Guidance on The Level Of Compensation For Out Of Contract Football Players copy

May 20, 2021

GUIDANCE ON THE LEVEL OF COMPENSATION FOR OUT OF CONTRACT FOOTBALL PLAYERS

The recent decision of the Professional Football Compensation Committee (the PFCC) to award Fulham guaranteed compensation of £1.5m, plus a further £2.8m in contingent sums, in respect of under 16 player Harvey Elliott once again highlighted the issue of compensation for out of contract players.

The Harvey Elliott award was notable in that it amounted to the highest ever award for an under 16 player. However, it was still only a fraction of the compensation awarded to Burnley following England international Danny Ings’ signature for Liverpool in the summer of 2015, following the expiry of his contract with Burnley. The tribunal’s award, handed down in April 2016, remains the largest compensation award for an out-of-contract player in the history of professional football.

In this brief article Liz Coley, who has represented a number of clubs before the PFCC, and Dan Lowen, who represented Burnley in its claim for compensation for Danny Ings in 2016, briefly consider the domestic compensation system and the trend evident from higher profile awards in recent years. Liz and Dan are Partners at Level, a leading sports, media, entertainment and tech law firm with wide-ranging expertise within football.

Compensation entitlement

Under both the Premier League’s and the English Football League’s (EFL's) Rules and Regulations, a club signing an out-of-contract player under the age of 24 is (subject to the former’s club’s compliance with certain requirements) obliged to pay compensation to the former club for its training and development of the player.

It’s important to stress at the outset that compensation is not due in lieu of the transfer fee that would be payable if the player were under contract. The compensation is of an entirely different nature and the player’s perceived ‘market value’ and transfer fee comparables are irrelevant. Instead, the compensation is payable solely to compensate the former club for its training and development of the player, the rationale being that clubs should be rewarded for bringing through talent and incentivised to continue doing so.

The compensation fee payable by the new club is such sum as is agreed between the two clubs or, in default of agreement, “such sum as the Professional Football Compensation Committee on the application of either Club shall determine.” The PFCC considers nine factors – eight under Regulation 3 of the PFCC’s Regulations plus, under Regulation 4, the costs incurred by both clubs in the training and development of players. It is important that a club makes detailed submissions to the PFCC regarding each of those factors.

Previous decisions of the PFCC

The Regulations make no mention of comparables, though it is inevitable that the parties to proceedings may seek to draw parallels with previous decisions they view as supporting their case.

Prior to the award in 2016 in respect of Danny Ings, the PFCC had determined the compensation to be paid in respect of a varied range of players. The highest sum awarded was in respect of Daniel Sturridge in 2009, who had spent six seasons at Manchester City prior to his move to Chelsea. The PFCC awarded Manchester City an initial fee of £3.5m, contingent payments taking the total award up to £6.5m and a 15% sell-on fee (over and above sums already received by Manchester City). However, aside from that award, the guaranteed sums set by the PFCC had all been lower than £1m prior to 2016.

The PFCC’s award in respect of Danny Ings

In April 2016, the PFCC handed down its award in respect of the compensation payable to Burnley for its training and development of Danny Ings during the four years he spent with the club. The PFCC awarded Burnley the guaranteed net sum £6.5m, a further £1.5m in contingent sums based on appearances and a 20% sell-on fee. At nearly twice the guaranteed sum awarded in respect of Daniel Sturridge, the decision constituted the highest sum ever awarded to a club for its training and development of a player following the expiry of his contract.

Post Danny Ings

Since the Danny Ings decision, the PFCC has awarded significant compensation to a training club on four occasions (all in respect of academy players): for Tyrese Campbell in 2017, Ethan Ampadu in 2018, Louie Moulden in 2019 and Harvey Elliott in 2021. In the most recent prominent PFCC award, Harvey Elliott joined Liverpool from Fulham as an under-16 player. He was the youngest player to play in the Premier League, aged just 16 years and 30 days. As noted above, the PFCC reportedly awarded guaranteed compensation of £1.5m, plus a further £2.8m in contingent sums, dependent on Elliott’s performances and a 20% sell-on fee.

Rationalising the PFCC's decisions

Given the legal background against which the Premier League’s and the EFL’s compensation regime sits, the size of the PFCC’s previous awards and the FIFA training compensation system (under which Burnley would have received a maximum of €270,000), the magnitude of the sum awarded to Burnley for an out-of-contract player was met with surprise in some quarters.
However, since Ings, the PFCC has consistently shown that it is prepared to award significant compensation in respect of top talent where it considers it appropriate to do so, even where a player’s future career is still not certain. Whilst the contingent elements of such awards will, in respect of younger players, still tend to be greater than the guaranteed element, the PFCC’s awards over the past 4 years have included considerable guaranteed sums.
The reality is that such an approach reflects the ever-increasing financial value of players to clubs and clubs’ investment in their academies. Whilst the guaranteed sums awarded by way of compensation in respect of young players who may still be years away from a club’s first team may seem high, the immense value that can be ascribed to players as they continue to develop at top clubs warrants payment of a substantive, fair compensatory package to the club that developed the player into the exciting talent he has become – not in lieu of a transfer fee, but as a meaningful reward for developing the player and an incentive to continue bringing players through.

Conclusion

Clubs, players and their representatives should consider seeking specialist legal advice in relation to the issue of compensation payable following the expiry of a player’s contract. Not only does a club have to take certain steps in order to trigger its entitlement to compensation, but its conduct over the months (and even years) in the lead up to the expiry of the player’s contract could affect the level of that entitlement. Likewise, clubs that may wish to sign players who will soon be out of contract, and players who will become free agents (and their representatives), can benefit from fully understanding their position under the regulatory regime and the likely outcome of a former club’s claim for compensation.

Moreover, when it comes to making offers before proceedings are commenced in the PFCC, and then the submissions to the PFCC itself, it is important that clubs credibly and persuasively state their position, as that is more likely to find favour with the PFCC and result in a positive outcome.

For further information and advice on this issue, please contact Liz Coley or Dan Lowen.