What Exactly is Preventing US Soccer and MLS from Participating in the FIFA Solidarity/Training Compensation System?

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(Fake?) News reports of Tottenham Hotspur tendering a $58 million offer for the services of Christian Pulisic have once again raised the issue of training compensation and solidarity payments. Whether or not this transfer rumor turns about to be accurate (and it looks pretty fake), this issue promises to rear its head down the line, as players affiliated with youth development in the United States are transferred/signed by teams overseas, and conversely purchased and brought in to play stateside.

This issue burst on the scene about 4-5 years ago, starting first with the purchase of Clint Dempsey by MLS (with the Seattle Sounders being his ultimate destination), and then with the transfer of Sounders right-back DeAndre Yedlin. In the case of the former, Dempsey was brought into MLS for a rumored fee between $7-9 million, while Yedlin was sold by MLS/Sounders to Tottenham for around $4 million. Focusing on the Yedlin case, the problem started when MLS/Sounders kept the entirety of his $4 million fee. His youth academy, Crossfire Premier, put in a request to receive a share of that fee, and when it was refused, they filed a complaint which was dismissed, and they have since pursued recovery through the Dispute Resolution Center.

Initially, the reason that U.S. Soccer gave for not complying with the FIFA statutes on training compensation and solitary payments was a stipulation that was agreed to back in 1997 as part of the Fraser lawsuit. Back then, numerous MLS players sued the USSF and MLS, alleging anti-trust violations due to MLS’ (convoluted) player movement and contract mechanisms. USSF was allowed to exit the lawsuit after signing a consent decree which stated that they would not abide by any FIFA regulations which restricted the movement of out-of-contract players in or out of the United States. That position appears to have changed as of February of this year, as the USSF is no longer citing the Fraser consent decree as the reason for not implementing or enforcing solidarity/training compensation payments. There is a good reason, as the consent decree clearly does not have anything to do with training compensation or solitary payments. So, let’s go through this.

FIFA STATUTES 20 AND 21:

The relevant statutes (“articles”) can be found at this link, but I’ll list them here.

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There are various calculations to determine how much money the former/training clubs are entitled to, and I’m not going to get into that here. So the next issue is, why did the USSF previously base their refusal to participate in this system on the consent decree:

FRASER CONSENT DECREE:

As previously mentioned, the USSF used the stipulation which got them removed from the Fraser suit to justify not allowing youth clubs to accept payments from teams who purchased players (or require that MLS or its teams pay them). Does the stipulation bar them from doing so? The answer has to be, “no.”

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As you can see, this is a VERY narrow stipulation, having to do with out-of-contract players who were restricted from moving on so-called “free transfers.” Free transfers didn’t exist until the Bosman ruling, previous to which, players couldn’t move from their old team to a new one when they were out of contract without a fee being paid. In fact, FIFA in the wake of the Bosman ruling modified its statutes.

This means that the USSF’s previous reasoning that the consent decree demanded that they not allow such payments was misleading…at best. Especially since the Bosman ruling came into play *before* this consent decree was signed. Based on the decree we’ve all just read, the USSF’s basis for not enforcing solidarity or training compensation awards due to Fraser is simply without merit.

WHO/WHAT IS PREVENTING SOLIDARITY/COMPENSATION PAYMENTS IN THE US, THEN?

Perhaps sensing that this legal fiction was unraveling, Sunil Gulati, as he was leaving his role as the USSF president, changed his reasoning on why USSF couldn’t get involved. In the wake of the Yedlin/Bradley/Dempsey complaint, the parties have been meeting for years, with no real solutions to the problem. It’s probably fair to say that USSF’s position now is that they have no legal authority through U.S. law to mandate a system or require MLS to comply with the FIFA statutes, though if all of the parties can come to an agreement, they’d be happy to work with all involved. At least based on the following excerpt:

“If the Fraser stipulation did apply to training compensation and solidarity, it only prevents USSF from taking any action with respect thereto. … USSF indicated at the Oct. 16 meeting that this was their interpretation.”

In other words, the federation would have no problem with clubs receiving these payments or drawing up substitute agreements with foreign clubs, as long as it wouldn’t have to facilitate them.

Now, it should be noted there have multiple complaints that the USSF have been slow walking requests from youth teams trying obtain compensation. There is currently a complaint pending before the Department of Justice over the USSF’s handling of the issue. So, it’s possible that the USSF’s position that they are okay with such payments/agreements is just lip-service.

So, what about MLS? Given their…close relationship with the USSF, one has to wonder if they are the ones behind the failure to institute a solidarity/training compensation system. The reason many suspect they are is that they were the ones who kept all of DeAndre Yedlin’s transfer fee (with the alleged assistance of Sunil Gulati), which gave rise to the controversy. On the face of it, MLS Commissioner Don Garber does not seem to have a problem if a system where MLS participates in compensation/solidarity payments is created.

“We are a member of U.S. Soccer, CONCACAF and FIFA, but we are also governed by U.S. law, and there are aspects of U.S. law as it relates to how we act in this space,” Garber said. “The best that I can say is, MLS will be a major beneficiary of solidarity payments going forward because of the number of academy players that we have, and yet we want to be very mindful and very careful about how we go forward here. I’m confident that Sunil [Gulati, U.S. Soccer president] and [MLS president and deputy commissioner] Mark Abbott and the respective attorneys will find a way to have an agreement and to move forward successfully.”

