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Bailing out your local football club: The Willem II and MVV State Aid decisions as blueprint for future rescue aid (Part 1)

The European Commission’s decisions of 4 July 2016 to order the recovery of the State aid granted to seven Spanish professional football clubs[1] were in a previous blog called historic. It was the first time that professional football clubs have been ordered to repay aid received from (local) public authorities. Less attention has been given to five other decisions also made public that day, which cleared support measures for five football clubs in the Netherlands. The clubs in question were PSV Eindhoven, MVV Maastricht, NEC Nijmegen, FC Den Bosch and Willem II.

Given the inherent political sensitivity of State aid recovery decisions, it is logical that the “Spanish decisions” were covered more widely than the “Dutch decisions”. Furthermore, clubs like Real Madrid and FC Barcelona automatically get more media attention than FC Den Bosch or Willem II. Yet, even though the “Dutch decisions” are of a lower profile, from an EU State aid law perspective, they are not necessarily less interesting.

A few days before entering the quiet month of August, the Commission published the non-confidential versions of its decisions concerning PSV Eindhoven, Willem II and MVV Maastricht (hereinafter: “MVV”). The swiftness of these publications is somewhat surprising, since it often takes at least three months to solve all the confidentiality issues. Nonetheless, nobody will complain (especially not me) about this opportunity to analyze in depth these new decisions.

In the case of PSV, the Dutch State argued successfully that the measure implemented by the city of Eindhoven was in line with the so-called ‘Market Economy Investor Principle’ (MEIP), thereby not constituting a selective advantage to PSV. In other words, the measure did not fulfill the criteria of Article 107(1) TFEU and was not considered State aid. The aid measures granted by the cities of Tilburg and Maastricht to Willem II and MVV respectively were considered compatible State aid under Article 107(3)c) TFEU. Interestingly enough, in the Willem II and MVV cases, the Dutch authorities also argued that the respective measures did not confer any selective advantage to the clubs, but they failed to convince the Commission.

A comparison between the PSV decision on the one hand, and the other “Dutch” decisions on the other, taking into account the definition and operation of the MEIP in the (professional) football sector, will be left for a future blog. This two-part blog, instead, will focus on the compatibility assessment under Article 107(3)(c) done by the Commission in the Willem II and MVV cases and explain why it considered the State aid measure justified.

Part one will serve as an introduction on the two cases. It will provide background information on the compatibility assessment. In part two, the compatibility assessment conducted by the Commission in the two decisions will be analyzed. As will be argued, the conditions set out by the Commission can serve as a blueprint for all public authorities within the EU willing to grant State aid to football clubs in financial difficulties.  


Background

Willem II

In 2004, the municipality of Tilburg and football club Willem II concluded a contract, by which Tilburg became the owner of Willem II’s stadium and the club obtained a lease for the use of the stadium.[2] The annual rent of the stadium was established at €1 million, based on a depreciation period of 30 years, investment costs and an interest rate of 5.5%.[3]

In May 2010, Willem II found itself on the verge of bankruptcy. The municipality was quick to realize the potential negative effects a bankruptcy could have for Tilburg. These negative effects consisted of (1) the loss of rental income; (2) the absence of a tenant for the stadium; (3) the absence of professional football in Tilburg; and (4) the necessity to demolish the stadium and all the costs it would entail.[4] As a result, on 31 May 2010 the municipality decided to lower the rent to €905,000 per year and to decrease the variable costs. Both measures were taken with retroactive effect till 1 July 2004, which resulted in Willem II receiving a total of €2.4 million from the municipality.[5]

Tilburg’s rescue operation of Willem II was never notified to the Commission.[6] Instead, a citizen informed DG Competition shortly after the measure was implemented by means of a letter. This prompted the Commission to send a request for information to the Netherlands on 14 March 2011.[7]

In response to the Commission, the Dutch authorities argued that the new rent agreement was in conformity with the current municipal calculation methods and that the basic principles of the 2004 agreement were still respected. Moreover, the costs Tilburg would suffer for letting Willem II go bankrupt would be higher than the rescue costs. Consequently, the municipality believed it acted in accordance with the so-called ‘Market Economy Investor Principle’ (MEIP).[8] Moreover, the municipality imposed a restructuring plan that aimed at restoring the club’s long-term viability. The conditions of this plan included finding a way to clean up its balance sheet and the need to respect the national football association's norms for salaries of players.[9]

In its decision to open a formal investigation, the Commission counter argued that the depreciation of the stadium’s rent was already adjusted in 2007, and would not justify the retroactive application until 2004. Additionally, the lowering of the variable costs with retro-active effects ended up to be lower than the actual maintenance costs for that period, and should therefore be considered as State aid in accordance with Article 107(1) TFEU.[10] Finally, at the time the Commission launched the formal investigation, it nourished doubts whether the aid measure could be considered compatible with the internal market pursuant Article 107(3)(c). Having received no notification of the rescue measure, the Commission was unable to carry out a proper compatibility assessment. 


