The on-going football dispute over training compensation and player loans: Panionios -v- Parana

Published 22 May 2014 | Authored by: Lloyd Thomas

The concept of training compensation and the system of player loans are both aspects of the football pyramid that should operate in a complementary manner.

However, the decision of the Court of Arbitration for Sport (“CAS”) in Panionios GSS FC v Paraná Clube1 (dated 9 April 2013 but published earlier this year) casts doubt on the relationship between the two systems and appears to suggest that, where a player is loaned by a training club to another club, the training club does not have the right to claim training compensation for any training and education it has provided before the loan takes place.  Given that a loan would commonly occur after a training club has brought a player through its academy, but before he makes his first team debut, this decision could have serious consequences for training clubs and players.

The CAS stated that its decision in this case follows the precedent set in Feyenoord Rotterdam v Club de Regatas do Flamengo.2  However, in my opinion, the Panionios case is distinguishable from the Feyenoord case and, in any event, pays no regard to the consistent jurisprudence of the FIFA Dispute Resolution Chamber (the “DRC”).  As discussed further below, this decision could prove inimical to the training and development of young players in the future.

 

Player Loans and Training Compensation

The training and development of young players is fundamental to football.  Clubs at all levels expend considerable resources training and educating their young players who are, in effect, custodians of the club’s future sporting performance and/or valuable assets in the transfer market.  Of particular importance to such development is the system of player loans.  Some players who find that they are not in the manager’s immediate plans go out on loan so that they can play competitive football regularly.  For another group of players, loans allow football clubs to address the gap in talent and experience between their development squads and their first team squads.  Younger players can go on loan to gain experience in a foreign or lower league which will ultimately prove beneficial for all parties involved: the player is provided with the opportunity of competitive football, the loanee club is able to derive benefit from the player’s ability and the parent club hopes that the loan will prove an experience for the player through which his skills can be developed.  In this respect, the concept of the loan is an important aspect of football’s infrastructure and is one of the foremost ways in which the skills and development of a young player can be enhanced.  

The importance of developing young players is reflected in the FIFA Regulations on the Status and Transfer of Players3 (the “Regulations”) and, in particular, in the Regulations concerning the payment of training compensation.  Article 20 and Annexe 4 of the Regulations set out the system whereby a player’s training club shall be compensated by the player’s new club for the entire period the training club effectively trained the player between the ages of 12 and 21 (subject to the factual question of whether the player’s training has in fact been completed earlier - see for example Hapoel Beer-Sheva v Real Racing Club de Santander S.A.D.4 In Olympique Lyonnais SASP v Olivier Bernard,5 the European Court of Justice (“ECJ”) ruled that a scheme that provided for the payment of compensation was a prima facie restriction of the freedom of movement enshrined in Article 45 of the Treaty on the Functioning of the European Union,6 formerly Article 39, though it could in principle be justified by the objective of encouraging the recruitment and training of young players.  In the case in question, which concerned the compensation rules implemented in France at the time, the ECJ ruled that the particular scheme in place went beyond what was proportionate to achieve the legitimate aim of compensation.  The corollary of that decision is that provisions of national law must not require payment of sums that are in excess of the actual training costs incurred upon termination or expiry of a contract.  The FIFA training compensation system thus ensures that training clubs are adequately rewarded for the efforts they have invested in training their young players.  

The objective of training compensation is thus to ensure that training clubs are sufficiently compensated for the cost incurred in training their young players.  This concept contributes to what is often referred to as the “trickle down” effect, namely that compensation is distributed from the top of the football pyramid to the very bottom.  The suggestion is that this helps maintain the competitive balance between clubs and allows them to continue training and developing players in the knowledge that they will be adequately compensated for their efforts.  In my opinion, training compensation therefore plays an important role in the development of young players and in maintaining the stability and integrity of the sport.    

