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The EU State aid and Sport Saga – A blockade to Florentino Perez’ latest “galactic” ambitions (part 2)

This is the second part of a blog series on the Real Madrid State aid case. In the previous blog on this case, an outline of all the relevant facts was provided and I analysed the first criterion of Article 107(1) TFEU, namely the criterion that an advantage must be conferred upon the recipient for the measure to be considered State aid. Having determined that Real Madrid has indeed benefited from the land transactions, the alleged aid measure has to be scrutinized under the other criteria of Article 107(1): the measure must be granted by a Member State or through State resources; the aid granted must be selective; and it must distorts or threatens to distort competition. In continuation, this blog will also analyze whether the alleged aid measure could be justified and declared compatible with EU law under Article 107(3) TFEU.


The aid is granted by the State or through State resources

In its decision to launch a formal investigation, the Commission concluded that Real Madrid “enjoyed an advantage which derives from State resources, as the State forgoes possible revenues”.[1] Given that the Commission argued in 2002 that a requalification of a terrain does not entail State aid because there was no transfer of State resources and given that the facts regarding the requalification show some striking similarities with the current case, it is surprising that the Commission provided such a limited analysis. This might leave open the possibility for Real Madrid or the Council to argue that they could have legitimately expected that the land transactions concerned were free of a transfer of State resources. Therefore, it would have been more prudent for the Commission to further highlight the differences between the case in question and its decision not to start an investigation in 2002.

As regards land sale transactions, the land that is sold under market value by the public authorities is to be considered a State resource. The agreements to (1) compensate Real Madrid for the terrain in “Las Tablas” by providing the club other terrains and (2) to provide Real Madrid the land between the stadium and the “Paseo de la Castellana” are both imputable to the Council of Madrid and imply a loss of State resources. As regards the ad hoc modification of the PGOU, even though the modification provides a selective advantage to Real Madrid, this measure is unlikely to qualify as State aid, because no State resource has been transferred. 


The selectivity of the aid granted

With regard to whether the agreements favoured Real Madrid over its competitors, the Council could hold that both agreements could only be made with Real Madrid and not with any other football club. The first agreement involved a compensation for the impossibility to transfer a land from the Council to Real Madrid and the second agreement concerned further land transactions between Real Madrid and the council that, due to the location of several of the terrains in question, could not be offered to another football club.

Nonetheless, both measures at hand can most definitely be considered selective, thereby favouring Real Madrid over its competitors. The agreement of 29 July 2011 is selective because it only involves Real Madrid. Not only does the compensation include an economic advantage for the club, Real Madrid will also have the acquired terrains at full disposal, allowing it to sell, rent, swap or construct in any way it pleases.

Moreover, despite that the Council stated that Real Madrid had to bear all the costs for the construction of the hotel, the parking space and the shopping centre, it is also true that all the benefits of the exploitation will go directly to the football club and not to any of its competitors. The competitors, in this sense, should be interpreted wider than just being other football clubs. The Council has not given any reasons why a hotel and shopping centre in one of the main streets of Madrid has to be exploited by the undertaking Real Madrid. The “Bernabéu-Opañel” plan is therefore also selective in that it favours Real Madrid over competitors that exploit hotels and shopping centres. 


The aid has an effect on inter-State trade and distorts competition

In order for the measures to fall within the prohibition of Article 107(1), there must be an effect on competition and inter-State trade. For this condition to be fulfilled, it is sufficient that the Commission can establish a link between the measures in question and a potential effect on competition and trade. The recipient, Real Madrid, is an undertaking that operates in the European football sector. The 29 July 2011 Agreement could have allowed Real Madrid to receive a higher compensation than what it should have gotten, had the Council used the market values of the terrains in question. The economic advantage obtained by Real Madrid could be used to strengthen its position in the football sector. The same can be said for the operation “Bernabéu-Opañel”. A possible economic advantage deriving from this measure enables the football club to generate profits from the exploitation of a hotel and a shopping centre. This extra income could enable them to strengthen their team by buying new players. A strengthened Real Madrid would distort competition since other football clubs have not enjoyed the same support.

Secondly, the fact that the measure facilitates Real Madrid to run and exploit a hotel in one of the most important streets of Madrid, distorts competition in the hotel sector as well. Other hotels might generate less money because Real Madrid is exploiting an indirectly publicly subsidized hotel.

All the four criteria of Article 107(1) TFEU are fulfilled. The land transactions have created an advantage to the recipient, Real Madrid. Furthermore, the lands provided by the Council are to be regarded as State resources and, given that the measures were selective, competition has been distorted.  


Can the aid be justified?

