Three weeks ago, I gave a talk for a group of visiting researchers at Harvard Law School on the accountability of the IOC for human rights abuses caused by hosting Olympic Games. On the day of that talk, Human Rights Watch announced that the International Olympic Committee (“IOC”) would insert new language into the Host City Contract presumably for the 2022 Olympic Games onwards. The new language apparently requires the parties to the contract to:

“take all necessary measures to ensure that development projects necessary for the organization of the Games comply with local, regional, and national legislation, and international agreements and protocols, applicable in the host country with regard to planning, construction, protection of the environment, health, safety, and labour laws.”

This language would apply to the National Olympic Committee, the Organizing Committee for the Olympic Games, and the host city.

This language has been hailed by Human Rights Watch as a strong first step, and for good reason. It seems that the IOC is listening to complaints about the construction of the Olympic Games. The IOC has said before that it would address the violations of labour rights associated with the Olympic Games, in the XIII Olympic Congress, and its Recommendations, made in 2009:

The IOC will intervene at the OCOG level in the event of serious abuse, such as:

·       Mistreatment of people displaced due to Olympic venue construction sites;

·       Abuse of migrant workers at Olympic venue construction sites;

·       Child labour;

·       Improper restrictions on the media’s freedom to cover the Games, including cultural aspects.

The IOC will establish a system for correctly identifying and dealing with “legitimate complaints” from official sources.

The IOC will not intervene in non-sport human rights issues.

The leverage that the IOC has towards the Organising Commitres for the Olympic Games (OCOGs) should be determined. This might lead to amendments to the Host City Contract and Documentation for Bid Cities.

However, the experience of Sochi with its displacement of persons, and abuse of migrant workers at Olympic venue construction sites appears to have put lie to that promise. Therefore, it would seem that the prospective contractual language would be a strong first step. But, looking closer at the language, there are some causes for concern.

Old Wine in New Bottles?

First, it should be noted that this language is not novel. The IOC has similar language in its Candidature Procedure, under “Environment”:

Provide (a) guarantee(s) from the competent authorities stating that all construction work necessary for the organisation of the Olympic Games will comply with:

·       Local, regional and national environmental regulations and acts

·       International agreements and protocols regarding planning, construction and protection of the environment (2020 Candidature Procedure, Q 5.4)

That the new language in the host city contract is under the heading of “Sustainable Human and Environmental Development” should therefore not be surprising. However, the environmental requirements presented above were in the host selection process. This new language is contractual language, and should be evaluated as such (one could make the same argument re the host selection process documents – but, just like the IOC…small steps).

A “Toothless” Paper Tiger

Overall, however, the clause in the Host City Contract appears to fall short in four key ways:

1)    Weak standard: The standard used in the contract is compliance with national laws and international agreements/protocols. This standard has been problematic, as it can be a moving target. National laws can be changed. Consider the next two states hosting the FIFA World Cup. Russia has passed Law 108-FZ in advance of the 2018 FIFA World Cup. The law affects the rights of migrant workers brought in to work on the World Cup facilities. Migrant workers no longer need to be registered with local authorities. Restrictions on the length of the working day are removed, and overtime pay is replaced with time off in lieu. Law 108-FZ is a national law, and presumably the parties would comply with it. Although a question arises if the national law conflicts with international agreements…which prevails? The same can be said for another FIFA World Cup host – Qatar – that has also bid to host the 2016 and 2020 Summer Olympic Games. Qatar’s kafala system is certainly national legislation. But compliance with said legislation would not improve human rights.

2)    Vagueness: Vagueness in a contract will lead to conflict. In this case, what is “compliance”, or more to the point, what is “non-compliance”? Who determines non-compliance? Is non-compliance simply a complaint? Or an adverse court ruling? Who makes the determination of non-compliance? Is it in the IOC’s sole discretion? Or an agreement of the parties? Presuming this is meant to be an enforceable contract, a lack of precise terminology is problematic. Also, given the language of “take all necessary measures”, does this require a host to take all measures, regardless of the cost? Or to the point of undue hardship? This seems to be a rather high bar, but is it a reasonable one?

