A dispute over training compensation in US Soccer: Youth Soccer Clubs v USSF, MLS & MLSPU

Published 18 April 2017 | Authored by: Andrew Visnovsky

Several American Youth Soccer Clubs[1] sued the MLS Players’ Union (MLSPU) and three former and current MLS players[2] in the Eastern District of Texas federal court in July 2016 to enforce the training compensation and solidarity payment provisions[3], contained in FIFA Regulations on the Status and Transfer of Players (RSTP). The complaint[4] was brought in United States District Court of the Eastern District of Texas by Youth Soccer clubs, Dallas Texans Soccer Club, Crossfire Foundation, Inc., and Shocker’s FC Chicago LLC (together, the Youth Clubs). These clubs were training clubs for Clint Dempsey, DeAndre Yedlin, and Michael Bradley respectively. The Youth clubs name the MLS Players’ Union (MLSPU) Dempsey, Yedlin, Bradley, and “all those similarly situated” as defendants in their complaint. On March 29, 2017, the Court dismissed the case on jurisdictional grounds. 

The transfers that were subject of the complaint are:

On or about August 3, 2013 Clint Dempsey, a US professional soccer player, was transferred from Tottenham Hotspur Football Club of the Football Association of the United Kingdom to the MLS and the United States.

On or about August 13, 2014, DeAndre Yedlin, a US professional soccer player, was transferred from MLS to Tottenham Hotspur Football Club of the Football Association of the UK.

On or about January 9, 2014, Michael Bradley, a US professional soccer player, was transferred from AS Roma of the Italian Football Federation to the MLS (Toronto FC) in Canada.” 

While the instant suit was arguably flawed (for reasons we’ll explore below), it does raise several serious questions about the international transfer market and the governance of soccer, most notably: do FIFA RSTP rules violate U.S. law? This article examines the question, looking specifically at:

  • Background to the dispute
    • Youth soccer in the United States;
    • Training Compensation and Solidarity Mechanisms in the RSTP
    • The parties
    • The complaint

  • Procedural deficiencies
    • Dismissal on Jurisdictional Grounds
    • Ripeness of the Claim & Federal Arbitration Policy
    • Wrong parties

  • Legality of FIFA RSTP Training Compensation Rules for U.S. Clubs
    • Memorandum of Understanding between the MLSPU and the USSF
    • The MOU, the FIFA RSTP, and their Application
    • Violation of US Soccer’s agreement with FIFA

  • Legality of FIFA RSTP Training Compensation Rules for U.S. Clubs
    • Labor exemption
    • Sherman Act analysis

  • Conclusion

Views expressed through this article are the authors own, unless otherwise stated.

 

Background

Youth Soccer in the United States

The organization of youth sports in the United States differs significantly from those in Europe and around the world. The United States heavily relies on educational institutions and private, pay-to-play youth clubs to train and develop athletes. The National Collegiate Athletic Association (NCAA) - the premier amateur sports organizing body in the United States - has had strict amateurism requirements. These amateurism rules require athletes to continue amateur careers until they have graduated college to fulfill their sporting development. This is approach is supported in part by popular professional leagues like the National Football League establishing labor agreements with their players’ union that all but require athletes to attend college before becoming a professional (see further articles on amateurism in sport here). 

Because the youth development side of sports in the United States is so segregated from the professional side, The United States Soccer Federation (USSF) has its own designation for member status for youth development clubs, and youth leagues. 

Until recently, Youth soccer culture has, for a very long time, pervaded American popular culture over and above the professional side of the. There are countless youth and amateur soccer organizations that are not members of the USSF.[5] Most players who become professional soccer players in the U.S. system come up through one of these many youth clubs and leagues.

Training Compensation and Solidarity Mechanisms in the RSTP

Article 20 and 22 of the FIFA RSTP require certain payments[6] to youth (training) clubs in the event of an international transfer between different associations:

Art.20: Training Compensation

Training Compensation shall be paid to a player’s training club(s): (1) when a player signs his first contract as a professional and (2) each time a professional is transferred until the end of the season of his 23rd birthday. The obligation to pay training compensation arises whether the transfer takes place during or at the end of the player’s contract. The provisions concerning training compensation are set out in Annexe 4 of these regulations.  

Art. 21: Solidarity Mechanism

If a professional is transferred before the expiry of his contract, any club that has contributed to his education and training shall receive a proportion of the compensation paid to his former club (solidarity contribution). The provisions concerning solidarity contributions are set out in Annexe 5 of these regulations.

