GUEST POST BY:
CHRISTIAN HAMBLETON &
MICHAEL K. WHEELER

This article aims to educate US youth soccer clubs on the FIFA training and solidarity payments, highlight the structural, cultural and legal obstacles in US youth soccer, and lists the high-profile example of training compensation and solidarity payments that could have been due to US youth clubs that trained Jozy Altidore.

US Youth Soccer Landscape

US Youth Soccer counts more than 5,550 clubs as its members, and as of 2012, the US youth soccer landscape has over 3,000,000 boys and girls participating in soccer. In 2007 the United States Soccer Federation (USSF) formed the US Soccer Developmental Academy League (Development Academy). Selected clubs joined the youth teams of each Major League Soccer (MLS) team to form a league with two separate age groups, U-16 and U-18.  As of the 2012/13 season, the Development Academy has expanded to include a U-13/14 league.

A majority of the teams in the Development Academy and at the lower club level operate their clubs according to the pay-to-play method.  For example, Player Development Academy (PDA) in Zarephath, New Jersey, charges a player fee of $1,200.00 a year, which can balloon to almost $2,200.00 when travel, lodging, and meals are accounted for. The annual costs for a MLS Developmental Academy team to operate its U-16 and U-18 teams are around $600,000 per team.

The second option for teams is to adopt the “scholarship-model” in which the team waives player fees. All 19 MLS teams have a youth team in the Development Academy, and because of their affiliation with the respective pro MLS team, players on the Development Academy team get their player fee waived. Regardless of a players’ socioeconomic background, these youth academy teams operating under the scholarship-model will cover all of the players’ expenses including travel, lodging and meals on trips, uniforms, training and facility costs, and Development Academy fees.

FIFA Regulations Compensating Youth Clubs in ROW

Professional soccer clubs and youth soccer academies that produce future pro soccer players depend upon the world governing body of soccer, FIFA, to enforce and reward these clubs that have invested significant resources in training players through a system based on two FIFA mandated compensation systems “Training Compensation” and “Solidarity Mechanism.”

Training Compensation is due according to Article 20 of the FIFA Regulations on the Status and Transfer of Players when the following two occasions occur:

“Training compensation shall be paid to a player’s training club(s): (1) when a player signs his first contract as a professional and (2) each time a professional is transferred until the end of the season of his 23rd birthday.”

To calculate the amount of Training Compensation due to the youth club is largely based on multiplying the numbers of years that the player was at the youth club by the cost per year to develop a pro player at the professional club.  According to Annexe 4 of the FIFA Regulations on the Status and Transfer of Players, the cost per year to develop a pro player at the professional club is determined by the category of the professional club within the applicable Confederation and FIFA sets out the specific costs on a schedule.

The second system for the compensation of a youth club that has developed a pro player is the “Solidarity Mechanism.”  A youth club receives “solidarity contribution”:

“If a professional is transferred before the expiry of his contract, any club that has contributed to his education and training shall receive a proportion of the compensation paid to his former club . . . .” Article 21,  FIFA Regulations on the Status and Transfer of Players.

Every transfer fee paid by an acquiring professional club, 5% of the total transfer fee is set aside, and then according to a schedule set forth by FIFA listing the participations to be received for every year that the player was in training, these participations are distributed to the various youth clubs where the player trained

Child Labor Laws

One significant reason why American youth clubs have not received compensation for their development of players that go overseas to play pro is because of the assumption in some soccer circles that such a practice would violate child labor laws. The 1938 Fair Labor Standard Act (FLSA) explicitly prohibits, amongst other things, the employment of children under the age of 16. Two of the threshold issues in evaluating whether player compensation would violate the FLSA are determining whether the player is considered to be “employed” by his youth club team and whether playing soccer constitutes “work” as proscribed under the statute.

Employment

Youth soccer players, whether playing for Development Academy team or club teams, are apprentices and learners who are trained by their coaches. The club gets no immediate advantage from the players’ skill and playing ability. Neither the coaches nor the club are paid for winning games or winning the Developmental Academy National Championship. The compensation that club teams would receive is a retroactive payment for the training and development of their player(s) that are playing pro overseas. Player compensation is an example of an implied agreement that is not explicit in the forms players sign before becoming a member of a club. The implied agreement, which the club would benefit from when the player signs a professional contract, does not mean the club employs the player nor can a player be qualified as an employee. Also, players who finish their playing career with their club team are not guaranteed the opportunity to play pro. The players “enter a pool” of potential players who would like to play pro soccer. They are not guaranteed a pro contract once they are done playing at the U-18 youth soccer level.