MVV

In 2010, football club MVV was facing severe financial difficulties: its total debt amounted to €6.5 million, including €1.7 million to the municipality of Maastricht. As a means of aiding its local football club, the municipality decided to waive its claim of €1.7 million and bought the stadium for €1.85 million.[11] The municipality held that the purchase was done in accordance with the MEIP and that the stadium would be used for multifunctional purposes. The parties agreed that MVV would use the €1.85 million to finance preferential claims, such as taxes and pensions.[12] 

The Commission opened a formal investigation procedure, because it was unable to conclude on the basis of the available information (the rescue measures were not notified[13]) that the behaviour of the municipality had been that of the typical creditor in a market economy.[14] Firstly, it doubted whether a total remission of the claim (€1.7 million) was entirely necessary, since other creditors transformed their claim into a claim on future income from transfer payments or “only” waived 50% of their claim. Secondly, according to the Commission, the purchase price of the stadium was estimated on the basis of replacement value rather than the real market value. It further raised doubts as to whether the municipality acted in accordance with the MEIP since investing in a football stadium depending on one captive user entails a very high risk, even when claiming that you want to make it multifunctional.[15] Similar to the Willem II case, no compatibility assessment of the aid measure in favour of MVV was carried out, because the measure was not notified.[16] 


The rules on compatibility

Pursuant to Article 107(3)(c) TFEU, aid to facilitate the development of certain economic activities, where such aid does not adversely affect trading conditions to an extent contrary to the common interest, may be considered compatible with the internal market. Only the Commission has the competence (subject to control by the EU Courts) to determine whether or not certain aid merits derogation from the general prohibition of Article 107(1).[17] However, it is settled case law that it is up to the Member State to invoke possible grounds of compatibility and to demonstrate that the conditions for such compatibility are met.[18] Due to its own wide discretion to assess the compatibility, the Commission has developed its own methodologies and approaches over the years, found in the decisional practice, policy documents[19] and sector specific guidelines.[20] 


The Rescue and Restructuring Guidelines

The Community Guidelines of 1 October 2004 on State aid for rescue and restructuring firms in difficulty (hereinafter: “Rescue and Restructuring Guidelines”) primarily serve as a tool for the Commission to assess similar cases in a similar way.[21] The criteria and conditions laid down in the Guidelines are mostly based on the Commission’s own experience in dealing with cases involving State aid in favour of firms in difficulty and case law by the Court of Justice of the EU. Due to the continuous developments in the area of EU State aid law, the Guidelines are regularly updated.[22] In the Guidelines, the Commission sets out the conditions under which State aid for rescuing and restructuring undertakings in difficulty may be considered compatible with the internal market. These conditions include the notification obligation for the Member State,[23] as well as demonstrating that the firm qualifies as ‘a firm in difficulty’. As is stipulated in point 11 of the Guidelines, a firm is considered to be in difficulties where the usual signs of a firm being in difficulty are present, such as increasing losses, diminishing turnover and mounting debt.

In order to rescue a firm from bankruptcy, the Member State has to show that it limits the amount of aid provided to that which is strictly necessary to keep the firm in business.[24] Section 3.2 of the Guidelines requires that the grant of the aid must be conditional on the implementation of a restructuring plan that restores the long term viability of the firm.[25] The restructuring plan needs to be approved by the Member State concerned and communicated to the Commission.[26]

The Member States granting the restructuring aid will have to limit the amount and intensity of the aid to the strict minimum of the restructuring costs necessary to enable restructuring to be undertaken in the light of the existing financial resources of the firm. This also means that the beneficiaries are expected to make a significant contribution to the restructuring plan from their own resources.[27] The Commission will normally consider the following contributions to the restructuring to be appropriate: at least 25 % in the case of small enterprises, at least 40 % for medium-sized enterprises and at least 50 % for large firms.[28]

The Guidelines also stipulate that, in case the firm in difficulty is considered a medium-sized enterprise or larger[29], compensatory measures must be taken by the Member State that grants the rescue and/or restructuring aid in order to ensure that the adverse effects on trading conditions are minimized as much as possible, so that the positive effects pursued outweigh the adverse ones.[30] These last two conditions (i.e. limiting the aid to what is strictly necessary and introducing compensatory measures) have the aim of ensuring that the State aid measure is proportionate to the objective tackled, namely rescuing and/or restructuring a firm in difficulty.

