Key case law on attempts to circumvent FIFA’s Training Compensation System
Published 18 December 2014 By: Markus Manninen
In the words of the Court of Arbitration for Sport ("CAS"), the rationale for FIFA’s Training Compensation System (TCS) is, ‘that clubs should be encouraged to train players and those clubs that carry out the training process successfully should be rewarded for their efforts. By the same token, those other clubs that enjoy the fruits of that process should be obliged to pay something in compensation for the training efforts engaged in by others.’1
The Basics of the Training Compensation System
Article 20 of the FIFA Regulations on the Status and Transfer of Players 2014 ("FIFA Regulations")2 sets out the basic principles on training compensation as follows:
"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."
More detailed provisions on training compensation are imposed in Annexe 4 of the FIFA Regulations.
Pursuant to the Annexe, a player’s training and education takes place between the ages of 12 and 23. Training compensation shall be payable, as a general rule, up to the age of 23 for training incurred up to the age of 21.3
Training compensation is due when a player is registered for the first time as a professional or a professional is transferred between clubs of two different associations before the end of the season of his 23rd birthday4 (although compensation is not due when the player is transferred to a club in the lowest category (category 4 – explained below)5).
On registering as a professional for the first time, the club with which the player is registered is responsible for paying training compensation to the players’ former registered clubs that have contributed to his training. More importantly, in the case of subsequent transfers, training compensation will only be owed to his former club.6
In order to calculate the compensation due for training and education costs, national football associations are instructed to divide their country’s clubs into a maximum of four categories in accordance with the clubs' financial investment in training players. The training costs are set for each category and correspond to the amount needed to train one player for one year multiplied by an average "player factor", which is the ratio of players who need to be trained to produce one professional player.7
In general, the quantum of the training compensation is based on the training and education costs of the new club.8 However, there are special provisions for the European Union / European Economic Area: if a player moves from a lower to a higher category club inside the territory, the calculation shall be based on the average training costs of the two clubs.9 In the opposite situation, the calculation shall be based on the costs of the lower-category club.10
Finally, a loan of a professional to another club is subject to the same rules as apply to the transfer of players, including the provisions on training compensation.11
Case Law on Clubs’ Attempts to Avoid Paying Training Compensation
Every now and then clubs, even renowned and wealthy ones, are tempted to try and avoid the payment of training compensation by – for example – orchestrating a plot whereby the player is circulated through a low category club to the true transferee.
The two bodies responsible for hearing cases relating to attempts of circumvention – CAS12 and the FIFA Dispute Resolution Chamber (the "DRC" or the "Chamber")13 – have generally disapproved of such behaviour.
Below, this author will examine what are, in his opinion, the landmark rulings14 by CAS and the DRC in cases concerning attempts by clubs to circumvent the payment of training compensation. The focus is on the circumstances under which the CAS and the DRC have considered it justified to command a purchasing club to compensate the training club(s) of a player. The general prerequisites for a training club to be entitled to training compensation and the calculation of the remuneration are not addressed here.
The most famous circumvention case is that of MTK Budapest ("MTK") and FC Interazionale Milano S.p.A. ("Inter").
The player, Attila Filkor, was registered as an amateur with MTK from 1 July 2003 until 30 June 2006 between the ages of 15 and 18. He had captained the Hungarian U19 team and been called up for the full national team, making his debut for Hungary against Latvia in 2007.
In July 2006, negotiations took place between MTK and Inter in relation to the proposed transfer of Filkor to Inter. However, the talks were unsuccessful. Instead, on 22 August 2006, the Hungarian FA issued an International Transfer Certificate ("ITC") for the player to move to Malta. On 24 August 2006, the midfielder was registered as a professional player with the Maltese club Pieta Hotspurs FC.
On 31 August 2006, the Maltese FA issued an ITC to the Italian FA and Filkor was then registered with Inter. During the nine-day period that the player was registered with Pieta Hotspurs, he did not take part in any competitive match for the club.
MTK contacted FIFA and requested payment of training compensation in the sum of EUR 273,452 to be paid by Inter. MTK argued that the contract between Filkor and Pieta Hotspurs was a fiction and essentially designed to circumvent the applicable FIFA Regulations on training compensation.
The DRC rejected MTK's claim because the latter did not provide documentary evidence for having offered the player an employment contract.17 Although the DRC never had to examine the liability of Inter to pay training compensation, it emphasized that "should it become aware of any blatant circumvention of the regulations or that a party makes abuse of its legal rights, such stance would be severely punished".18 MTK filed an appeal with the CAS.
The CAS concurred with the DRC that MTK had not demonstrated that a professional contract was offered to Filkor. However, the Panel deemed that MTK is entitled to receive training compensation for having trained the athlete. The CAS found that MTK had invested in considerable training efforts during the key formative years of the player's training and that the education has been largely successful.