Work

“Work,” as defined in the FLSA, was not meant to include playing youth soccer. Players at Development Academy teams and lower club levels play soccer for their own benefit, whether it is to play pro soccer, play in college, or just to be a part of a team. Players voluntarily sign up to for their club teams either through the pay-to-play model or the scholarship model. It is a voluntary decision on the part of the player whether or not he decides to attend a practice or a game. As long as the player’s decision is voluntary, it is incidental that he develops and hones his skills while at the club’s soccer facility. The Court made it clear that as long as the activity is voluntary, it cannot be considered work, even if there is a benefit to be gained in the process of the voluntary activity. A player also does not expect to get paid when he shows up at a practice or game. The player is attending the activity to enhance his soccer experience compared to playing in his backyard at home. The coaches, facilities, and his teammates will enhance his experience and develop his skills.

US Example of Training Compensation and Solidarity Mechanism

In addition to solidarity mechanism, clubs are also owed training compensation. Two situations cause training compensation to be owed to all clubs responsible for training: 1) every time a player is signed as a pro, 2) every time a pro player is transferred before his 23rd birthday prior to club whether during or after his contract. In the latter, when player is transferred during the contract then the player’s transfer fee would incorporate this “training compensation.”

Below are charts breaking down the payments to Jozy Altidore’s US Youth Club Teams for solidarity payments and training compensation.

Red Bulls to Villareal transfer – $10 million
2001-03 (Boca Jrs. FL) 2003-06 (IMG) 2006-08 (Red Bulls)
2001- $25,000 2003- $25,000 2006- $50,000
2002- $25,000 2004- $50,000 2007- $50,000
2003- $25,000 2005- $50,000 2008- $50,000
Total- $75,000 $125,000 $150,000
Total solidarity payments from the Villareal transfer – $350,000
 

Villareal to AZ Alkmaar transfer – $2.3 million
2001-03 (Boca Jrs.) 2003-06 (IMG) 2006-08 Red Bulls 2009-11 (Villareal)
2001- $5,750 2003- $5,740 2006- $11,500 2009- $11,500
2002- $5,750 2004- $11,500 2007- $11,500 2010- $11,500
2003- $5,750 2005- $11,500 2008- $11,500 2011- $11,500
Total- $17,250 $28,750 $34,500 $34,500
Total solidarity payments from the AZ Alkmaar transfer – $115,000

AZ Alkmaar to Sunderland transfer – $13.0 million
2001-03 (Boca Jrs.) 2003-06 (IMG) 2006-08 Red Bulls 2009-11 (Villareal)
2001- $32,500 2003- $32,500 2006- $65,000 2009- $65,000
2002- $32,500 2004- $65,000 2007- $65,000 2010- $65,000
2003- $32,500 2005- $65,000 2008- $65,000 2011- $65,000
Total- $97,500 $162,500 $195,000 $195,000
Total solidarity payments from the Sunderland transfer – $650,000

Example A – Training compensation if Altidore had signed initially w/foreign team[1]
2001-03 (Boca Jrs.) 2003-06 (IMG)
2001-  $2,000 2003-  $1,000
2002-  $2,000 2004-  $2,000
2003-  $1,000 2005-  $40,000
Total training compensation due $48,000

Example B – Training compensation for June 2008 transfer to Villareal
Red Bulls
2006- €90,000
2007- €90,000
2008- €45,000
Total training compensation due $125,000 or around $160,000[2]
Total solidarity payments and training compensation for Altidore – Over $1,115,000

Training compensation was enacted by FIFA to prevent mainly European clubs from signing youth players from poorer clubs outside of Europe without compensating such clubs for developing the players. The issue of pillaging another country’s players is no longer a tactic used solely by European clubs. Mexican teams have now begun to pluck Mexican-American players from US youth teams without the proper compensation.

Mexican-American players are attractive to Mexican scouts because they are so cheap to sign as a result of many of them not being signed to professional contracts in America. These scouts have taken advantage of the flaws in how the USSF youth soccer system is run and the lack of any clear directive from the USSF on training compensation and solidarity rules. In America, any youth player playing for a club can be lured by a Mexican team or European team, and can be signed for free without the professional club having to compensate the US Youth Club for training compensation. The idea of MLS youth academies and the concept of the Homegrown Player Rule are developing slowly, but MLS Academies are restricted from actively competing and protecting their talent pool in the worldwide market for players because of MLS rules such as the geographic restrictions for players. MLS requires a Homegrown Player to have played at least 1 year in the MLS Academy and to live within a 25-mile radius of the location of the MLS team. In addition, any youth soccer player in America remains free to leave the US and sign with any pro team he desires without the pro team having to compensate the youth academy from which the player came from.