Yet, as I argue below, the decision of CAS in Panionios appears neither to take into account this rationale, nor the fact that training compensation should be payable for the entire period a club trains a player.  Instead, CAS appears to have reached a conclusion that inhibits a club’s entitlement to be compensated for the full period that it has trained and educated a player.   

 

Background to the case

The case concerns the Brazilian player “W” (the “Player”) who was first registered as a professional under a contract dated 2 July 2007 with the Brazilian club Paraná.  On 10 February 2009, the Player was loaned by Paraná to Associaçaõ Atlética Iguaçú (“Iguaçú”), another Brazilian club.  The Player remained on loan with Iguaçú until 31 March 2009 when the parties signed an agreement bringing the loan to an end. The Player therefore returned to Paraná but, on 12 May 2009, the Player and Paraná entered into an agreement which terminated the Player’s employment with the club.

On 10 June 2009, the Greek club Panionios GSS FC (“Panionios”) entered into a Cooperation Venture Agreement with Spanish club RCD Espanyol de Barcelona SA (“Espanyol”), the aim of which was to facilitate Panionios’ acquisition of young players from Espanyol.  Six days later, Espanyol announced on its website that it had signed the Player and that he would be immediately loaned to Panionios pursuant to the Cooperation Venture Agreement.  However, neither Espanyol nor the Spanish Football Federation had asked the Brazilian Football Confederation (the “CBF”) for the player’s International Transfer Certificate (“ITC”). 

On 17 July 2009, the player signed an employment contract with Panionios to run until 30 June 2010.  In order to register the player with the Greek Football Federation (the “HFF”), Panionios approached the CBF and asked it to send the Player’s ITC. The CBF subsequently sent the Player’s ITC and the Player was registered with the HFF on 18 August 2009.   On 21 September 2009, Paraná sent a letter to Panionios requesting training compensation for the player pursuant to Article 20 Annex 4 of the Regulations.  

 

The FIFA Dispute Resolution Chamber proceedings

Panionios denied that it was liable to pay training compensation to Paraná.  Likewise, Espanyol denied the existence of any agreement for the transfer of the Player.  Notwithstanding that it had announced that it had signed the Player and that the Player would be loaned to Panionios, at no stage did Espanyol ask the CBF for the Player’s ITC.  Paraná thus filed a claim against Panionios before the DRC by which it claimed that Panionios had signed the Player on a free transfer and that it was entitled to training compensation. 

On 1 February 2012, the DRC issued its decision. After considering the representations of the parties as to the correct pattern of facts leading to the Player’s transfer, the DRC held that Panionios was liable to pay Paraná the amount of EUR 250,000 in respect of training compensation.   

 

The Arbitral Proceedings before the CAS

On 29 August 2012, Panionios filed its Statement of Appeal with CAS, arguing that it was not liable to pay training compensation to Paraná.  

In reaching its decision on the matter, CAS ruled that Panionios owed training compensation to Paraná as there was insufficient evidence to determine that the Player had been properly transferred at any stage to Espanyol.  Much time is spent in the judgment on what was agreed (or not agreed) between Espanyol and Panionios: the factual history of this relationship proved complex, while many of the details of the parties’ dealings regarding the Player remained unclear. 

However, the finding of liability is of secondary importance from the perspective of training compensation; it is the CAS’s decision regarding the amount of training compensation that proves of interest.  In this respect, CAS ruled as follows:

“…the question to be answered in this appeal and in the context of the interpretation of Annexe 4 Article 3.1 of the FIFA RSTP is whether the calculation of the training compensation owed to Paraná should be made in relation to the entire period in which the Player was registered with Paraná, before and after the loan to Iguaçú or whether the loan to Iguaçú has an impact on the period in a way that this loan actually reduced the period to be taken into consideration only to the last cycle i.e. the last period in which the player was registered with Paraná after he returned from the loan period to Iguaçú…7

…the Panel can only understand the above mentioned rule in the sense considering Panionios liable to pay the training compensation to Paraná (as the former club who has previously trained the Player) only for the period during which the Player was registered with Paraná after the loan to Iguaçú.”8 (Emphasis added).