With regard to Inter's liability to pay remuneration, the reasoning of the CAS is rather brief. The Panel noted that since Inter benefited from the player’s training, it should be obliged to pay training compensation. According to the CAS, Pieta Hotspurs did not appear to have benefited from MTK’s training efforts because Filkor was only registered with that club for nine days and never even played a competitive match in Malta. Even though the CAS did not expressly point the finger at Inter and Pieta Hotspurs, the Panel's view on the player's "unusual pattern of movement"20 becomes quite clear from the following note:
"(…) the Panel also observes that it is difficult to understand why a player who is rated highly and who has captained the Hungarian under 19 team and who has attracted the attention of Inter Milan should elect to move to a club in Malta and stay there for little more than a week before moving on to Italy."21
Despite MTK not being the direct former club of the player before his transfer to Inter – as required by the FIFA Regulations – the latter was ordered to pay the amount of EUR 144,000 as training compensation to MTK.
The following circumvention case is characterised by the exceptionally close ties between the two respondents. Further, as opposed to the case MTK versus Inter, the athlete was transferred to his final post on a loan basis.
The player, born in 1989, was registered for the Claimant as from 1 March 1998 until 14 August 2007 as an amateur.
On 6 February 2009, the Football Federation of an unidentified country “L” ("FFL") informed FIFA that a player was registered for a category 4 club (Respondent 1) as a professional player on 15 August 2007. The FFL also notified that he had subsequently been transferred on a loan basis by this club to a category 3 club in the same country (Respondent 2) on two occasions (without specifying the full details of the loans). According to the FFL, following a query from FIFA on 9 February 2010, the two clubs were separate legal entities.
The Claimant club lodged a claim against the Respondents and requested the payment of training compensation in an amount of EUR 120,000. The Claimant maintained that the Respondents were de facto one entity. By way of example, they had identical contact details. In the Claimant's view, by registering the player for the Respondent 1 before transferring him on a loan basis to the Respondent 2, the Respondents tried to circumvent the provisions on training compensation. According to the Claimant, the player had never played for Respondent 1.
Considerations of the DRC
The DRC took note of the rather imprecise, even contradictory information regarding the data on the player's registrations with the FFL clubs. When examining the argumentation provided by the Respondents, it noted that they remained rather vague, even silent, with regard to the loan agreements, in particular their period of validity. The DRC also noted that the Respondent 1 never tried to demonstrate that the athlete had played matches for it. The DRC was of the opinion that the Respondent 1 did not appear to have benefited from the training efforts invested by the Claimant and that, in reality, the talent had always played for Respondent 2 since his registration in summer 2007.
The DRC pointed out that the foregoing was corroborated by the confusion whether the Respondents were one or two legal entities. It recalled that according to the FFL, Respondent 1 was the youth club of the Respondent 2. Moreover, the submissions of the Respondents were signed by the same person and were written on the same letterhead. In addition, the Respondents appeared to have the same address, fax number, director as well as one bank account. In the DRC's view, the confusion increased the probability that the Respondents tried to avoid the payment of training compensation by registering the player as a professional with the Respondent 1, a category 4 club.
Finally, as in the case between MTK and Inter, the Panel took note of the illogical movement of the player as follows:
"(…) bearing in mind the purposes followed by the institution of the loan – i.e. as a general rule, young players are transferred on a loan basis to lower category clubs in order for them to gain playing time in order to improve their training and education by a regular practice during matches – the DRC underlined that, in casu, the player, being 18 years old in summer 2007, had been immediately loaned from a category 4 to a category 3 club, which is not very common in the world of football".23
The Claimant was entitled to receive training compensation from the Respondent 2 in an amount of EUR 100,000.
The following matter adjudicated by the DRC is a straightforward circumvention case.
The player, born in 1989, was registered with the Claimant as from 10 March 2008 until 15 November 2011 as a professional.
On 1 February 2012, a category 4 club F requested the player's ITC from the Claimant. Four days later, the Respondent – a category 2 club – requested the ITC from F. The player did not play a single match or participate in any of the trainings of F.
The Claimant concluded that the Respondent tried to circumvent the payment of training compensation and lodged a claim amounting to EUR 240,000 before FIFA. The Claimant submitted several internet extracts from January 2012, which indicated that the player had signed for the Respondent. There was an excerpt from the Respondent's website dated 9 January 2012, containing, inter alia, the fact that the scouts from the Respondent had been watching the player’s performance both in the Claimant and the national team.
Considerations of the DRC
The DRC underlined that the employment contract between F and the player had been terminated after four days. Moreover, already on the following day the Respondent had concluded an employment contract with the athlete. The Chamber also noted that according to the Respondent's website, the sportsman was included in the list of players that were attending the training camp in January 2012. Further, the Respondent had already welcomed the player to its team before his registration with F. Finally, the DRC paid attention to the abnormal sequence of transfers as follows:
"(…) nor did the Respondent provide an explanation why the player had moved from a club (from country R) playing in the 1st league in country R to a club from country X participating in the 3rd league in country X for only 4 days, before transferring to a club participating in the 1st league in the country M."25
The Chamber concluded that the player had in fact already joined the Respondent prior to his registration with F. The DRC considered that the Respondent tried to avoid the training compensation and ordered it to pay to the Claimant the amount of EUR 185,000.
