US Youth Clubs in the New Player Market

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At the moment, Washington-based youth club Crossfire Premier (and much of US soccer) awaits a ruling from FIFA’s Dispute Resolution Chamber on whether it can collect solidarity payments for its former player, DeAndre Yedlin. A victory for Crossfire would open the US soccer economy to solidarity — and, probably, its sister payment, training compensation.

While this would allow some US youth clubs to earn money for their development efforts, a world with solidarity and training compensation presents tripwires. So it will be important for clubs — especially non-MLS clubs — to understand how both mechanisms could alter the market.

Most importantly, non-MLS clubs should beware of training compensation. It has the potential to create structural disadvantages they may not be able to overcome.

Training Compensation vs. Solidarity

Though often lumped together, training compensation and solidarity are not the same.

Training compensation is an upfront fee. It applies when a club (1) signs a foreign player to his first professional contract or (2) acquires a foreign professional under age 23. In either circumstance, the acquiring club owes training compensation to the player’s training clubs (those that registered him from age 12 to 21). The fee is based on a set formula. (See a description here) and owed regardless of whether the player moved on a free transfer. Therefore, training compensation is an extra payment that a club would not otherwise have to make.

Solidarity, on the other hand, is a percentage of a player’s transfer fee that is kicked back to his former clubs (those that registered him from age 12 to 23). Specifically, whenever a player is transferred, FIFA regulations instruct the acquiring club to carve out 5% of the fee and distribute it between the former clubs based on the years each registered the player. Thus, rather than imposing an extra fee, solidarity only dictates how a club must distribute a fee it would otherwise pay.

Training Compensation’s Role in US Players’ Migration to Europe

Since 2016, not including players raised in other countries, 48 American amateur players have moved to European clubs. To the clubs acquiring them, most of these players are foreigners signing their first professional contracts. So by the plain language of FIFA’s regulations, the acquiring clubs would owe training compensation to the players’ US-based training clubs. Of course, US soccer’s refusal to participate in training compensation means no fees have been paid. As such, these European clubs have been getting American players for free.

Partly, this may explain the rapid increase in signings. Consider some of the data. Most notably, since 2016, 20 American amateur players have moved to German clubs. Over the same period, these clubs have signed only nine amateur players from the remaining non-European countries combined. While most pronounced in Germany, this phenomenon also exists in other European countries. For example, over the last two seasons, English clubs have signed more American amateurs than the other non-European countries combined. In the Netherlands, Americans and the non-European contingent have arrived in roughly equal numbers. (I address this subject in greater detail here).

Further, European clubs are not reluctant to sign amateurs from other European countries. Depending on the league, clubs sign European foreigners at a rate between two and seven times that of all non-Europeans. This too can be traced back to training compensation. FIFA regulations make an exception for transfers between European clubs. In those instances, to receive training compensation, the player’s training club must have offered him a contract or shown “bona fide interest” in him. As I explained in an earlier post, this standard is high, and it limits the training compensation available for intra-Europe transfers. Thus, signing a European-based foreigner is unlikely to saddle the acquiring club with training compensation.

All this indicates that European clubs favor youth players who do not require training compensation. As such, the United States’ refusal to embrace the concept improves the chances European clubs will sign them.

Training Compensation May Limit US Players’ Foreign Opportunities

If low acquisition costs are opening opportunities for young Americans, raising those costs may close them. Indeed, some youth soccer experts believe training compensation would shatter the US pipeline to Europe. As Rob Moore, agent to Christian Pulisic and Schalke’s Haji Wright, argues, “the absolute dagger will start coming…if America ever adopts a system where [training compensation] has to be paid.” According to Moore, European clubs will not pay up to six-figures for a youth player “who has never kicked a ball outside his country.”

