Q&A: Training Compensation and Solidarity Payments

In April, MLS announced that it would begin to seek training compensation claims and solidarity payments on all international registrations and transfers of its academy players. Since then, there has been heightened discussion surrounding the topic and questions about the MLS Players Association's position on the issue.

Executive Director Bob Foose recently sat down to outline the PA's position, explain the impact these payments have on players, and address some common misconceptions.

What is the position of the MLS Players Association on training compensation and solidarity payments?

The role of the Players Association is to represent players. Our position on training compensation and solidarity payments is simple: we oppose both of these systems because they are bad for players.

Our opposition to the implementation of training compensation and solidarity payments in North America has been public since the U.S. Soccer Federation requested our comment in 2015. As public dialogue has increased because of transfer activity, a changed public position by MLS and recently decided FIFA DRC cases, we would like to reiterate both our stance and the reasoning behind it. The main components of our opposition are as follows:

• These systems were implemented by FIFA without player approval, and were designed to aid owners and club boards, not players.
• When viewed through the lens of literally any other employment or industry, it is readily apparent how misguided and unfair these systems are.
• Payments under these systems are distributed arbitrarily, without any analysis of the quality of the organizations to which they are distributed, either before or after the receipt of such payments. Thus, these systems will have a negligible impact on the quality of youth development.
• The implementation of these systems will reduce opportunities and pay for players.

In the simplest terms, what are the consequences of these systems for players?

To put it as simply as possible in economic terms, training compensation and solidarity payments make it more difficult for players to enter into certain new professional contracts and to complete certain transfers. At the most basic level, both solidarity payments and training compensation are transactional taxes. Since taxes increase costs, the transactions involved become more difficult to close because the taxes reduce the amounts available to the parties to the transactions.

What impact will this system have on North American players?

The imposition of a tax on U.S. and Canadian players signing contracts abroad will significantly reduce the number of opportunities for many of these players, since they will add an enormous percentage (sometimes up to ten or more times the salary being offered) to the costs of signing these players. Domestic player agents, who know this better than anyone, have confirmed how much more difficult it will be for young North American players to find jobs in Europe.

Who pays the taxes?

The tax paid for both training compensation and solidarity payments is not literally paid by the player. This does not mean, however, that the player does not bear any of the cost. When additional costs are added to any transaction, the for-profit entities involved may decide to abandon the transaction (in this case meaning that a player loses out on a job opportunity). And if the transaction proceeds, the for-profit entities involved will work very hard to find ways to pass those costs along to others; for clubs, in many cases that means by paying players less.

Are there other examples of similar tax systems in North America?

No. Consider the following scenario: a talented linebacker receives a full scholarship to play football at his local private high school, spends two years on a full scholarship at his local junior college, and then his two final years on another full scholarship at his state university.

The linebacker is drafted in the fifth round of the NFL Draft. Would it be acceptable in this situation for the prep school, junior college and/or state university to demand compensation when the linebacker lands his first job? What if the compensation demanded was eight or ten times the salary that the player was being offered? This would almost certainly have a negative impact on his chance to go pro and make a living. This will be the impact of the training compensation and solidarity payment systems on young U.S. and Canadian players.

Do players consent to these taxes?

Typically, no and even if they do, that consent is clearly coerced. Training compensation claims begin to accrue when players are 12 years old. Even if these players are informed of this tax on their future career earnings (which they typically are not) they are far too young to give legal consent. We have learned that players in MLS youth academies are being told that they will be cut from their teams if they don’t sign a document agreeing to these schemes. In one case shared with us, academy players were put in a room and told not to come out until they signed the form. In other cases, players who refused to sign were immediately cut from their teams, leaving them with nowhere to train or play in the middle of their season. In that atmosphere, any consent granted is very clearly coerced. As a result, the enforceability of MLS’s “consent” forms is questionable at best.

Are these systems legal?

We have long believed that the implementation of these systems constitutes an unlawful restraint of trade under U.S. antitrust laws. Counsel for the U.S. Soccer Federation has raised the same concerns on multiple occasions.

Why has MLS changed its position on these systems?

Two reasons: to decrease competition and to generate revenues. MLS and SUM are for-profit enterprises. As the leader of both enterprises, Don Garber’s responsibility is to make the owners of MLS clubs as much money as possible. MLS’s recent public change in its position on this issue has come about because its leaders now believe (1) that the net impact of the implementation of the training compensation and solidarity payment systems in the United States will provide the league with more net benefit (2) than costs (3).

Not every training environment fits every player. Thus, players develop best when they have choices on where they play. Players who have left MLS academies and signed elsewhere have done so because they found a training environment that was better for them. The response from MLS academies ought to be to focus on how they can compete more effectively to keep players. Instead, through these FIFA systems, MLS’s response has been to try to eliminate the competition altogether. This won’t make MLS academies better and it certainly won’t make players better.

1. This is primarily because of the advent of MLS youth academies.
2. The benefits are both a reduced ability for players to leave their academies and cash payments if and when they still do.
3. The costs are cash payments owed when MLS sells players internationally and purchases international players.

Are international clubs “stealing” players from our youth clubs?

No. The vast majority of the youth clubs in the U.S. and Canada do not have a professional option for players. So those players would be leaving the club no matter what. Those youth clubs that do have a professional option for players already have every opportunity, and a clear advantage, in signing them.