The last case we shall examine, resolved by the DRC a year ago, bears resemblance to the one adjudicated by the Chamber eight months earlier.
The player, born in 1989, was registered with the Claimant as from 30 August 2005 until 1 January 2012 as a professional.
On 10 February 2012, Club K signed an employment contract with the athlete. Only 19 days later, K loaned the player to the Respondent for EUR 575, without the player ever having attended a match or a training session with K.
The Claimant contacted FIFA claiming the payment of EUR 380,000 as training compensation from the Respondent. In order to corroborate its position, the Claimant submitted an extract of the Respondent's website dated 20 August 2011 indicating that the player had signed a 4-year contract with the Respondent coming into force on 1 January 2012. The Claimant also produced various internet extracts indicating that the player had been on a training camp with the Respondent in January 2012. Finally, it forwarded a letter from the Respondent in which the latter indicated that it was "obviously not refusing the obligation to pay the training compensation (…)".
Considerations of the DRC
The DRC had to establish which club, the Respondent or K, shall be considered the new club in light of the provisions regarding training compensation. The DRC deemed that it was the Respondent.
The Chamber referred to the evidence provided by the Claimant and concluded that there were numerous elements speaking in favour of a circumvention case: The Respondent discussed the training compensation issue with the Claimant in a letter on 7 January 2012, confirmed that it had discussed the terms of a potential employment contract with the player and had in fact already signed a contract with the athlete in August 2011. Moreover, the player went on a training camp with the Respondent in January 2012 and there was a very short period of time between the moment that the player was transferred to K and when he was loaned to the Respondent. In addition, the athlete was transferred from K to the Respondent for a remarkably low amount of money, K and the Respondent were from the same city and K belonged to a lower category than the Respondent. Finally, the player had been playing for the Respondent ever since his loan transfer and never represented K.
These facts, the DRC noted, "can lead to no other conclusion than that the Respondent was the new club of the player in the sense of the Regulations".27 The Respondent was ordered to pay to the Claimant EUR 295,000.
So, what circumstances are likely to be taken into account by the CAS or DRC in determining whether there has been unlawful circumvention of the TCS?
The tribunals will, as a main rule, adhere to the language of the FIFA Regulations and refrain from extending the scope of Annexe 4, Article 3.1, and in particular have made clear that in the case of subsequent transfers of a professional player, training compensation will only be owed to his former club.
We have also learned that there may be valid reasons for the clubs to undertake otherwise suspicious transfers, like conducting rapid consecutive transfers, for example a "bridge transfer" where the player will never be fielded by the bridge club, who loans the athlete to a destination club.28 The training clubs should not jump into conclusions even if the movements of their ex-players would, at first sight, appear suspicious. However, in the interest of sporting justice and to ensure that clubs are not using such techniques as shams to purposefully avoiding paying training compensation, the CAS and the DRC Panels have demonstrated in that they will not hesitate to look behind a transfer to determine whether it is actually a device to circumvent training compensation.
The following factors, when substantiated with solid evidence, have been interpreted by the CAS and DRC as indications of an attempt to avoid the payment of training compensation and have been sufficient to satisfy the tribunals in the past:
- Short visits to the lower category clubs. In the aforementioned cases, the stops lasted from only 4 to 19 days.
- No matches (and no practicing) for the intermediate clubs. As shown above, none of the athletes had played for the lower level club in a match before ascending the club ladder.
- An existing contact between the player and the final club before the series of transfers. In three of the examined cases, the destination club had been in a direct contact with the athlete before the initial transfer. Twice the player had participated in the team's training camp.
- A close relationship between the lower and higher level clubs. In the extreme case adjudicated by the DRC in 2010, the two respondents had the same address, fax number, director and bank account. In the DRC case of October 2013, the new clubs were from the same city.
- An unusual sequence of transfers without any rational explanation. The absence of any sensible reason for a talented player attracting grand clubs to move to a second tier team before an immediate rise was observed in all four cases examined in this article.
Practical advice for training clubs
In case a training club suspects that a purchaser is trying to avoid paying training compensation, it should immediately conduct a thorough fact-finding and assess whether the circumstances give reason for further measures. Should it transpire that the case requires legal action, the apprenticeship club should gather and preserve written evidence to be able to substantiate the relevant facts in the upcoming dispute. Needless to say, it is recommendable to engage a sports law expert early on to support the decision making, to present the claims against the purchasers and to plead the case in front of the sports tribunals if need be.
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- Tags: Contract Law | Court of Arbitration for Sport (CAS) | FIFA | FIFA Dispute Resolution Chamber | FIFA Regulations on the Status and Transfer of Players | FIFA Training Compensation System | Football | Governance | Regulation
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Markus is an attorney focused on commercial litigation and arbitration as well as sports law at the Finnish law firm Hannes Snellman Attorneys (Helsinki). He serves as a CAS arbitrator.