It is worth noting that the starting point, or presumption, is that a player’s training and education ordinarily takes place between the ages of 12 and 23 (see this guide by Andrew Smith for a in depth review of these mechanisms). [7]

The Complaint

The Complaint alleged that the Youth Clubs were entitled to compensation under the FIFA RSTP Articles 20 and 21. The complaint argues that the USSF began the process of negotiating with several interested parties, including Youth Clubs, professional leagues and the MLSPU on May 24, 2016, to establish a domestic training compensation policy that mirrored the FIFA RSTP provisions in Article 20 and 21 discussed above. 

According to the Complaint, at that meeting, the MLS, alerted youth clubs that the MLSPU would bring an anti-trust lawsuit against the Youth Clubs[8], MLS, USSF, and FIFA upon any youth club receiving an award under the training compensation scheme. The MLSPU however holds the view that any training compensation program, or the enforcement of FIFA’s training compensation statutes in the FIFA RTSP, was an illegal violation of the Sherman Antitrust Act, and would therefore sue to stop any payments through Article 20 or 21 under the FIFA RSTP or a domestic US training compensation scheme. To support this claim, the Complaint states that MLSPU cites to a Memorandum of Understanding (discussed below) between the MLSPU and the USSF, which they posit establishes that the training compensation scheme is illegal. 

The Youth Clubs asked the Court for a declaration that,

“(1) the US Youth Clubs can lawfully receive solidarity fees and training compensation from professional soccer clubs for international US player transactions, which the US Youth Clubs are entitled to receive under the FIFA RSTP; and (2) the implementation of a system of solidarity fees and training compensation similar to that of the FIFA RSTP for player transactions within the US is also lawful and not a violation of US antitrust laws.[9]

 

Dismissal on Jurisdictional Grounds

The MLSPU and the players filed a motion to dismiss on jurisdictional grounds in January. On March 29, 2017 the Court agreed with the Defendants, finding that the Eastern District of Texas did not have general or specific jurisdiction on the claim. To that extent, the Court found that the MLSPU did not have sufficient connections to Texas for the Court to have general jurisdiction over the defendants, and that the connection to Texas by the MLSPU were incidental at best, and unrelated to the injuries or the specific suit. Discussing jurisdiction over the players, the Court observed that the threat of litigation by the MLSPU did not confer specific jurisdiction over the individual players.

The Youth Clubs are now faced with some choices: appeal the dismissal to the 5th Federal Circuit, file suit in a jurisdiction where the defendants or the dispute have a stronger connection, or wait until the DRC ruling, and attempt to enforce any award it may issue for the clubs. 

Should the Youth Clubs decide to file their complaint in a more suitable jurisdiction, the MLSPU is headquartered in Maryland, and the alleged threat occurred in Chicago, Illinois, so could be potential locations to file. 

 

Other Arguable procedural deficiencies

Arguably, there are additional procedural deficiencies that may lead a court to dismiss the claim should the Youth Clubs re-file in a court with proper jurisdiction, or if the Youth Clubs lodge a successful appeal, and have the case move forward Eastern District of Texas. 

  • Ripeness of the Claim & Federal Arbitration Policy

In particular, these include the strong federal policy to supporting arbitration and alternative dispute resolution may lead to the Court refusing to make an order, and that the Youth Clubs may have brought suit against the wrong parties. The Federal Arbitration Act (FAA) creates only extremely limited instances where a party can interfere with a pending arbitration or challenge an arbitral award. The U.S. Supreme Court has interpreted this sweeping language as requiring courts to give significant deference to arbitration proceedings and awards.[10] The FAA also requires the issuance of an arbitral award before a court can modify or intervene.[11] 

These procedural issues made a favorable ruling for the Youth Clubs very difficult. As the Youth Clubs’ claim is working its way through the FIFA Dispute Resolution Chamber (DRC), it is very unlikely that a Court would make a ruling on the validity of the award, or questions before the DRC (an arbitral body) has made a ruling, and the Youth Clubs have exhausted all their options under the RSTP. This would most likely include an appeal to Court of Arbitration for Sport (CAS) as provide for under the RSPT. Essentially, the Youth Clubs would only have access to US courts with respect to their claims regarding enforcing training compensation payments after the DRC issues its decision, and most likely after parties have either appealed the ruling to CAS. Even then, the Court’s review of the award would be extremely limited. 

Wrong Parties 

The Youth Clubs most likely have not sued the right parties to enforce their alleged right to training compensation. Specifically, The FIFA requires national associations to implement and abide by their regulations and statutes subject to paying “due respect to mandatory national law & collective bargaining agreements”. That means the individual clubs (because of its single entity status, Major League Soccer may be the actual party that must be named), and the USSF must be named to enforce training compensation, not individual players, or the MLSPU. 

