MLSPU lawsuit exposes complexity of youth club compensation
Should a youth club that played a role in developing U.S. international forward Clint Dempsey be able to recoup the money it spent training him, per FIFA regulations?
The U.S. Soccer Federation has long said no, but three youth clubs -- Redmond, Washington.-based Crossfire Premier, the Chicago Sockers and the Dallas Texans -- contend that the answer is yes, and are willing to go to court to stake their claim.
Earlier this month, the clubs filed a class-action lawsuit against the MLS Players Union and three players: Tottenham Hotspur defender DeAndre Yedlin, Toronto FC midfielder Michael Bradley and Seattle Sounders' Dempsey.
The suit aims to settle the question of whether FIFA's regulations on the status and transfer of players (RSTP) are legal here in the U.S., and whether the youth clubs in question can then recoup training fees for its players who later become professionals.
But as is so often the case with soccer in the U.S., matters quickly became complicated. How would this impact the game here in the U.S. in terms of funding player development? Would implementing RSTP do all that is promised, including providing enough revenue to help youth clubs move away from pay-to-play? What are the unintended consequences?
The advent of RSTP and how it works
The U.S. soccer system finds itself in this predicament as a result of two legal decisions. One was the Bosman decision of 1995, which allowed players in the European Union who were at the end of their contracts to move anywhere without a transfer fee being paid.
This put clubs at the player development end of the soccer food chain in a bind. How would they be compensated when a player left if they could no longer charge a transfer fee? In 2001, FIFA, UEFA and the European community agreed upon a framework that included the solidarity payments and the payment for training and development costs in a bid to solve this issue.
The way it works is that when a soccer player signs his first professional contract, the pro club is obligated to pay training and development costs to every club that developed that player between the ages of 12 and 21. Additionally, training and development costs will be paid each time the player is transferred between clubs of two different associations until the end of the season of his 23rd birthday.
"Solidarity payments" come into play when a player transfers to a club before the expiration of his contract. Five percent of the total compensation, not including training costs, is to be allocated to the club or clubs that developed the player. This is spelled out in Articles 20 and 21 in FIFA's regulations on the status and transfer of players (RSTP), as well as Annex 4 and 5 of that document.
The other relevant case was Fraser vs. MLS, which primarily challenged the league's single entity structure but also involved the payment of transfer fees for out-of-contract players. MLS stated it wasn't requiring a fee for such players anyway and promised not to do so in the future.
More critically, the U.S. Soccer Federation went one step further and entered into an agreement with the court that also said it wouldn't enforce out-of-contract transfer fees, even including things like training and development compensation in that definition.
The clubs fight back
As a consequence, the U.S. Soccer Federation has long forbidden U.S. youth clubs from collecting these fees. ESPN FC obtained documents that showed the Dallas Texans attempted to receive solidarity payments for Clint Dempsey as far back as 2008, when the U.S. forward was in his second season with Fulham. That effort was quashed by a terse letter from the USSF.
More recently, three youth clubs -- Crossfire Premier, the Chicago Sockers and the Dallas Texans -- filed a complaint with FIFA's Dispute Resolution Chamber (DRC) in a bid to collect solidarity payments for Yedlin, Bradley and Dempsey. According to the plaintiff's lawyer, Lance Reich, the decision from the DRC could come any day now.
As for the lawsuit, the targeting of the MLSPU by the youth clubs seems a curious tactic given that the union has nothing to do with how RSTP is or isn't implemented. That is the purview of the USSF but Reich indicated the lawsuit was and remains a preemptive strike against the MLSPU, which allegedly threatened to file an antitrust lawsuit if the collection of solidarity payments took place.
All the while, it looked like the three clubs were simply exercising their long denied rights, at least as they were defined by FIFA.
De Bontin states the case for RSTP in the U.S.
Jerome de Bontin is a former club executive with AS Monaco as well as the New York Red Bulls. He's also a staunch believer in the mechanisms FIFA adopted back in 2001.
"U.S. youth clubs need better funding, as do all youth clubs around the world," he said via telephone. "Solidarity and training compensation payments were really implemented to help youth clubs get funding from the professional world, to reach and indirectly contribute to the extent that they help develop players. Most clubs in Europe or all around the world are not that different from what we know in the [United States]."
De Bontin adds that U.S. youth clubs would be incentivized to do even more on the player development front by hiring more qualified coaches and providing scholarships to more players. He also objects to MLS not setting aside the money -- as he puts it, they're "pocketing" the cash instead.
"I can't find any rational reason why this money should stop with [MLS], a for-profit organization which is limited to 20 clubs and has no relationship with youth organizations," he said. "You talk about transparency, you talk about corruption, you try to relate that to all of the issues that have been brought up with FIFA over the past two years. While I'm sure there's some legal situation that needs to be handled that may slow the processes, in the end I have no doubt that people will come to their senses."
Given the number of people who are opposed to the idea of solidarity payments -- in particular payment for training and development costs -- it could be a long wait.
Even those who might be sympathetic to the concept of RSTP are concerned about the potential consequences.
"As the commissioner said prior to the beginning of the season, we have an interest in working with the federation and the youth clubs to determine whether there is a solution," MLS deputy commissioner Mark Abbott said. "There are a number of factors, including the law in the U.S., and what is best for the development of the sport in this country that need to be taken into account."
