FIFA’s solidarity mechanism and the impact on South American football

Published 13 March 2014 By: Ariel Reck

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The newly released European Club Association (ECA) study on the transfer system1 suggests that the solidarity mechanism, a tool that helps strengthen the economic redistributive power of the system, is not working properly.

The conclusions reached in the report are relevant for South America and Argentina in particular, because the said contribution represents an important source of income for our clubs. South America is the region that receives the biggest share of the solidarity contribution paid by European clubs (94%)2.

Briefly, for those not familiar with the mechanism, the solidarity contribution set by FIFA in its regulations (article 20 and Annex 5 of the Regulation on the Status and Transfer of Players (RSTP) rewards the clubs involved in a player´s training and education between the seasons of his 12th and 23rd birthdays with 5% (distributed on a pro rata basis) of any compensation paid by the new club to his former club in case such player is transferred internationally (from one national Association to another) during the course of his contract.

The ECA report shows that, while the total solidarity contribution payments for the seasons 2011/12 and 2012/13 amounted to $258m only $57.9m was actually paid out. So, instead of the total 5% provided for in the regulations, clubs only paid an equivalent of 1.15% of the total transfer expenditure incurred over the period. The study further analyzes the effects a potential increase in the mechanism up to 8% would have.

The analysis has highlighted the existence of flaws in both the monitoring and collection mechanisms of the contribution” the ECA states. Therefore the conclusion of the study is that “Enhancing the effectiveness of the current system is of greater importance than increasing the payment rate as any such increase would not only penalize those who are, and continue to be compliant with the regulations, but could also further deter those who do not contribute as required.

In my opinion, the flaws of the system are only part of the explanation, and there are other reasons for such a low collection percentage.

Since 2012, article 2.3 of Annex 5 of the RSTP3 demands of any National Association claiming the mechanism, which would in principle otherwise be due to one of its affiliated clubs, a “clear proof” of the link between the player and said club and evidence that the club in question no longer exists.

The reform was introduced after several CAS awards and decisions by the FIFA Dispute Resolution Chamber issued in the same sense, rejecting claims of federations for previous years’ contributions that remained unclaimed by clubs within their remit. Federations argue in those cases that since the player lived in the country, even without knowing for which club he played (or even if he didn´t play in any affiliated club), they were entitled to the contribution otherwise due to the club under the mechanism. FIFA and CAS decided that clear evidence of the development in at least one affiliated club was required4. So, many “unknown” years that were previously collected by national federations are now simply “lost”, thus reducing the total 5%.

However, this additional cause does not hide the flaws of the system. While collection seems harder for the European clubs than for the South American clubs, the reason behind this data is simply that the contributions are far more relevant for South American , so they make greater efforts to collect it.

As shown in the ECA study, European clubs are net debtors, especially to South American clubs. It is not a surprise that those clubs participating in the big leagues (classified as “the bundle” in the Study)5 are better payers than those in the “low bundle”. The majority of the clubs in the top bundle are subject to UEFA licensing regulations (they apply for a license to enter the Champions League and the Europa League) which demands no overdue debts in relation to transfer payments, including no overdue contributions owing under the solidarity mechanism.

In addition to this “indirect” incentive to comply with the redistribution regulations, there are many flaws in the collection process. One of the most notable is the way FIFA procedures in club´s claims before the Dispute Resolution Chamber are handled. Procedures take a long time (averaging 2 years), and FIFA has to date chosen not to impose sanctions, despite the possibility being expressly covered under the regulations6). There is also a relatively modest annual interest rate of 5%.

Also, for claims over CHF 50.000, (approx. USD 55.000) the claimant club is required to pay an “advance of costs” fee to FIFA ranging from between CHF 1.000 (USD 1.100) to CHF 5.000 (USD 5.500), which is almost unreachable for many Argentine clubs (developers, especially in the early years of the players, are usually really small amateur clubs and CHF 5.000 represents many months of its budget). This is also a problem for the FIFA administration, which receives and handles thousands of cases for small amounts. As a result, the process is delayed until the claimant club can pay the advance of costs, at which point the respondent makes every effort to delay the case as much as possible since there´s no risk of a sanction and the applicable interest rate is low (as explained in my previous post, it is a “FIFA loan” at a really low rate with the aggravating circumstance that a small club is financing a big one). Normally, the debtor will make an offer to the developer club to settle the debt, but at a reduced amount as the “price” to get the payment without further delays. This conduct (common among clubs) also reduces the amount finally paid as contributions under the mechanism.

There are also flaws in the monitoring process, although it is fair to say that, with the introduction of the FIFA Transfer Matching System (TMS) system, many of them are gradually disappearing. Now, Federations are aware that if a player who once trained in a country is transferred between two foreign associations, in every transfer the national federation of the original club must upload an updated version of the player´s passport, and FIFA discloses in the first letter of any solidarity contribution claim the transfer value inserted in the TMS, so the percentage can be correctly calculated.

In my opinion, the TMS is probably the “ultimate tool” for detection and also for collection of the solidarity contribution: there´s enough data in the system to make the collection almost automatic with the intervention and interaction of the relevant associations.

As to the process, one feels FIFA should in the future include sanctions and increase the interest rate for late payment. These simple measures will certainly have a deterrent effect on the debtors and will speed up the collection of the solidarity contributions.

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Ariel Reck

Ariel Reck

Ariel is a lawyer in Argentina focused exclusively on the sports sector, mainly the football industry. He has particular experience advising on third party player ownership issues, player´s transfers and international sports disputes before FIFA and CAS. He has also spoken at conferences on these issues in Argentina and at international level.

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