The MLSPU and the individual players simply have no legal or contractual obligation to the Youth Clubs with respect to training compensation for the Court to enforce. In ruling on the jurisdictional question, the Eastern District of Texas possibly agreed with this assertion, stating “The Players Union is not a party to the trade contract between the professional soccer clubs that would give rise to Plaintiffs’ claim for solidarity fees in Texas.”

 

Legality of FIFA RSTP Training Compensation Rules for U.S. Clubs

The Youth Clubs’ complaint challenges the USSF and the MLSPU’s assertion that the FIFA training compensation scheme violates US law. While the complaint itself may become hung up on technical issues, their challenge to the USSF and MLSPU’s position begs a very important question: can FIFA regulate wages or working conditions of professional players in the United States.

Memorandum of Understanding between the MLSPU and the USSF 

According to the complaint, the MLSPU, when arguing that training compensation schemes are invalid in the United States, cited a Memorandum of Understanding (MOU) agreed between the MLSPU and the USSF during the course of the Frasier v. MLS [2002] [12] litigation as its basis for its argument that FIFA RSTP training compensation scheme is illegal in the United States. Per the complaint, the MOU, the USSF and the MLSPU agreed that: 

[The] USSF will not impose, implement, or enforce, in any way, those rules, statutes, or regulations adopted by the Federation Internationale de Football Association relating to the payment of transfer fees or training and development fees (“transfer fee rules”) for professional soccer players who are free of contractual obligations to other teams (“out of contract players”) . . . USSF will not directly or indirectly prevent an out of contract player from playing in MLS on the ground that such a player has not received an international transfer certificate from a foreign soccer association because the player's previous team has demanded a transfer fee and MLS has declined to pay such a fee.[13] 

The MOU, the FIFA RSTP, and their Application

The Youth Clubs contend that the MOU is invalid because it predates the current form of the FIFA RSTP, and therefore it cannot apply to the RSTP in its current form. However, the language of the MOU is broad and does not limit itself to changes or new versions of the FIFA RSTP. Therefore, it seems likely the MOU would still apply to the FIFA RSTP in its current form.

The real problem with the MOU regarding applicability on its face is that it only contemplates out-of-contract, or “free” transfers. None of the transfers in the current action were “free” transfers; all occurred when players were still under contract, and where the purchaser (in the case of Bradley and Dempsey was MLS, and in Yedlin’s was Tottenham Hotspur in the U.K.) paid a fee to end the players contract at the time to facilitate the move (more popularly understood as a “transfer fee.

The MOU would only apply if the training compensation payments arose from transfers of out-of-contract players. However, as mentioned above, the Current FIFA RSTP only requires payments of training compensation for out-of-contract international transfers of players who are under the age of 23. This would only apply to the Transfer of DeAndre Yedlin. However, as stated above, Yedlin was still under contract at the time of his transfer.

Violation of US Soccer’s agreement with FIFA

Article 13(a) of the FIFA Statutes requires Members “to comply fully with the statutes, regulations, directives and decisions of FIFA bodies at any time as well as the decisions of the Court of Arbitration for Sport (CAS) passed on appeal on the basis of art. 66 par. 1 of the FIFA Statutes.” Therefore it would seem the MOU forces the USSF to choose between 1) abiding by the MoU as agreed as part of the settlement agreement, or 2) its obligations as a member association of FIFA. 

 

Legality of FIFA training compensation rules under U.S. Law 

In addition to the MOU, the MLSPU (and the USSF) reportedly argued[14] that training compensation and solidarity payments are unenforceable because they violate U.S. antitrust law. To support this argument, the MLSPU cite to Frasier v. MLS.[15] However, Frasier only mentions that the USSF and MLSPU agreed to the MOU, and does not discuss the issue of training compensation in any length.

Labor Exemption 

US Antitrust law provides for exemptions for labor-related collective bargaining.[16] Federal courts have observed that “it has long been recognized that in order to accommodate the collective bargaining process, certain concerted activity among and between labor and employers must be held beyond the reach of the anti-trust laws.[17] Under the labor exemption, labor activity relating to the negotiation of mandatory subject of collective bargaining is exempt from the application of anti-trust laws. These mandatory subjects include wages, hours, and terms of employment.

