“There should be a greater incentive for the clubs to develop young talent viewing this investment as a financial guarantee…”
On July 25, 2019, FIFA presented a proposal to license and operate a new Clearing House to centralise transfer payments. The project has already been approved and is expected to be implemented soon. The idea of a Clearing House arose through FIFA’s analysis that a rising number of clubs were not fulfilling their payment obligations in relation to training compensation and solidarity contributions. But what are training compensation and solidarity contributions? In essence they are payments mechanisms triggered by the international sale of a player to reward the player’s previous club(s) who trained them and contributed to their development. These payments are codified in FIFA’s Regulations on the Status and Transfer of Players as:
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.RSTP Article 20
21 SOLIDARITY MECHANISM
If a professional is transferred before the expiry of their contract then each club that trained them from the season of their 12th birthday shares 5% of the transfer fee.RSTP Article 21
In 2018 data released by FIFA estimated that $351.5 million should be distributed as solidarity contributions, but just only $67.7 million was paid. This represented 19.3% of the total it should have been. Therefore, the FIFA council approved a series of reforms and updates to the transfer system, with the aim of providing more transparency and effectiveness in fulfilling financial obligations. In order to fulfil this aim the Clearing House will act independently from FIFA and centralise the following payments:
- Solidarity Contributions and Training Compensation
- Commissions to Intermediaries
- Transfer fees to selling clubs
The Impact of Solidarity Contributions and Training Compensation
The most significant impact of the Clearing House will be in the compensation or indemnity to which the training clubs are entitled, whether as a solidarity contribution or training compensation.[ii] In the new Clearing House system, the amounts due for solidarity mechanisms will be collected directly from the acquiring club at the time of purchase, then distributed to the training clubs registered in the athlete’s electronic passport.
The main proposal is to use FIFA to calculate the training compensation payments and coordinate with the Clearing House so that it is paid. The Clearing House will act as a central party for accepting payments and carry out all required checks. This measure is necessary because some clubs do not meet their financial obligations to compensate the training clubs despite being aware of the RSTP provisions. In the last year, according to the Global Transfer Market Report 2019, around USD 63.3 million was declared for solidarity contribution and USD 12.2 million for training compensation.[iv] However, part of this value is not passed on to the clubs, and as you can see, we are not talking about small amounts, some clubs depend on these payments to balance their financial statements.
The Clearing House FIFA will ensure that the money paid by the new club is distributed correctly to the training clubs, based on a universal electronic passport system for players, which will be updated by the national registration systems through the member associations. This project will increase FIFA’s level oversight, because it will be implemented through the Transfer Matching System (TMS). The electronic player passport is crucial to the success of the Clearing House and needs to be updated by member associations. Failure to upload properly could therefore compromise the progress of this new system.[v]
With the adoption of this system, FIFA expects to effectively guarantee the payment of the amount of Solidarity Contribution and Training Compensation to the training clubs worldwide, with the potential to increase the amount distributed to clubs. Consequently, there should be a greater incentive for the clubs to develop young talent viewing this investment as a financial guarantee, which makes a difference in clubs with revenues based on the export of players.
The steps stipulated for processing the payments are as follows [vi]:
- In an international transfer or on first registration as a player included in the TMS, an Electronic Preliminary Passport will be created with the information fed by the different registration systems of member federations. Training compensation and solidarity payments will be calculated. This stage is carried out by FIFA, not by the Clearing House.
- After the passport has been reviewed and validated by the corresponding national association, FIFA will issue payment instructions to the Clearing House in the form of a statement including the banking details of the clubs and associations involved.
- At that point, an invoice will be issued by the Clearing House to the club. Once the payment has been received, the Clearing House will distribute the designated amounts to the training clubs. The Clearing House must confirm and validate the payment to ensure that the money is properly distributed and track the billing and payment process.
- Finally, FIFA receives information from the Clearing House about the payments made and/or pending, to monitor the compliance with club obligations under the regulations and impose sanctions if necessary.
FIFA is changing the corporate rules based on the principles of integrity and increasing transparency and effectiveness in the transfer market. What can be seen is an effort by FIFA to give the Clearing House autonomy, as long as its performance is linked to the compliance and integrity practices imposed by FIFA regulations. The biggest beneficiaries of this creation will be the clubs involved, as they will no longer be burdened with the obligation to work out training compensation and solidarity contributions. Hopefully, disputes concerning this matter should practically disappear!
However, the implementation of the Clearing House should be adaptable as new challenges arise and a full analysis of all those affected by the creation of this new mechanism should be undertaken. For the mechanism to succeed, a contribution is necessary from all Stakeholders, as each party has an important role to play in this new structure created by FIFA.
Law Student at Brazilian Institute of Capital Markets (IBMEC). Legal intern at Belaciano Advogado. Member and researcher of the Study Group in Sports law at Federal University of Rio de Janeiro. Graduated in Football Manager in the Brazilian Football Confederation (CBF). Visiting professor in International Sports Law at Federal University of Rio de Janeiro (UFRJ).
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- [i] GARCIA, Emilio. ÁLVAREZ, David. WFS 2019 – The FIFA Clearing House: Q&A With FIFA`s Chief Legal Officer. 2019 (14m17s). Available in: https://www.youtube.com/watch?v=7pervaaIRkY. Last Accessed: 19 may. 2020.
- [ii] FIFA’s clearing house: the future of solidarity mechanism & training compensation, 13th August 2019, last accessed 19 May 2020 https://www.lawinsport.com/topics/item/fifa-s-clearing-house-the-future-of-solidarity-mechanism-training-compensation#sdfootnote8sym.
- [iii] GARCIA, Emilio. ÁLVAREZ, David. WFS 2019 – The FIFA Clearing House: Q&A With FIFA`s Chief Legal Officer. 2019 (14m17s). Available in: https://www.youtube.com/watch?v=7pervaaIRkY. Last Accessed: 19 may. 2020.
- [iv] Global Transfer Market Report 2019
- [v] Request for proposal (RFP) Establishment and Operation of The FIFA Clearing House, 25th July 2019: https://img.fifa.com/image/upload/nwa4pef272hssbgcefpo.pdf.
- [vi] Request for proposal (RFP) Establishment and Operation of The FIFA Clearing House, Topic 2.4, 25th July 2019: https://img.fifa.com/image/upload/nwa4pef272hssbgcefpo.pdf.
- [vii] CAS 2016/A/4519 FC Porto v. Hellas Verona & Club Cerro Porteño.