Football as an industry has seen tremendous growth in recent years. KPMG estimates that the 32 most valuable clubs in Europe in 2020 had a combined value of almost 40 billion Euros. A large proportion of the clubs’ costs are linked to transfers of footballers. FIFA has estimated that over 18,000 international transfers were completed in 2020, with a total of more than USD 5.63 billion in transfer fees being paid. The highest transfer fee that has been paid is 263 million dollars, which was paid by Paris Saint-Germain for Neymar in connection with his transfer from Barcelona in 2018. Through solidarity funds and training compensation, smaller clubs, which are not necessarily directly involved in the bigger ones, will also the transitions, could benefit from the economic growth in the transition market.
The background for training compensation and solidarity contribution
The system of solidarity contribution and training compensation was established by FIFA following the Bosman ruling in 1995. After the Bosman ruling, the clubs lost power over players on expiring contracts, as players on expiring contracts could enter into new contracts with other clubs. As a result, some of the incentives to train and develop players disappeared, as it would be cheaper to sign trained and developed footballers than it would be to train and develop footballers themselves. Representatives of the clubs raised this issue with FIFA and UEFA, requesting them to establish transfer provisions that took into account EU legislation, but at the same time ensured the clubs’ financial rights when players changed clubs.
FIFA’s solution was to establish schemes that guaranteed clubs compensation for players who eventually became good enough to sign professional contracts. The compensation scheme was split into two; solidarity contribution and training compensation.
Training compensation is regulated in FIFA’s transfer regulations. The provisions on training compensation establish, in short, that the new club is obliged to pay training compensation to all the clubs that trained the player while he was between 12 and 21 years old. Training compensation must be paid in two cases. Firstly, when a player signs his first professional contract, and secondly, every time the player completes an international transfer, until the season the player turns 23. When paying training compensation as the player signs his first professional contract, the compensation must be shared between all the clubs that contributed to the player’s training. However, in the case of subsequent transfers, training compensation is only paid to the player’s last club.
For transfers within the EU/EEA, no training compensation shall be paid if the former club does not offer the player a new contract and cannot justify why it should still be entitled to compensation.
The national football associations have divided their clubs into four categories to calculate training compensation. The training costs for these four categories are determined by UEFA and the other confederations. The predetermined sums must correspond to the cost necessary to train a professional player for one year, multiplied by the so-called “player factor”, which takes into account that you have to train many players to produce a professional player. Once the club category is established for the new and the previous clubs, the training compensation is calculated by multiplying the number of years that the relevant club trained the player. For clubs outside UEFA, the training compensation is calculated based on the category of the new club. For transfers within UEFA, however, the training compensation will only be based on the category of the new club if the new club is in the lower category. If the new club is in a higher category, the training compensation is based on the average training costs of the clubs involved.
It is worth noting that in addition to FIFA’s provisions on training compensation, some national associations have transitional provisions which mean that training compensation is also paid for domestic transfers.
It is also worth noting that FIFA has established arrangements to make it easier to claim training compensation. In practice, this means that FIFA will, in simple cases, propose to the clubs involved how training compensation should be calculated. If the parties accept the proposal, the proposal will become final and binding.
In addition to training compensation, clubs that contribute to the training of players who develop into professional players for other clubs will be entitled to solidarity contribution.
Similar to training compensation, solidarity contribution must be paid when a player completes an international transfer. However, some national confederations have provisions which establish that new clubs are obliged to pay solidarity contribution also for domestic transfers.
In contrast to training compensation, solidarity contribution will only be paid in the event of a transfer of a player who is already a professional, as no transfer sums are paid for amateur players. As the solidarity contribution is calculated based on the transfer fee, solidarity funds are only paid if a transfer fee is paid, which i.a. means that solidarity contribution are not paid if a player changes clubs after the end of the contract period. It is also important to note that, unlike training compensation, transfers that occur after the player turns 23 will also trigger an obligation to pay solidarity contribution.
The calculation of solidarity contribution is based on five percent of the transfer sum being retained by the new club, and distributed between the clubs with which the player was registered when the player was between 12 and 23 years old. The years between the player’s 12th and 16th years are set at half the value of the following years. If the player is under 23 when the transfer is completed, the payment of the total solidarity contribution will be less than five percent, as the compensation for the remaining years will be deducted. For each year that the player is younger than 23, 0.5 percent must be deducted from the total 5 percent.
FIFA’s clearing house
In November 2022, FIFA launched a so-called clearing house as part of a reform package for the transfer system. FIFA’s objective with such a clearing house is to centralize all payments related to a player transfer, and in this process they aim to calculate and distribute amounts to clubs that are entitled to solidarity contribution and training compensation. When the conditions for paying solidarity contribution and/or training compensation are met, FIFA will calculate the amounts based on the player’s passport, which lists all the clubs that have trained the player between the ages of 12 and 21. FIFA’s clearing house will demand payment from the new club, and distribute the amount it receives among the clubs that have trained the player in question. Even so, it is important that clubs and others who are entitled to a share of a transfer fee inform FIFA of their claims.