3)    Remedies/Enforcement: While in an ideal world, everyone will adhere to an agreement, breaches do occur. In the 2014 Host City Contract, the one particular remedy for breach is that the IOC can withdraw the right to host the Games. However, given the complexity of removing the Games to another city (which to my knowledge was only done in 1976 – with a move from Denver to Innsbruck), this is likely to remain a “nuclear option”. What other remedies might there be to make a sanction a reasonable deterrent? In addition, if there are disputes over whether or not there is a breach of this clause, the Court of Arbitration for Sport has jurisdiction. It may deny jurisdiction, and if it does so, then the proceedings move to the Swiss courts. Would CAS or the Swiss courts be interested in adjudicating what is essentially human rights litigation in another state? Would a Swiss court truly say, for instance, “Russia has not complied with international human rights standards”? It does not seem likely.

4)    Absence of Dialogue: The problem with inserting such language into a contract is that it creates a “take-it-or-leave-it” environment, without specifying what the “take-it-or-leave-it” is. Using the host selection process to tease out human rights concerns enables the IOC to ask questions of the potential hosts about best practices, concerns, or processes that could be put into place to address future problems. The answers in the host selection process would then create a more robust standard to hold a host to, giving the language in the contract more weight. Absent this, the language becomes window-dressing. Also, in the event of a host breaching this provision, will there be dialogue? Will that dialogue be public?

Given the above, the contractual language falls far short, if it is to be taken as an actual contract. However, it is a strong signal that the IOC seems willing to address human rights issues caused by the Olympic Games. If this is so, then the language is a meaningful first step. Other steps, however, are required. For instance (and here is the shameless plug), my PhD research examines the use of the host selection process to tackle human rights issues in the host countries, amongst other proposals. For now, those expecting to use the contract as a legal mechanism to ensure that future hosts respect human rights, it might be best not to hold your breath.

This is the first part of a blog series involving the Real Madrid State aid case.

Apart from being favoured by many of Spain’s most important politicians, there have always been suspicions surrounding the world’s richest football club regarding possible financial aid by the Madrid City Council. Indeed, in the late 90’s a terrain qualification change by the Madrid City Council proved to be tremendously favourable to the king’s club. The change allowed Real Madrid to sell its old training grounds for a huge sum. Though the exact price for the grounds remains unknown, Real Madrid was suddenly capable of buying players like Figo and Zidane for record fees. However, the European Commission, even though agreeing that an advantage was conferred to the club, simply stated that the new qualification of the terrain in question does not appear to involve any transfer of resources by the State and could therefore not be regarded as State aid within the meaning of article 107 TFEU.

Agreements between the club and the Council have been a regularity for the last 25 years.  A more recent example concerns an agreement signed on 29 July 2011 (Convenio29-07-2011.pdf (8MB). The agreement regularizes two earlier agreements between the Council and Real Madrid dating from 1991 and 1998 respectively. The commitments deriving from those earlier agreements were not followed by the relevant parties and therefore had to give way to a new agreement. A closer look at the 29 July 2011 Agreement exposes a bizarre chain of events. It turned out that in 1998 Real Madrid transmitted an undivided half of their old training grounds to the municipality. Apart from a large sum of money, the club was to receive a number of terrains spread out over the municipality, including a terrain located in the area called Las Tablas valued at €595.194 in 1998. However, due to its qualification for sporting usage, the Council concluded in 2011 that the parcel could not be transferred to the club due to the fact that Madrid’s urbanity laws only permit a transfer of urban or urbanizable terrains. For that reason, the Council agreed to compensate the football club not for the original value of €595.194 but for a staggering €22.693.054,44! Real Madrid was not compensated in the form of a sum, but rather it was presented with a packet of terrains including four terrains of a total area of 12.435 m/2 in the street Mercedes Arteaga in the Carabanchel district of Madrid.