With respect to US Youth Clubs, the onus is on the clubs to take action on the solidarity mechanism and training compensation rules of FIFA so that they receive the money they are entitled to. One suggestion to limit the chaos and confusion that could ensue is that Youth Clubs can only receive payment for players who were on scholarship while playing for the club. Such a rule would make things easier for practical purposes, and fit within the means of the regulations. A club needs to have a record of the players they are paying for to easily access claims to FIFA if training compensation and solidarity payments are due. There is a statute of limitations for FIFA claims of 18 months, and thus, organization and record-keeping are vital. Furthermore, if a Club is going to invest its own money into the development and soccer education of a player, it should receive compensation if the player goes pro. The Club does not invest as much money into a pay-to-play player, and therefore, compensation would probably not be given if a club submitted a claim to FIFA.

MLS requires a Homegrown Player to have played at least 1 year in the MLS Academy and to live within a 25-mile radius of the location of the MLS team.

Conclusion

With respect to training compensation owed to teams that have developed players in the U.S. and are signed to MLS or other pro teams, the USSF is responsible for any disagreements regarding training compensation, solidarity payments or disputes over the transfer of the player’s registration.  The player’s registration and proper documentation of the player’s time spent at the youth clubs are central to whether a youth team could receive the potential payments cited above for Altidore, which totals more than $1.1 million. With recent wins over Mexico and Italy, the US has demonstrated that it harbors the talent to compete with the World’s best. As a result, more and more foreign teams and scouts have been tapping into the talent pools at US Academies. Youth clubs here should be aware of and educate themselves on the FIFA systems that compensate clubs for developing the next generations of pro players.

 

–Christian Hambleton & Michael K. Wheeler


[1] The example assumes that the foreign team signing Altidore is in the same FIFA training compensation category.

[2] Assuming a conversion rate of US$1.28 to €1.00.


About the Authors

Christian Hambleton is a 2014 graduate of Seton Hall Law School and a 2010 Cum Laude graduate of Davidson College. Mr. Hambleton was an assistant soccer coach at St. Benedict’s Prep before attending law school, where he helped lead to the team to its seventh national championship in 2011.

Michael K. Wheeler, Esq. is Counsel at di Santo Bruno LLP in New York, New York and is the founder of his own sports agency, MAE Agency LLC. His law practice is focused on corporate securities and sports and entertainment law.

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3 Responses to Guest Post: Are U.S. Youth Clubs Leaving Money on the Table?

  1. Damon James says:

    First off, great article. More people – clubs in particular – need to know about this issue. Training Compensation and the Solidarity Mechanism only reimburse a club’s actual costs spent training and developing the player. For this reason, a player receiving any form of subsidy from the club to cover his playing costs should in theory allow the club to collect training compensation. This may not add up to much money for clubs at the moment, but with more and more money flowing into the game it will eventually and the hope is that money is further reinvested in player development, creating a positive feedback loop.

    The issue is that with any international transfer the FA (USSF) is responsible for issuing the player’s transfer certificate to the new FA and meanwhile enforcing Training Compensation and Solidarity claims. But the trick is the FA may not have to enforce this rule if it violates domestic laws, so in my opinion to avoid this obligation, USSF takes the position that any form of compensation for development is unlawful and therefore they do not need to enforce Training Compensation or the Solidarity Mechanism. As the authors point out, Child Labor is one of the excuses bandied about, but it’s not correct. I’ve even heard MLS Academy Directors talk about non-profit law as the barrier, which is also incorrect. The regulations are permissible in Canada and their laws are about as close to ours as you can get.

    From a legal perspective, if you look at Mackey v. NFL, 543 F.2d 606, ruling on an antitrust violation by the NFL involving player restraints (which is what Training Compensation, Solidarity and all forms of transfer rules are by nature), the court noted: “the asserted need to recoup player development costs cannot justify the restraints [of the NFL rule]. That expense is an ordinary cost of doing business and is not peculiar to professional football.” Other courts have agreed with this principle regarding a few other US pro sports, but not yet with soccer, which as you all know has an entirely different system of developing young players that is more akin to MLB than the NFL. There are few law reviews articles suggesting that such reimbursement for development fees would be fine in the MLB context.

    There’s far more going on than USSF makes public, most likely to keep clubs uninformed, but if you contact them they may just fill you in.

  2. Clint Irwin says:

    Fascinating article and great conclusion. A couple questions relating to this passage:

    “With respect to US Youth Clubs, the onus is on the clubs to take action on the solidarity mechanism and training compensation rules of FIFA so that they receive the money they are entitled to. One suggestion to limit the chaos and confusion that could ensue is that Youth Clubs can only receive payment for players who were on scholarship while playing for the club. Such a rule would make things easier for practical purposes, and fit within the means of the regulations.”

    What would the rule be that clubs can enact and who binds clubs, and federations to that rule? If a club singularly decides to pursue this model, can it do so without the USSF?

    • Jon Denham says:

      I’m curious about Clint’s questions as well. The USSF umbrella seems structurally weak – from coaching education, to merchandising, to logistics like Clint mentioned.