Is MLS only seeking training compensation and solidarity payments for players who its clubs truly tried to sign?

Not necessarily. MLS is seeking these payments in any case in which any offer has been made to the player involved.There are no requirements as to when such an offer must be made (an offer could and often will be made only once the club learns that the player is close to signing abroad) or whether or not the offer is on terms that the player would rationally accept. Thus, the offer could be for far lower compensation than the player would receive from a club abroad without the threat of MLS trying to collect training compensation. Further, the contract offered could exceed the number of years allowed by FIFA, since MLS conveniently ignores (without consequence) those regulations that would actually benefit players.

Will the collection of training compensation and solidarity payments eliminate the “pay for play” system currently in place in most of the U.S. and Canada?

No. In 2018, a total of US$120M in solidarity payments and training compensation was collected worldwide, with an additional US$20M claimed but disputed, so uncollected. There are no verified numbers on the revenue collected through pay for play in the U.S. and Canada, but estimates range from US$1 billion to US$4.5 billion annually. Even if U.S. and Canadian clubs and academies were given all of the amounts generated under these systems worldwide, it would only amount to a tiny fraction of what it would take would take to eliminate pay for play. Thus, the amounts involved in these schemes will have no impact whatsoever the pay for play system in North America.

Even if players were to consent, do these systems make any sense as player development subsidies?

No. Consider the following scenario: instead of training compensation, an annual sum of $2M is made available by Federations to spend to support player development in the United States and Canada. There are roughly 200 clubs that are part of the U.S. Soccer Federation’s Development Academy and probably another several hundred clubs in the U.S. and Canada with youth teams and academies playing at a fairly high level. So imagine that the two Federations decided to distribute this year’s money as follows: (1) $1,250,000 to Club 1; (2) $500,000 to Club 2; (3) $150,000 to Club 3; (4) $100,000 to Club 4; and (6) $0 to each of the remaining 496 clubs. Is this a rational development system? Would this distribution have the biggest impact on player development? Would it have any real, lasting national impact in either country? The answer to each of these questions is obviously a resounding no, and the actual FIFA training compensation system currently in place is just as arbitrary.

The level of solidarity payments due is based entirely on transfers. Thus, a second or third division player who changes teams multiple times in his career will generate substantially more of these fees than a first division player who moves less frequently.

These systems only apply in the case of international transfers. As a result, a youth team or academy that produces one professional player would receive fees if that player moves abroad. On the flip side, a rival club that produces 25 MLS and USL players over the same time period would receive nothing at all.

Further, because transfer fees vary wildly by position, a striker will generate far more of these fees than several defenders. Is a youth club or academy that develops one international striker doing a better job at development than one that develops several international defenders? Of course not. But that’s how these systems work.

In short, these schemes involve no qualitative analysis of the youth clubs and academies that they reward. Due to demand for different positions, the number of potential transfers for a player over the course of his career, and the fact that they only apply to international transfers, these schemes fail to correlate the money being distributed with the quality of the development system.

How much money are we talking about?

Training compensation can be as much as just over $650,000 for a single player, based on the current exchange rate (rates are set in Euros, not U.S. dollars). Solidarity payments are equal to 5% of the transfer fee paid for any player transfer.

How are these fee levels set?

They were set by FIFA when this system was adopted, supposedly based upon the general level of play in the region.

How do these fees relate to the actual costs incurred by the clubs?

They don’t. Club fees and other costs for a player on a high level team at a youth club in the U.S. or Canada are typically $5,000 to $7,500 per year. FIFA’s training compensation scheme provides youth clubs with up to €90,000 (currently over $100,000) in annual compensation for a player. In fact, FIFA explicitly notes that it is intended to cover not just the cost of training that player, but also the cost of training other players at the club. Thus, the annual training compensation being charged by clubs can be substantially higher than the cost of an Ivy League education.

How will the youth clubs spend the money?

Despite periodic claims to the contrary by some clubs, there is neither a requirement nor any reason to believe that youth clubs that receive these payments will use the money on player development. In fact, the most logical assumption would be that these clubs would use the extra money in roughly the same proportion that they structure their existing budgets. Thus, it’s likely that only a very small percentage of the money will actually be spent on scholarship programs.

Why do some non-MLS youth clubs want to claim training compensation and solidarity payments?

The answer is as straightforward for these clubs as it is for MLS: they want the money. Youth clubs are both for-profit (typically when connected to professional teams) and non-profit (typically when not connected to professional teams). Either way, they spend a great deal of their time trying to grow their revenues. For clubs seeking to utilize these schemes, they are just an easy way to increase revenues without consequence to the club and regardless of the consequences to their players.

Given that this is a FIFA system that is in place in the rest of the world, shouldn’t we adopt it too?

Just because this system has been implemented by FIFA doesn’t mean that it makes any sense. These systems were not built with the North American system in mind, nor were they implemented in order to help players. Plenty of well-intentioned people work hard and do good work within its orbit, but at the end of the day, FIFA is concerned with generating as much money as possible for itself and its individual national associations. It’s hasn’t been about the game and it certainly isn’t about the players. Players at every level are forced to scratch and claw for everything they get. It should be clear to all at this point, especially given the events of the last few years, that an argument in favor of anything “because FIFA does it” should be viewed with enormous skepticism.