The year 2011 also saw a second agreement between the Council of Madrid and the football club, this time concerning construction works on the Real Madrid stadium Santiago Bernabéu. This agreement, dating from November 2011, is known as operation Bernabeú-Opañel and includes the following plans. The Council is to transfer to the club a terrain constituting a 12.250 m/2 buildable surface which borders the west-side of the Bernabéu stadium. This acquirement permits Real Madrid to cover the stadium with a roof, to build a shopping centre and a hotel on the façade situated on the Paseo de la Castellana (one of Madrid’s most important streets). In return, the club firstly agreed to transfer to the Council the shopping centre Esquina del Bernabéu, which is situated at the South-East-side of the stadium with a buildable surface of 6.858 m/2. The Council would then demolish the shopping centre and convert it into a public park. Secondly, the club is to transfer back to the Council part of the four terrains located in the street Mercedes Arteaga that it received as part of the 29 July 2011 Agreement.  In addition to the transfers of the old shopping centre and the terrains located in the street Mercedes Arteaga, Real Madrid is also to pay €6.6 million to the Council. The Council, however, encountered an obstacle in its own urban laws. The Plan General de Ordenación Urbana de Madrid de 1997 (PGOU) did not permit private parties, like Real Madrid, to construct on public terrains owned by the Council. Therefore, on 16 November 2012, the Government of the autonomous region of Madrid announced that the PGOU is to be modified ad hoc for the operation Bernabeú-Opañel.

By means of the operation Bernabeú-Opañel, Real Madrid expressed that it hopes to “convert the Club in a sporting institution of reference in the world. The aim is for the stadium to have a maximum level of comfort and services superior to the most modern and advanced sporting stadiums in the world” (PropuestaRealMadrid.pdf (914.2KB)). According to the Council, the operation will not only improve sporting and leisure facilities in the city, it will also create up to 9.546 m/2 of “green zones”. Moreover, the investment for the construction works will be borne only by Real Madrid and it is expected that the construction works will give employment to more than 2 000 people and the exploitation to 600 people.

In 2012, the ecological movement Ecologistas en Acción found several legal irregularities with regard to the 29 July Agreement operation Bernabeú-Opañel and (unsurprisingly) concluded that the agreements appeared to be very beneficial for Real Madrid. It therefore started legal proceedings in front of the Spanish administrative Court claiming that the ad hoc modification of the PGOU was illegal. It would later on launch on appeal in front of the Tribunal Superior de Justicia de Madrid, or Madrid High Court (TSJM-Order-31-07-2014.pdf (112.3KB)). Simultaneously, it informed the European Commission of potential unlawful State aid granted by the Council of Madrid to Real Madrid. To Spain’s outrage, on 18 December 2013, the Commission declared that it had enough reasons to believe that the incriminated transactions might involve State aid and launched a formal investigation in accordance with Article 108(2) TFEU. Concretely, the Commission expressed the following concerns:

1) The Commission doubts whether it was impossible for the Council of Madrid to transfer the Las Tablas property to Real Madrid;

2) The Commission doubts that a market value of the Las Tablas plot of land has been sought;

3) The Commission doubts the market conformity of the value of the properties which were transferred to Real Madrid by the 2011 Agreement and at the occasion of the subsequent further exchange of land around the Bernabéu Stadium, and;

4) The Commission doubts that there is an objective of common interest, which could justify selective support to a very strong actor in a highly competitive economic sector. 

The Commission’s doubts seem, in light of the facts at hand, reasonable. To decide whether or not the land transactions qualifies as unlawful State aid, however, the four cumulative criteria of Article 107(1) TFEU need to be fulfilled. (1) The aid must confer an economic advantage on Real Madrid; (2) it must be granted by a Member State or through State resources; (3) the advantage must be selective and distorts or threatens to distort competition; and (4) it must affect trade between Member States.

Advantage to Real Madrid over its competitors

As the Commission pointed out in paragraph 21 of its notice initiating the infringement procedure against Spain, “Real Madrid appears to enjoy an economic advantage from the fact that a plot of land, which at the time of its acquisition was valued at €595,194, appears 13 years later, in an operation to offset mutual debts, with a value of more than €22 million”. Furthermore, there are also doubts regarding the market conformity of the lands transferred in the operation Bernabéu-Opañel. In situations where the public authorities wish to sell public property to private investors, it should make sure that the revenue obtained from the sale is comparable to market level. This criterion is also known as the “market economy vendor principle”. In accordance with the Land sale Communication, should the public authorities wish to avoid any advantage to the recipient over its competitors during a land sale transaction, it should apply one of the two following procedures: (1) an unconditional bidding procedure or (2) a procedure where the land is valued by one or more independent asset valuers prior to the sale negotiations. The Court of Justice has ruled that other methods may also achieve the same result, but in order to comply with EU State aid rules, the national provisions establishing rules for calculating the market value of land must in all cases lead to a price as close as possible to the market value.[2] Special obligations for the buyer, such as urban planning requirements, do play a role when determining whether or not the land was sold at market value. Furthermore, land transfer deals, which often consist of more than just one land transaction, have to be scrutinized in their entirety.[3] Therefore, to determine whether an advantage was conferred to Real Madrid, both agreements between the club and the Council have to be take into account with a special focus on the valuation methods used.