The arguments for and against are plenty. Some contend that the youth clubs' non-profit status is at odds with the collection of solidarity payments, but the USSF is itself a non-profit. That doesn't prevent it from exploring any and all revenue streams; there seems to be nothing wrong with the clubs trying to do the same. Yet the clubs insist this isn't about money.
Dallas Texans president Paul Stewart said in a statement: "Our actions are not intended to take money from [the players], and are not even primarily about training compensation. Our primary claims are for solidarity contributions, which will normally only be about 2-3 percent of the transfer fee under the FIFA system."
But clearly the dispute is very much about money, even if that is what Stewart wanted to avoid.
The resistance to RSTP
Foose contends that implementing such a system would amount to a restraint of trade in that not only would players receive less money, but it would reduce the flow of players that move abroad. For example: If an 18-year-old U.S. player is attempting to move to Germany to start his professional career, his training and compensation costs could exceed $300,000.
Ted Philipakos, a former agent to MLS players and current CEO of Italian side Venezia F.C., said the presence of a training compensation component affects the odds of a deal getting done.
"I think at minimum it violates the spirit of anti-trust law, because there is a restraint on player movement there," he said. "When you're talking about big clubs, generally speaking, is any sort of solidarity payment or training compensation going to get in the way of a super big club consummating a transfer? No. But at the lower end of the game, more modest clubs may get into a situation where training compensation might be significant and prohibitive. That's where you get to sort of artificial restraints on player movement.
"Let's assume [we're scouting] a kid from Pennsylvania. All of a sudden, if there's no training compensation system in place, we don't give it a second thought, we sign the player and he's coming to Italy. Under the current system, we have a really difficult decision to make."
Granted, not many Americans are flocking to Italy's third-tier but there is a general sense among player agents that charging for training and development costs would lessen the flow of U.S. players abroad. U.S.-based agent Mike Gartlan of COR Sports Management helped facilitate the moves of Luis Gil (Queretaro) and Erik Palmer-Brown (FC Porto) to foreign clubs and is of the belief that youth clubs should get some piece of the pie from such a transaction. but he has concerns about the unintended consequences.
"Look at it this way: Players seldom move out of the U.S. anyway if there is a price tag," he said. "For an unproven kid, an additional $200,000 is significant. And you have to remember those 16-year-olds in other countries are in some cases already playing first-team soccer. Here, the attraction is 'We can take a risk on a kid, pay him $60,000 for a couple of years. If it works, great, we've got a good player. If not, we move on.' But if you tack on an extra $200,000, that's a significant amount for an unproven American kid. There will always be guys who go, but the player movement will definitely be impacted."
Reich contends that if the training and development costs are getting in the way of a deal, the youth club can simply agree to waive them and bank on a solidarity payment later. He added that the benefit of training cost reimbursement for MLS is that fewer of their academy products will be poached by foreign clubs.
"It's not a binary thing," Reich said. "If you wanted to look specifically at a concrete example of what Foose and their guys are saying, you could look at Jordan Morris and Werder Bremen. When [Bremen] were looking at signing [Morris], one of the issues they said they looked at was potential training compensation. But that raises two questions: If you don't have it here, why would you worry about it? A little birdy tells me MLS was banging the table about that.
"Did it kill his potential deal with Werder Bremen? Maybe, maybe not, but a lot of people wanted to see him back here in the U.S. Now it's a case of, if you take one of our better players, we don't want it to happen, but at least you have to pay us."
Can a compromise be found?
Foregoing the training and development costs in lieu of solidarity payments amounts to taking the winnings from the blackjack table and betting it all at the roulette wheel. There's no guarantee that player will ever be transferred. There are those who don't make the grade. Some move from club to club by letting their contracts expire. Others spend their entire career at one club, then you have the rare cases of players such as Bradley or Jozy Altidore, who have had multiple transfers in Europe.
The infrequency with which American players are transferred -- according to data provide by MLS, since the start of 2014, there have been a total of 29 transfers into or out of the league that would have triggered solidarity payments to U.S. youth clubs -- makes it unlikely that solidarity payments alone will be enough to make much of a dent in the funding for clubs nationwide.
Would a solidarity payment of $100,000 from the Yedlin transfer help Crossfire Premier? Without question, but that's just one club. It won't be the cure-all for monetary challenges that many youth clubs face. The training compensation could be a valuable piece of the funding puzzle.
Is there a compromise that could satisfy the goal of increasing funding for player development without inhibiting player movement, all while abiding by U.S. law? The USSF has held meetings with the various stakeholders to that end, and one possibility suggested by Reich is a hybrid RSTP system that borrows some parts from FIFA's version, but is more tailored to the U.S. market in terms of the costs imposed. The USSF is still concerned such an implementation could violate anti-trust law, but Philipakos is of the belief that there are alternatives.
"There is sort of a noble goal here," he said. "We want to have competitive balance in place and we want to support smaller clubs and the development of players. You can have this system or a system like it, or expand revenue sharing all the way down the system, which I think is possible. I certainly think it's worth exploring."
The money has to come from somewhere, however. Some are looking to MLS to do more but while the league seems willing to engage, it also sounds wary. Abbott noted that MLS is already spending nearly $40 million a year on player development.
Then you have the two sides in the suit. On one side there is Reich, who is pushing for the hybrid system, while Foose remains adamantly opposed to FIFA's version of RSTP and says that additional investment in youth clubs needs to come from somewhere within the industry, just not the players.
This is a game that isn't close to being over.
Jeff Carlisle covers MLS and the U.S. national team for ESPN FC. Follow him on Twitter @JeffreyCarlisle.