against the Dallas Texans in a case involving Dempsey's transfer from Tottenham Hotspur to the Seattle Sounders in 2013, as well as Sockers FC Chicago's claim for payment related to Bradley's transfer from AS Roma to Toronto FC in 2014. A ruling in the case involving Crossfire Premier's claim to funds involving Yedlin's transfer from Seattle to Tottenham in 2015 should be made public any day now. The rest are still waiting to get on the DRC's docket.

Lance Reich, the lawyer representing several youth clubs in their attempts to receive solidarity payments, welcomed MLS' decision.

"The youth clubs have always been in favor of the MLS academies seeking training compensation and solidarity fees for its players who transfer internationally," he said. "The MLS spends valuable resources developing players just like the youth clubs. Hopefully, this can start a meaningful dialogue on what we can do within the U.S. for developmental fees for both men and women."

So what changed for MLS?

Basically, this is about money. Back in 2006, MLS decided to allow its clubs to begin signing its own academy products without exposing them to the draft, and its investment in youth development increased to the point where it was spending tens of millions of dollars a year on its academies. A problem soon arose, however. As MLS academies matured, they started developing players that attracted interest from foreign clubs. The fact that no training compensation would need to be paid to acquire MLS academy products made the players cheaper to acquire, and thus even more attractive. In recent years the MLS academy system has been bleeding players at an increasing rate, with the likes of Weston McKennie, Sebastian Soto, Ulysses Llanez and Alex Mendez all forgoing MLS contracts and opting to head overseas.

So everybody wins in this, right? Nobody is against this?

Nope. The MLS Players' Association is dead set against the whole concept of training compensation/solidarity payments, calling it "a tax" that could result in scuttling potential deals. Player agents aren't enamored with the system either, especially the training compensation part. A player heading to Germany on a modest $60,000-a-year contract might soon see the costs associated with the deal quintuple in size if training compensation is applied.

So rather than take a chance on an American player, a German club might prefer to look to someone from the European Union who is more familiar with the culture and will adapt quicker. The ensuing years will reveal if this is the case.

MLS would have no problem with this of course, as it increases the chances that it could hang on to its academy products. It's possible that a club can waive all or part of the training compensation, but that kind of defeats the purpose.

In a statement given to ESPN FC, the MLSPA made its position clear, calling MLS' decision "a step backward" that would inhibit player choice by limiting opportunities to play abroad.

"The MLSPA strongly supports youth development, but we do not believe that placing the burden solely on players to fund it is a sensible approach," the MLSPA said. "A levy on professional clubs and/or the Federation that is unrelated to individual player transactions would spread that burden across the industry, which would be a far better approach to funding development."

The MLSPA also accused MLS of cherry picking which FIFA regulations to follow, and adhering to only those that benefited the league financially.

"The fact that training compensation and solidarity payments are paid elsewhere in the world under applicable FIFA regulations is an indefensible justification for this change," the MLSPA added. "MLS routinely ignores regulations that protect players under contract with MLS -- like those requiring guaranteed contracts, prohibiting unilateral options and limiting the length of contracts -- yet is now attempting to rely upon these same regulations to limit opportunities for players in youth academies.

"We will review these changes, including the Consent Decree entered into by the U.S. Federation on this subject, and will explore all of our options with other stakeholders."

Didn't the MLSPA threaten to sue the USSF over this?

Numerous reports have said as much, although MLSPA executive director Bob Foose recently told ESPN FC that the union has no intention of suing anybody as it relates to this issue.

Will MLS have to retroactively pay out training compensation and solidarity payment claims?

MLS' approach is to only enforce training compensation and solidarity payments for transfers after April 12, 2019. However, there is nothing to stop a club from filing a claim with the DRC -- like Crossfire has done -- in a bid to recoup the funds it feels it is owed.

So this is all well and good for MLS teams. What about the rest of the youth clubs in the U.S.?

Much rests on the Yedlin decision. It has been speculated that the Bradley and Dempsey cases fell apart over insufficient record keeping by the USSF, in that the "player passports" for Bradley and Dempsey make no mention of the youth teams they played for. Without that documentation, FIFA's DRC couldn't make a payment, or so the thinking goes. Yedlin's player passport is more complete. If Crossfire prevails, then the path forward for future cases is to make sure that that documentation of a player's history at youth level exists.

There are also concerns about the pay-to-play model utilized by the vast majority of U.S. youth clubs, and that this might violate the spirit of RSTP. If Crossfire's claim is denied then that doesn't bode well in terms of training compensation/solidarity payment claims for youth teams operating outside of MLS.

What will this do to the pay-to-play system in youth soccer?

The vast majority of MLS academies are already free, so this decision won't have any impact there. If youth clubs outside of MLS are able to obtain training compensation or solidarity payments, there will be a benefit in that more money will be pumped into the system. But the U.S. is a massive country with thousands of clubs, so the funds obtained from training compensation and solidarity payments, while helpful, will not be enough to end pay to play.

Is this as much of an issue in Canada?

No, because the Canada Soccer Association has allowed its teams to collect solidarity payments. This was true for the Vancouver Whitecaps when Alphonso Davies was sold to Bayern Munich. Besides, it is MLS that is now adhering to FIFA rules, so any disputes would have to be taken up with FIFA's DRC, and not with the CSA.

What about domestic transfers?

RSTP doesn't apply to domestic transfers. While the USSF or CSA can implement their own system for domestic transfers in the future, there is nothing on the books at this time, that said, as I detail below, that could change.

Won't the cost of foreign players go up now? How will that impact the salary cap?

That seems likely, especially if there is a training compensation component. Going forward, signing a player like Atlanta United's Julian Gressel, who grew up in Germany before playing collegiately and signing his first pro contract with MLS, may involve paying training compensation. If that's the case, the acquisition cost will be applied to a team's salary budget. The same seems true for young Designated Players, who by definition are under the age of 23.

MLS takes a cut of all transfer fees. Will that be the case here?

No. The MLS club that developed the player will get to keep 100 percent of the training compensation and solidarity payment to which it is entitled.

So what happens next?

There are developments on two fronts. First, FIFA's Stakeholders Committee, chaired by CONCACAF president Victor Montagliani, is aiming to expand the number of transfers that qualify for solidarity payments. Currently, if a Weston McKennie transfers to another team in Germany, that will not trigger a solidarity payment. Montagliani is hoping to include such transfers going forward, and he told ESPN FC that he hopes the Stakeholders Committee will be in a position to make some announcements in the next two to three months.

Second, Todd Durbin, MLS executive vice-president of player relations and competition, told ESPN FC that MLS, in conjunction with various stakeholders, is looking to develop a domestic version of training compensation and solidarity payments.

"What is going to happen is that we will be having conversations here domestically to figure out whether or not that makes sense," he said. "And if it does, how to construct something like that.

"What we're focused on is that whatever we do, we are increasing the quality of the development opportunity, increasing the number of development opportunities, and developing the players to a higher level. Part of that is a discussion of what role a domestic-based system would play in that."

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