Relevant US Law

The Eighth Circuit of the U.S. Federal Court of Appeals has considered restrictions on out-of-contract player movement for remuneration for training. Mackey v. National Football League[18] established free agency in American sports and serves, more or less, as the American Bosman[19]. In Mackey, the collective bargaining agreement between the NFL and the NFL Players’ association (“NFLPA”) included a provision commonly referred to the “Rozelle Rule.” The Rozelle Rule required that for an out-of-contract player to move to a new team, the team the player had played for had a) a right to match any offers a player received from other teams, and b) if they did not match an offer, the new “purchasing” team had to pay a fee to the old team to compensate the old team for, as the league argued it, training and development expenses on the player. The Court in Mackey made two important holdings for our analysis: 1) training compensation[20] was a mandatory subject of collective bargaining, and 2) the compensation scheme was a violation of antitrust rules.

Training Compensation as a Mandatory Subject of Collective Bargaining

The Eighth Circuit in Mackey found that so long as a provision in a collective bargaining agreement was on a “mandatory subject of collective bargaining” and the product of arms-length bargaining, it did not run violate Antitrust law. The Mackey Court observed that mandatory subjects of collective bargaining were limited to wages, hours, and working conditions. As that limits on movement and training remuneration between teams affected wages, the Court ruled that those limits and remuneration scheme was a mandatory subject of bargaining.

The Eighth Circuit’s decision in Mackey is not controlling on all courts, and the Second Circuit (the circuit with jurisdiction over New York City, where the NFL and MLS has their headquarters) has applied a less restrictive test in Maurice Clarett v NFL [2004] for what mandatory subjects of collective bargaining are. The Second Circuit found that mandatory subjects of collective bargaining those that have “tangible effects on the wages and working conditions of current . . . players.[21]

Since subsequent decisions have adopted a less stringent test than the Mackey analysis, it follows that, if the Mackey Court found that remuneration for training and development constituted a mandatory subject of collective bargaining under a standard that was overruled for being too restrictive it may still hold up as a mandatory subject of collective bargaining under the newer, less restrictive tests. 

Good Faith Arm’s Length Bargaining

If the provision at issue is a mandatory subject of collective bargaining, the next question is whether the parties have negotiated the term in good faith at arm’s-length. While the Eighth Circuit found that the training compensation scheme in Mackey was a mandatory subject of collective barging, the Court found that that scheme was not a result of arms-length bargaining. The Court noted the disproportionate power dynamic between the league and the NFLPA at the time. Moreover, the rule had been essentially unchanged from the rule that existed before unionization in the NFL. The court found that the NFL and the constituent teams forced the provision on players, and therefore it was not bargained at arms-length. 

Historically, the purpose of these rules were seen as a means by which teams could keep player salaries low, as it decreased competition for out-of-contract players by instituting high bar for new teams to meet to sign those players. 

MLS CBA §15.4[22] 

Section 15.4 of the current MLS CBA states: 

MLS and the Player agree that any loan, transfer, assignment or sale of MLS’s rights to the Player’s services, whether prior to or after the termination of the Player’s SPA, shall only be made in accordance with all applicable rules and regulations of FIFA and any relevant governing body provided such rules and regulations do not conflict with any provisions or remedies set forth in this CBA or New York state or federal law; provided further, however, that upon the termination of a Player’s SPA, such Player shall be free to sign a contract with any professional soccer team or league outside of MLS without MLS or any Team requiring the team signing the Player to pay training compensation, a transfer fee, or any compensation, penalty, restriction, or equalization obligation of any kind to MLS or to any Team. ” (emphasis added).

There is an argument that this provision is similar to the Rozelle Rule in Mackey, and that the provision is not the subject of bona-fide arm’s-length bargaining. There is some merit to this. MLS (as a member of the USSF) are obligated to comply with FIFA rules, Likewise, the MLSPU, or its members have had no say in the drafting of transfer rules in the FIFA RSTP.

However, unlike the NFLPA at the time of Mackey, the MLSPU has a modicum bargaining power. Specifically, in the newest iteration of the CBA, the MLSPU, for the first time, negotiated terms for limited free agency for inter-MLS transfers[23] which may provide evidence that the Union can bargain for favorable terms in the CBA with the MLS. 

Primarily Concern Those Subject to the Collective Bargaining

Under Mackey, in addition to being mandatory subjects of collective bargaining, bargained in good faith at arm’s-length, the provision must also primarily concern those subjects to the collective bargaining. The Mackey Court clarified that the question was whether the anti-competitive effects primarily concern those subjects to bargaining. Likewise, subsequent cases have stated that this question is limited to whether the provision works to disadvantage a league’s competitors.[24] 

The provision in question was likely included at the behest of the USSF to the MLS. However, while the USSF and MLS benefit from the provision, the benefit is not anti-competitive, nor is the USSF a competitor of the MLS. §15.4 allows the USSF and the MLS to comply with FIFA regulations and to continue membership therein, giving them access to certain benefits of membership, including having their players and clubs be eligible to compete in international competitions. Therefore, it is likely that, under the Mackey factors, a court would find that §15.4 primarily benefits the parties subject to collective bargaining. 