Last but not least, the so-called ‘one time, last time’ principle has to be applied. According to this principle, rescue aid should only be granted once.[31] 


In the coming days, the key part of the Commission’s decisions, the compatibility assessment, will be discussed in part two of this blog.



[1] Real Madrid (twice), FC Barcelona, Valencia CF, Athletic Bilbao, Atlético Osasuna, Elche and Hércules.

[2] Commission Decision on State Aid SA.40168 of 4 July 2016 implemented by the Netherlands in favour of the professional football club Willem II in Tilburg, para. 10.

[3] Commission Decision SA.33584 of 6 March 2013 – The Netherlands Alleged municipal aid to the Professional Dutch football clubs Vitesse, NEC, Willem II, MVV, PSV and FC Den Bosch in 2008-2011, para. 29.

[4] Ibid, para. 30.

[5] Ibid.

[6] Ibid, para. 67.

[7] Ibid, paras. 3-4. To find out how a citizen’s letter can instigate a preliminary State aid investigation, see Ben Van Rompuy and Oskar van Maren, “EU Control of State Aid to Professional Sport: Why Now?” In: “The Legacy of Bosman. Revisiting the relationship between EU law and sport”, T.M.C. Asser Press, 2016.

[8] The essence of this principle is that when a public authority invests in an enterprise on terms and in conditions that would be acceptable to a private investor operating under normal market economy conditions, the investment is not State aid.

[9] SA.40168, para. 12.

[10] SA.33584, paras. 29-31 and 51-53.

[11] Ibid, para. 32.

[12] Ibid, para. 57.

[13] Ibid, para. 67.

[14] Commission Decision on State Aid SA.41612 of 4 July 2016 implemented by the Netherlands in favour of the professional football club MVV in Maastricht, para. 12.

[15] SA.33584, paras. 54-57.

[16] SA.41612, para. 11.

[17] According to settled case law, national courts do not have the power to declare a State aid measure compatible with the internal market. See e.g. C-354/90, Fédération Nationale du Commerce Extérieur des Produits Alimentaires and Syndicat National des Négociants et Transformateurs de Saumon v French Republic, ECLI:EU:C:1991:440, para. 14.

[18] SA.41612, para. 42; see also Case C-364/90, Italy v Commission, ECLI:EU:C:1993:157, point 20.

[19] See for example Communication from the Commission COM(2012) of 8 May 2012 to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – EU State Aid Modernisation (SAM), para. 12.

[20] See for example the Communication from the Commission OJ C25/01 of 26 January 2013 on the EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, paras. 32-34.

[21] In July 2014, the Commission published new Guidelines on State aid for rescuing and restructuring undertakings in difficulty, but they are not applicable to aid granted in 2010.

[22] The Rescue and Restructuring Guidelines published in 2014 are the fourth of its sort after earlier versions published in 1994, 1999 and 2004.

[23] Communication from the Commission of 1 October 2004 (2004/C 244/02) Community Guidelines on State Aid for Rescuing and Restructuring firms in difficulty, point 25(c).

[24] Ibid, point 25(d).

[25] Ibid, poins 34-37.

[26] Ibid, point 59. In this regard, it should be noted that the Commission does not need to endorse the restructuring plan.

[27] By “own resources” the Commission also understands funding from external financiers at market conditions.

[28] Guidelines on State Aid for Rescuing and Restructuring firms in difficulty, points 43-44.

[29] The Commission’s definition of Small and Medium-Sized enterprises (SMEs), as stipulated in the Annex of the Commission Recommendation concerning the definition of micro, small and medium-sized enterprises, is also used in the Rescue and Restructuring Guidelines. Pursuant to Article 2 of the SME Recommendation, a small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed €10 million, whereas a medium-seized enterprise is defined as an enterprise which employs fewer than 250 persons and which has an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million.

[30] Guidelines on State Aid for Rescuing and Restructuring firms in difficulty, point 38.

[31] Ibid, point 25(e) and section 3.3. In practice, this actually means that rescue or restructuring aid can only be granted once every 10 years.

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