As Garber alluded to, MLS could benefit from these fees flowing into the league as its academy players sign abroad with increasing frequency.

Again, one must take this with a grain of salt, given the issues raised by them taking the entire Yedlin transfer fee and not paying training costs, but their underlying theory makes sense anyway.

Finally, we have the MLS Players’ Union. And based on the comments from their leadership, its fair to say they are the most opposed to any system where solidarity/training compensation is paid. It’s clear they are outwardly hostile to the idea.

“We have said consistently that training compensation and solidarity payments are bad for players, and would treat players differently than employees in any other industry, including sports,” Foose said. “For example, it’s absurd to think that a business school could demand a fee from a company that hired one of its students. Yet, that’s the kind of payments the youth clubs seek.

“No player should have the market for his services adversely affected by these payments. This is not to say that players and the Players Union don’t believe in and support youth development. We do, but it should not be funded through a tax on randomly selected professional players’ contracts.”

I’m not sure if the college analogy precisely fits, but you can see where the most animus to the idea comes from. Moreover, the USSF believes that the MLSPU would sue the youth teams (and possibly the USSF itself) if some system is implemented, either through USSF directive or were MLS able to come to some agreement with youth teams with USSF’s blessing. From Gulati:

“We’ve spent a lot of money with a lot of lawyers.  We have no issue with it except the players have an issue with it, and the players’ association (MLSPU) has made it very clear that if the youth clubs seek redress that they will sue the youth clubs.”

Gulati was likely referring to these sections from the Dallas Texans/Crossfire/Sockers FC lawsuit.

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And there is this follow-up from the same complaint.

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Yikes. Now to be clear, the above comes from the complaint filed by the youth teams, so the self-serving nature of the allegations must be noted. But given the responses from Mr. Foose, it’s hard to dispute the accuracy of the pleadings.

So we’re talking mostly about anti-trust law here. Restraint of trade/price inflation/wage suppression/price-fixing; take your pick. Not that I expect the MLSPU or the USSF to do this, but I’d love to see the legal memoranda from which they are basing their analysis. Not because I don’t believe it; I’d just like to comb through it myself.

Any system that were to be implemented is going to be subject to the “Rule of Reason” (you may be familiar with that phrase from the NASL/USSF suit) analysis. I don’t think a solidarity/training compensation system is per se illegal (called the “Quick Look” analysis), but even under the other standard, there are still going to be problems.

That aside, it seems to me we have two issues, assuming Mr. Foose’s basic legal analysis is correct: 1) The USSF apparently isn’t in a position legally to unilaterally enforce compliance with FIFA statues 20 and 21 (or to try to test it). 2) Given that premise, any training/solidarity system would have to involve an agreement between the youth development system, MLS and the MLSPU (and leagues at division 2/3 levels as well).

In MLS’ case, any reluctance to enter into some type of arrangement probably stems from their business model, in which the “league” takes anywhere from 66%-0% of a transfer fee, depending on the type of player you’re talking about (and the 0% was recently enacted). But again, they say they have no objection to implementing a system whereby training compensation and solidarity payments are made, since that would eventually be to the team and league’s benefit, when the teams’ local academies receive those payments.

For the MLSPU, the DeAndre Yedlin’s case is instructive, If the Sounders today sold him for $4 million, the team would keep the entire fee, whereas MLS used to take 25% ($1 million). The theory then from the MLSPU, is if this system was implemented by FIFA, that those costs (5%) are going to come from somewhere. Either the team/player is going to take a haircut on the sale, or the buying team has to increase the offer to offset the payments to youth teams (fat chance). There is also a difference between someone like Yedlin who was handsomely paid to move to the EPL, and a 20-year-old making a move for more modest money. So you see how convoluted things can get.

IS THERE A SOLUTION:

The short answer is, there could be, if the parties can agree to come to an accord.

USSF will not be involved in the creation of such a system, unless it is in a mediation capacity. They aren’t going to risk a lawsuit from the MLSPU (or MLS for that matter) by mandating a training compensation/solidarity system, or ordering payments be made.

MLS is happy to come to an agreement that allows them to receive and pay training compensation and solidarity payments, to the extent that they come out money from transfer fees. They probably come out ahead in the wash under that scenario, as more academy players are transferred or sign overseas.

MLSPU is extremely unlikely to agree to any system as currently constituted, and to the extent they are amenable to anything, it seems they would only agree if it came out of other revenues unrelated to transfer fees.

“These costs are a severe restriction on the player’s right to work and, as such, have no place in our system,” Foose said. “If a determination is made within the industry that youth clubs are deserving of additional compensation for developing young players, such compensation should come from revenues generated by the game itself, not out of the pockets of young players trying to earn a living.”

The term, “rock and a hard place,” comes to mind, but I think the thing to keep in mind is that it’s going to take an agreement of all parties to resolve this issue. Those wanting the USSF to send down a mandate, or enforce any awards that are given from FIFA are likely to be waiting for a long time.

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  10. players like yedlin dont get any of the 4 million anyway so i dont get it. why do the players have any say in what mls clubs do with the money they get for selling a player?

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    1. well his dad doesnt seem to care and he’s pretty high up at NYCFC so I dont doubt it will happen. claudio is pretty much a euro-snob, fyi

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