On an intuitive level, Moore’s position makes sense. A product costing nothing will draw more buyers than a product costing something. Further, in this case, training compensation for some Americans would be expensive— possibly, as high as $250,000. More than a few foreign clubs would find this number cost-prohibitive. (See the McKinze Gaines example in this post)

So it is possible that training compensation will not result in more payments to US youth clubs. Rather, it may only result in fewer US players signing with foreign clubs.

Training Compensation’s Potential Impact on the US Soccer Market

A market with training compensation limiting foreign signings would still benefit MLS. But for non-MLS youth clubs, the story could be different.

A more protectionist market would give American youth players fewer avenues to professional soccer. With the foreign option limited to the occasional player, most would have to go through MLS. This may not prevent them from getting to Europe eventually. But in most instances, they would have to sign with a US team first.

Sealing the borders would help MLS combat one of its growing headaches — the domestic soccer talent drain. At the moment, there are 63 American-raised players under age 22 at European clubs (1st team or below). Sixty of them have never been under contract with MLS. And the rate is increasing. In 2015, six amateur players left for Europe. The number jumped to 10 in 2016 and 11 in 2017. But in 2018, it exploded, with 25 American amateur players signing with European clubs. While this may be good for US soccer, MLS cannot be pleased. Putting what is essentially a tariff on American soccer exports would help the league retain domestic players.

For non-MLS clubs, restricting foreign signings would leave their players with a tougher route to professional soccer than players at MLS academies. And this could make these clubs less attractive to elite players.

Domestic players have a few different routes into MLS. The most direct are as homegrown signings or through the MLS draft. With the occasional exception, homegrown signings must have played in the MLS team’s academy. Obviously, non-MLS clubs cannot offer that. Therefore, most players at these clubs are left with the draft. Here, the problem is that MLS teams are decreasing their reliance on the draft. While this could change if more talent is available, many elite players may be unwilling to take that chance. Instead, the logical response could be to view an MLS academy as essential to a pro career.

This would create an even more stratified youth soccer market. With MLS academies seen as the only path for elite players, non-MLS clubs would be left with whoever does not make those teams.

Non-MLS Clubs Should Consider Waiving Training Compensation

Given these potential issues, non-MLS clubs should consider waiving training compensation. This would keep the foreign pipeline open. Further, if MLS teams do not waive training compensation, the non-MLS clubs would have a market differentiator in that they would offer a much better path to foreign leagues.

At the same time, waiving training compensation would not necessarily eliminate the clubs’ chance to earn solidarity. Based on DRC jurisprudence, a waiver will only apply if it is “clear,” “unambiguous,” and “unmistakable.” Thus, by issuing a clear waiver that encompasses training compensation but excludes solidarity, the clubs would protect their right to the latter.

Because such a low percentage of transfers involve fees, solidarity is less certain than training compensation. But the alternative, accepting training compensation, may be a catch-22: the theoretical possibility of a benefit with few opportunities to claim it.

Bottom Line

We do not know exactly how training compensation and solidarity will affect the US soccer market. But the information available suggests that, rather than equalizing it, they could entrench the powers already in control, like MLS. So other factions will need to understand how these mechanisms work and how they can protect, instead of harm, their interests.

Random Observations Unleashed

  1. By accepting training compensation, American teams would also be agreeing to pay it. In leagues with a salary cap, how would training compensation be allocated?
  2. On a related note, it would be interesting to see the impact training compensation might have on foreign players at American colleges. Many of them began with professional clubs’ academies in their home countries. Still, based on NCAA rules, they would have to be amateurs (at least as far as the NCAA knows). So if an MLS team drafts a foreign collegiate, it would be signing the player to his first professional contract. Technically, this would require training compensation. Would that lower foreign collegiates’ draft value? Would MLS teams calculate each player’s training compensation number and adjust his draft value accordingly? Would American players get more opportunities because, domestically, they are free?
  3. Again, FIFA-mandated training compensation and solidarity apply only to international transfers. FIFA does encourage countries to set up their own domestic compensation structures. Many do. The United States has not.