A Closer Look at How MLS Training Compensation Could Influence the Market
Last month, MLS decided to enter the training compensation (and solidarity) market. The move is not surprising. League commissioner Don Garber predicted as much. And plus, from the league’s perspective, it makes sense. American youth players have been pouring from MLS academies, into European clubs, for the last several years. Training compensation will stick a price tag on these players, thus, discouraging foreign clubs from signing them.
The bigger issue is how MLS’ new policy will affect the marketplace. Speaking metaphorically, MLS has introduced a new species into the soccer ecosystem. So both in the US and abroad, this will alter the market. The questions are how and how much.
Black-and-white answers will have to wait for the new market to gel. But for now, it is worth examining the factors that will influence clubs’ decisions and the way training compensation could have affected previous Americans’ moves to Europe. This can give us a sense of how the new player market may operate.
Calculating Training Compensation
Training compensation is owed to a player’s training clubs when he signs his first professional contract, as long as the signing club is from a different country than the training club. Each club that registered the player between ages 12 and 21 qualifies as a training club.
Determining the amount of compensation is a multi-step process. To begin, each year, FIFA creates a matrix, with its six regional confederations (roughly matching the world’s six continents, minus Antarctica) on one axis and four categories of clubs on the other— Category I being the highest, and IV, the lowest. For each confederation, there is a yearly amount of training compensation in each category. So when a player moves to a club in that category, his training club gets that amount of compensation, multiplied by the years it trained the player. For instructive purposes, the 2018 matrix is below.
So accordingly, if a club in Brazil trained a player for 2 years, after which, he moved to a Category I club in England, the Brazilian club would be entitled to €180,000 in training compensation.
These rules have exceptions. First, for a player’s age 12 through 15 seasons, training compensation is calculated as if the signing club is in Category IV. So in the above example, if the player’s two years with the Brazilian club were his age 12 and 13 seasons, the club would only get €20,000, not €180,000. Second, while the matrix displays the training costs in full years, compensation is calculated by the month. Turning back to our example, if the player trained with his Brazilian club for the entire year he was 16 and one month when he was 17, the club would get €90,000 for the full year and another €7500 (€90,000 divided by 12 months) for the extra month.
Within each confederation, FIFA requires the national associations to distribute their clubs into the appropriate categories. The only restriction is that FIFA caps the highest level each association can rate its clubs. For example, in 2018, FIFA only allowed two South American countries — Brazil and Argentina — to have Category I clubs. See the partial table below.
In Europe, only seven countries could use Category I: Belgium, England, France, Germany, Italy, the Netherlands and Spain. Others, like Montenegro, could only put clubs in Category IV.
There is little information on which clubs occupy which categories. But cases from FIFA’s Dispute Resolution Chamber do indicate that, for countries with all four categories, a club’s category will usually match its level on the pyramid. In other words, a Division I club will be in Category I, a Division II club in Category II, and so forth.
The Intra-Europe Exception
Article 6 of Annex 4 of FIFA’s Regulations on the Status and Transfer of Players, exempts training compensation from transfers between clubs in different European countries. The exemption does not apply, however, if the training club offered the player a professional contract or otherwise, showed “bona fide” interest in him. In these situations, the training club can still receive compensation.
But the “bona fide” interest standard is tough. (See my explanation here). So the net effect is that training compensation does not apply to a large amount of international transfers within Europe.
MLS adopts the policy behind the Intra-Europe Exception
Though not required to do so, MLS has promised to request or pay training compensation only when a player has been offered a professional contract. Basically, this is the policy in Article 6, adopted voluntarily.
Nonetheless, it is unlikely to have the effect it does in Europe. The most obvious reason is that, for intra-Europe transfers, Article 6 is a rule, enforced by FIFA, a neutral party. MLS, on the other hand, will enforce the policy on its own. This means it gets to adjust the constraints to fit the situation. In short, what is a high bar for intra-Europe transfers may not be so high for MLS.
Impact on US youth transfers
For US soccer, training compensation could jeopardize the migration of American youth players to European clubs. As I have explained, most of these transfers fit a mold: (1) no transfer fee; (2) amateur player; (3) from a US team to a European one. Training compensation will nix the first element — no transfer fee — because, in effect, it will be a transfer fee.
The question is whether this added fee will be enough to nix the transfers altogether — or at least whether it will nix some. On this point, it is helpful to consider how previous American youth transfers would have looked if training compensation were a factor.
Weston McKennie
On his 18th birthday, McKennie signed with German club Schalke. Prior to that, he had spent seven seasons — from age 11 to age 17 — in the academy at MLS’ FC Dallas. McKennie moved in 2016, when MLS did not accept training compensation. So he cost Schalke nothing.