CAS therefore ruled that Paraná was not entitled to training compensation for the 18 month period during which it trained and educated the Player before he was loaned to Iguacú. The compensation to which Paraná was entitled was limited to the period after the loan, which amounted to just 42 days.  In short, this decision would suggest that a loan interrupts a training club’s entitlement to training compensation.  

It is submitted that this decision cannot be right for a number of reasons.  

First, the Regulations do not provide that by loaning a player, a club loses its entitlement to training compensation.  Instead, the Regulations provide that a training club is entitled to training compensation for the entire period it has provided the player with training and education. This is logical; there seems no practical reason for a club to lose entitlement to training compensation as a result of its decision to loan a player.

Second, there exists consistent jurisprudence of the FIFA Dispute Resolution Chamber that provides for a period of loan to be excluded from the calculation because the training club is entitled to compensation only for the period in which it has actually provided the player with training.  These cases were not considered by CAS.  In these cases, the FIFA DRC determined that a training club is entitled to training compensation for the entire period of time during which the player is registered for that club, less any period a player is on loan at another club.  The decisions of the FIFA DRC in L v P,9 P v G,10 R v L FC11 and C v P12 are all authorities for this position.  In P v G, the DRC stated that:

“…the entire period of time during which the player was registered for the Claimant as well as for P has to be considered as one entire timeframe and that therefore the loan to the latter club cannot be considered to be a subsequent transfer, triggering the consequences stipulated in art. 3 par. 1 of Annexe 4 of the Regulations, and consequently preventing the Claimant to receive training compensation for the period of time during which the player was registered for it prior to the loan…13

…the Chamber declared that the obligation to pay training compensation arises in case a player is definitively transferred from one club to another, with the effect that the club which transferred the player on a loan basis to another club is entitled to training compensation for the period of time during which it effectively trained the player, however, excluding the period of time of the loan to the other club.”14

Third, the CAS bases its decision in part on the decision of Feyenoord Rotterdam v Club de Regatas do Flamengo15 which, CAS states, is authority for the proposition that training compensation should be payable to the training club for the period of the last cycle of registration with that club.  However, Feyenoord did not concern the application of training compensation to a loan scenario, but rather to a scenario of sequential permanent transfers. In that case, CAS established the ‘segmentation’ principle, whereby training compensation is payable only in respect of the segment of time immediately preceding a player’s permanent transfer to and registration with a new club. It is not in doubt that a permanent transfer interrupts the chain in respect of training compensation but, as per the FIFA jurisprudence noted above, I submit that the principle should differ in respect of loans. 

If it were correct that a loan prevented a training club from claiming training compensation for the period before a loan, training clubs would be discouraged from loaning their young players to other clubs as they would lose out on significant sums.  This would particularly be the case where the club has trained the player from the age of 12 and the player is on the verge of first team football.  While the development of players is fundamental to clubs, so too in the age of financial fair play is the financial imperative provided by training compensation.  

Further, the logical corollary of the loan breaking the chain for training compensation is that the club taking the player on loan is obliged to pay the training compensation of the training club, and is entitled to training compensation from the training club after the player returns.  While all clubs agree the financial terms of loan and training compensation could, in principle, apply instead of or in default of another agreement, again the training club may be discouraged from loaning a player if it knows that it will then become liable to the loanee club for additional compensation.

It is thus a surprising decision, especially given its conflict with the principles of the Regulations and the imperatives underlying those Regulations.  It is respectfully suggested that this decision is not a consequence of Feyenoord but is a decision that should be confined to the facts of that case and not followed.

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About the Author

Lloyd Thomas

Lloyd Thomas

Lloyd Thomas is an associate in Squire Patton Boggs’ Litigation department and is part of the Sports Law team based in its London office.

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