In 1998, the valuation for the terrain in Las Tablas (€595,194) was done by the administration of Madrid, on the basis of legislation which offers a technique to determine the value of urban real property. The calculated value for the same terrain in Las Tablas in 2011 amounted to €22.693.054,44. According to a valuation report released by the Municipal Valuation Department, the value was calculated in accordance the same application rules. Yet it has to be borne in mind that the Municipal Valuation Department forms part of the Área de Gobierno de Urbanismo y Vivienda del Ayuntamiento de Madrid. Not only is the Área de Gobierno de Urbanismo y Vivienda the main public authority regarding urban planning in Madrid, it is together with Real Madrid the main party in the 2011 Agreement itself.

Real Madrid was not compensated in the form of a payment, but rather it was presented with another packet of terrains valued at €19,972,348.96. In the valuation report released by the Municipal Valuation Department, a list is included with average terrain values per district calculated by the independent appraiser Tasamadrid. In continuation, the Municipal Valuation Department applied a formula based on its own legislation to determine the final value of the terrains. This packet of terrains included land in the street Mercedes Arteaga, valued at €4,360,862 which were transferred back to the municipality in the operation Bernabéu-Opañel.

The operation Bernabéu-Opañel also included the club transferring the old shopping centre Esquina del Bernabéu and added a payment of €6,6 million. A second valuation report indicates that the value of the Esquina del Bernabéu is €3,861 per square meters passed on the average values of terrains found in adjacent streets. Furthermore, the Council “requalified” the terrain between the Bernabéu stadium and the street Paseo de la Castellana by ad hoc modifying the local urban laws (PGOU) before transferring it to Real Madrid. The value of this terrain is also calculated in the second report and ads up to €1,208 per square meter. Even though two of the terrains in question can be found in the same area, the value per square meter of the Esquina Bernabéu is much higher (€3,861) as compared to the value of the land between the Bernabéu stadium and the street Paseo de la Castellana (€1,208). True, the terrain with the Esquina del Bernabéu has already been built on, thereby increasing the value, but one should keep in mind that the operation Bernabéu-Opañel consists of demolishing the Esquina del Bernabéu and turning it into a green zone. On the other, the other terrain will be used for the construction of a hotel and a new shopping centre. Secondly, a quick glance at other real estate transfers in the same area of Madrid shows that the value of the terrains is in fact much higher. In 2012, the Picasso tower was purchased by a private firm for €400 million, or €5000 m/2. Today, the building Torre Titania can be bought for €11,000 m/2 and the building Castellana 200 is for sale for €150 million.

With all the above in mind, one could legitimately get the feeling that the actual aim of the Agreement of 29 July 2011 was to pave the way for the operation “Bernabéu-Opañel”, as some media suggested. Unlike in the Konsum Nord case, where the General Court held that the presence of a link between different transactions could mean that the measure in question does not constitute State aid, the link between the agreements in the Real Madrid case only increases suspicions regarding unlawful State aid. Furthermore, the Council of Madrid has also been inconstant regarding its valuation methods. The value of the terrain in Las Tablas was calculated without an independent appraiser and the value of the Esquina del Bernabéu was calculated using the average value of terrains found in adjacent streets. In short, there are good reasons to believe that the transactions were made in order to provide a financial advantage to Real Madrid.

The remaining three criteria of Article 107(1) TFEU and possible justifications will be discussed in an upcoming blog post.

[1] Notes are omitted. A comprehensive article can be accessed at Oskar van Maren, "The Real Madrid case: A State aid case (un)like any other?".

[2] Case C-239/09 Seydaland Vereinigte Agrarbetriebe [2010] ECR I-13083, §33-35

[3] Case T-244/08 Konsum Nord ekonomisk förening v Commission [2011] ECR II-0000, §58