Under the league’s new policy, Schalke would owe Dallas substantial training compensation. Essentially, the amount would consist of two parts: McKennie’s time from age 12 through age 15, and his time from age 16 until he left Dallas. First, each year from age 12 to age 15 would be calculated as if Schalke were a Category IV club. In 2018, this was €10,000 per season, or, in McKennie’s case, €40,000 total. Second, the time from age 16 until McKennie left Dallas, would depend on Schalke’s category. As Germany has four categories of clubs, and Schalke is a consistent first division club, it likely falls into Category I. In 2018, this was worth €90,000 per season. McKennie left Dallas a month before his 18th birthday. That gives Dallas 23 months of compensation, which comes to €172,500. Added to the €40,000 for McKennie’s first four years, Dallas’ total compensation would be €212,500 ($237,121.25 as of May 22, 2019). Or put another way, McKennie would now cost Schalke €212,500.
This may not sound like much, but relatively-speaking, it is. Transfer fees for youth players (players on a U19 team or below) are unusual. Six-figure transfers are even more unusual. In fact, Schalke has only done it a handful of times.
Clearly, Schalke wanted McKennie. The club had used him as a guest player in a 2016 youth tournament and, reportedly, signed him to a generous initial contract. But this does not mean it would have paid almost $250,000 for him.
Further, despite impressing Schalke, McKennie did not arrive at the club with an eye-catching resume. Prior to signing, he had excelled for Dallas in the US Soccer Federation’s Development Academy and for the US U19 team at an international tournament. Still, he had not made the US national team for the most recent U17 World Cup. And even his participation as a Schalke guest player should be viewed with caution given that Schalke also used two other American guest players in the same tournament. So while he was well-regarded, McKennie was not the type of youth prospect clubs across Europe had to have.
Accordingly, the question of whether Schalke would have paid McKennie’s training compensation is an open one. Rarely has the club spent that kind of money to acquire a youth player. Therefore, it may not have done so for McKennie.
Christian Pulisic
To be clear, even today, Pulisic may not cost any training compensation because he never played for an MLS academy. Thus far, non-MLS youth clubs have not indicated they will push for training compensation. In fact, they may benefit from waiving it.
But if Pulisic’s youth club — PA Classics — did request training compensation, he would not have been worth much. Pulisic left Classics at 15, and signed with Borussia Dortmund on his 16th birthday. Because he did not stay at Classics until 16, he never hit the point where Dortmund began counting as a Category I club. Instead, Dortmund would be treated as a Category IV club, meaning each of Pulisic’s seasons was only worth €10,000. Given that he did not even stay at Classics for all of his 15th year, the club’s total compensation would not have exceeded €40,000.
Further, when Dortmund signed him, Pulisic was the star of the United States’ U17 team, and one of the most highly-regarded American prospects ever. So it is unlikely a $40,000 fee would have scared Dortmund away.
Sebastian Soto
Soto plays for Hannover 96, a German Bundesliga club this past season (2018–2019) that has been relegated to the 2nd tier for next season. Soto signed at the beginning of the 2018/2019 season, when he turned 18. In the United States, he played on the youth teams at MLS’ Real Salt Lake, for which he dominated the USSF Development Academy. (Look at his goal scoring rate). Still, at the time he signed, Soto had not been a significant contributor to any youth national teams. He was a good, and potentially underrated, prospect, but not an exceptional one.
Nonetheless, since arriving in Germany, Soto has been exceptional. Playing with Hannover’s U19 team, he fried the Junioren Bundesliga (the country’s top U19 league) with 17 goals in 24 appearances. This earned him a call-up to the first team, where he appeared in three games. All were meaningful too, as Hannover was not condemned to relegation at the time.
Soto’s training compensation number would be high. He played for RSL from just before he turned 16, until roughly the end of his 18th year. The four months he spent at RSL before reaching 16 would count as approximately €833 per month, or €3,333 total. As Hannover was in the Bundesliga when Soto signed, his remaining two years would be expensive — €90,000 apiece. Combined with the €3,333 from Soto’s pre-16 time, Hannover would owe €183,333 ($204,626.21 as of May 22) in training compensation for him.
As Soto was not pursued with the same ferocity as Pulisic or even McKennie, €183,333 would be a steep price. Further, it would be especially high for a modest club like Hannover, which lacks Dortmund or Schalke’s resources. Altogether, this could mean the club would think twice before dropping over $200,000 on Soto.
Takeaways
First, training compensation does not depend on the player’s on-field value. Note that McKennie and Soto would cost roughly five times as much as the highly-coveted Pulisic.
Second, training compensation may increase the value of a European passport. Under FIFA rules, prior to age 18, a player is generally prohibited from signing with a foreign club. An exception is when the player has an EU passport and the foreign club is in a European country. (Pulisic, for example, had a Croatian passport). In those cases, the player can sign with the foreign club when he turns 16. Sixteen also happens to be the age when training compensation balloons. So a US player with a EU passport is now doubly-blessed in that he can move to Europe earlier and may require minimal training compensation.
Third, in the new marketplace, prospects like Soto may be the ones who get squeezed. European clubs (especially German ones) seem to view American youth players as an inefficiency in the market: underrated players with first team talent, who cost nothing. If they now cost six-figures, many clubs, in particular, those with more modest budgets, may look elsewhere for their competitive advantages.
