On 4 July 2016, just as European football takes centre stage at the final stages of the UEFA European Championships in France, the European Commission ("Commission") issued a decision ordering Spain to recoup tens of millions of euros of unlawful State aid granted to seven Spanish football clubs, including two of the best-known clubs in the world, Real Madrid and FC Barcelona.
The Commission's probe was launched in December 2013, with three parallel investigations into certain public support measures granted to Real Madrid, FC Barcelona, Athletic Club Bilbao, Club Atlético Osasuna, and three Valencian football clubs, Valencia CF, Elche CF and Hercules CF.
"Protect the level playing field"
In announcing the rulings, Margrethe Vestager, Competition Commissioner, stated: "Using tax payers' money to finance professional football clubs can create unfair competition. Professional football is a commercial activity with significant money involved and public money must comply with fair competition rules. The subsidies we investigated in these cases did not." The Commission's press release cites its application of State aid rules in these investigations as "protect[ing] the level playing field" for competing professional football clubs against State measures that could "prevent rivals from growing and being competitive."
In the EU, State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. The overarching concern with State aid is that an undertaking which receives government support stands to gain a competitive advantage over its rivals. The Treaty on the Functioning of the European Union ("TFEU") prohibits State aid unless it is justified by reasons of general economic development.1
Measures under investigation
In the first investigation, the Commission found that Real Madrid, FC Barcelona, Athletic Club Bilbao and Club Atlético Osasuna benefitted, since 1990, from tax privileges allowing them to operate as non-profit organisations rather than limited liability companies (as required of other professional football clubs in Spain). As a result, those clubs paid a 5 percent lower tax rate on profit than their rivals, benefitting from this lower tax rate for over twenty years without objective justification.
In the second investigation, the Commission found that land affected by a transaction between Real Madrid and the City of Madrid in 2011 was overvalued by €18.4 million, giving Real Madrid an unjustified advantage over other clubs.
In the third investigation, the Commission found that guarantees given by the State-owned Valencia Institute of Finance ("IVF") for loans granted to three football clubs based in Valencia (Valencia CF, Hercules CF and Elche CF) between 2009 and 2013 allowed those clubs to obtain loans on more favourable terms than their rivals and gave them an economic advantage over other clubs, which had to raise money without State support.
Sport and antitrust
The Commission's rulings against the seven Spanish football clubs sees the culmination of a long-running saga initiated by a complaint from an investor in English and German football clubs in 2009 alleging that Spanish clubs – in particular Real Madrid and FC Barcelona – benefitted from illegal support from the Spanish government and that, as a result, other European club teams could not compete, for example, in the market for acquisition of professional players.2
The Commission's investigations also survived a maladministration complaint in which it was alleged that the Commission failed to act soon enough in only opening the investigations four years after the initial complaint, and alleging a conflict of interest after the then-Commissioner, Joaquín Almunia, was seen wearing a replica shirt of one of the football clubs under investigation.
The level of recoupment ordered by the Commission (approximately €60-70 million in total)3 is relatively small compared to the combined revenues of the professional football clubs involved (in excess of €1.2 billion in 2015), and the impact on the football clubs themselves immediately, and going forward, may be limited (for example, Spain has already moved to eliminate the tax discrepancy, as of January 2016). The rulings can, however, be seen as a further example of the reach of EU antitrust rules into the world of sport, which often involves the delicate balancing of complex commercial, regulatory and competitive interests.
Further information on the Commission's decision can be found here: http://europa.eu/rapid/press-release_IP-16-2401_en.htm
On the same day, 4 July 2016, the Commission cleared support measures for five Dutch football clubs as compliant with EU State aid rules. Further information on this decision can be found here: http://europa.eu/rapid/press-release_IP-16-2402_en.htm
Footnotes
1 See http://ec.europa.eu/competition/state_aid/overview/index_en.html.
2 The financial muscle of Real Madrid and FC Barcelona in particular has allowed them to sign some of the sport's current top – and most expensive – players including Wales' Gareth Bale (Real Madrid, €100 million from Tottenham Hotspur FC), Uruguay's Luis Suárez (FC Barcelona, €82 million from Liverpool FC) and Portugal's Cristiano Ronaldo (Real Madrid, €94 million from Manchester United FC).
3 The exact amounts that need to be paid back in respect of the tax investigation are to be determined by the Spanish authorities in the recovery process, but are indicated to be up to €5 million per club.
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