There could be an argument that the FIFA RSTP has an anti-competitive effect on player wages outside of MLS, as they apply to all clubs taking part in the FIFA international transfer market. However, since the MLSPU agreed to abide by the RSTP in its CBA, and challenging the enforcement of the RSTP, it is difficult to see a court following that argument. However, this line of reasoning could be available to a player outside of the MLS. 

Less Restrictive Tests for the Labor Exemption 

Subsequent to Mackey, Clarett v. NFL addressed this question,[25] and applied the non-statutory exemption to CBA provisions that effect non-union members.[26] The Second Circuit in making its ruling followed a much less restrictive test than the Eighth Circuit in Mackey when determining whether provisions in a CBA falls within the labor exemption. Specifically, the Second Circuit in Clarett applied the test established in the Supreme Court decision in Meat Cutters v. Jewel Tea,[27] balancing the interest of the union members served by the restraint vs. its relevant impact on the product market. Likewise, the Second Circuit and the Supreme Court emphasized a strong deference towards the collective bargaining process.[28] The Second Circuit viewed the plaintiff’s suit in Clarett as an attempt to “circumvent [the collective bargaining] scheme established by federal labor law.[29] Because of this strong deference towards the provision of the CBA, it is very difficult to challenge a provision in a CBA that is related to the mandatory subjects of collective bargaining. However, because §15.4 of the CBA merely incorporates by reference the FIFA RSTP, and the MLSPU did not directly take part in the drafting of the FIFA RSTP, courts may not afford it the same deference.[30]

Sherman Act Analysis

Assuming, for the sake of argument, that a Court found that Labor Exemption would not apply to USSF enforcement of training compensation or solidarity payments, it would then analyze whether the rules violate the Sherman Act. When analyzing Sports leagues under the Sherman Act, courts take into account special nature of the sport business, and the underlying need for cooperation between organizations. Because of the special nature of sports, and sports businesses’ need for cooperation to exist as a commercial enterprise, courts generally apply the balancing test under a Rule of Reason standard.[31] 

The Rule of Reason balances the anti-competitive actions with any pro-competitive benefits those actions may have. The anti-competitive effect is clearly that that club employers have less funds to spend on player salaries. However, the hit on player salary is extremely indirect. A team, when receiving a transfer fee, must earmark and send the money required by the FIFA RSTP to the training club. Those fees become smaller as the player progresses through their career, and does not constitute a significant percentage of the fee. This point touches on a significant deviation from Mackey: most these transfers are happening while a player is still in-contract, so the limitations on workers’ movement are limited. 

You should also note it is not clear whether a club would consider training compensation when calculating its transfer fee, or the player’s new contract. Players themselves negotiate for their salary, and outside the MLS, there are no salary restrictions for players. 

In assessing pro-competitive benefits, it is clear that training compensation serves to repay clubs that focus on youth development, which players significantly benefit. These payments for youth development serve to assist players to increase their playing ability, thus increasing their desirability in the player transfer market and therefore increase their potential earnings. This also serves to raise the bar of the overall quality of play, which (arguably) increases interest in the sport. Similarly, the push of funds to the grassroots portion of the game creates it more accessible to players and fans, which keeps the sport popular, which in turn continues the demand for players’ services.

Additionally, outside of this analysis, some commenters have observed that a rule of reason analysis may serve as a de facto exemption.

 

Conclusion

While the Youth Clubs’ suit was flawed on arguably a few levels, the MLSPU’s contention that enforcing FIFA RSTP regulations on training compensation violates US law, especially for transfers involving players still under contract, is, in the author’s, view likely incorrect. 

We will have to wait to see whether the DRC determines whether the Youth Clubs are entitled to the compensation, and if so, whether the USSF complies with an order issued by the FIFA DRC. 

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About the Author

Andrew Visnovsky

Andrew Visnovsky

Andrew is an associate at Landman Corsi, Ballaine & Ford P.C., where he works on a wide range of complex civil matters including employment disputes, commercial litigation, and professional liability claims. Andrew previously served as a Law Clerk to the Honorable F. Patrick McManimon, J.S.C., and a mediator in the Superior Court of New Jersey for the 2014/15 judicial term.

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