The moment an aid measure fulfils all the criteria of Article 107(1), it will be seen as constituting State aid. However, the measure could still be deemed justified under certain conditions in accordance with EU Law. There are no EU Regulations or Commission guidelines on the application of State aid rules to commercial sporting activities. Therefore, the question whether the aid can be justified needs to be based on the conditions set in Article 107(3)(c) TFEU.[2] Article 107(3)c) provides that aid may be compatible if it facilitates the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest. The Commission understands that the specific nature of sport needs to be taken into account when dealing with State aid cases, as sport fulfils educational, public health, social and recreational functions. Furthermore, it is established Commission practice that a measure may be declared compatible if it is necessary and proportionate and if the positive effects for the common objective outweigh the negative effects on competition and trade.[3] In a Hungarian State aid case dating from 2011, the Commission approved an aid measure for the Hungarian sport sector, since the general objective of the measure (“increase the participation of the general public in youth activities”) took into account Hungary’s commitments that the benefits would be distributed to the widest possible beneficiaries, and is therefore in line with the common market. [4]

Furthermore, over the last two years the Commission has reached several final decisions involving State aid granted for the construction of football stadiums. For example, in a decision dating from 20 November 2013, the Commission decided not to raise objections regarding the plan of the Flemish government to subsidize the renovation and the construction of multifunctional football stadiums as the State aid contained therein was deemed compatible with Article 107(3)(c) TFEU. Even though all the criteria of Article 107 (1) were fulfilled, the Commission acknowledged that the social, cultural and educational return of football stadiums plays a central role in the decision whether the aid could should be declared compatible. Since all the stadiums in question would have a clear multifunctional character and different players could use the stadiums for different events, the Commission found that the general public would benefit from the aid and that the positive effects would outweigh the negative effects.[5]

When applying the balancing test to the possible aid measures involving Real Madrid, firstly, as regards the 29 July 2011 Agreement, there does not appear to be an objective of common interest. The agreement was made with the sole objective of compensating Real Madrid and was not beneficial for the general public.

As regards the “Bernabéu-Opañel” on the other hand, the Council held that the operation would create additional “green zones” for the city and that the hotel and shopping centre would provide work to around 600 people. The question remains, however, whether the positive effects derived from the creation of 600 jobs outweigh the negative effects on competition and trade.

In its decision, the Commission considered that it did not appear to pursue an objective of common interest, which could justify an economic advantage to one of the biggest and most successful operators in a highly competitive economic sector. [6] Indeed, the only player in the football sector that will benefit from the operation “Bernabéu-Opañel” is Real Madrid. The fact that Real Madrid could generate profits from the hotel and shopping centre will not be beneficial to other football clubs operating in the football sector, nor will it be beneficial to the football sector in general. Therefore, it seems unlikely that the positive effects of the operation “Bernabéu-Opañel” outweigh the negative effects on competition and trade.  


The recovery of the aid and possible consequences of a negative decision

A measure which constitutes State aid in the meaning of Article 107(1) TFEU and which is declared incompatible with the internal market, is unlawful. Therefore, should the Commission find that the agreements between the Council of Madrid and Real Madrid constitute unlawful aid, it will order Spain to recover the aid provided to the club.  


The Recovery of the aid

The purpose of recovery is to re-establish the situation existing before aid was unlawfully granted.[7] The procedural rules on the recovery of unlawful aid are laid down in in Council Regulation 659/1999. Article 14(1) of the Regulation provides that “the Commission shall decide that the Member State concerned shall take all necessary measures to recover the aid from the beneficiary”. Not only is the Commission exclusively competent to decide whether or not a measure constitutes unlawful State aid, it is also exclusively competent to request from a Member State to recover the unlawful State aid. Importantly, however, the recovery itself shall be done in accordance with the procedures under the law of the Member State concerned, provided that they allow the immediate and effective execution of the Commission’s decision.[8] As regards the quantification of the aid, there is no provision of Union law that requires the Commission to quantify the exact amount of aid to be recovered.[9] Nonetheless, the Commission may include information in its recovery decision enabling the addressee of the decision to work out that amount itself without overmuch difficulty.[10]

To establish the amount of aid to be recovered, one needs to firstly determine the total advantage obtained by Real Madrid and the exact moment in which Real Madrid started obtaining the advantage. At this stage in time it is difficult to determine what the Commission could consider as possible advantage. It is neither known whether the Commission takes all land transactions into account, nor is it clear what the exact value of each parcel is due to the complexity of the case and the lack of relevant information. However, once a total advantage is established, and with that the total amount of aid to be recovered, this amount would also probably include interest at an appropriate rate fixed by the Commission.[11]  Interest would be payable from the date the unlawful aid was put at the disposal of Real Madrid until the date of effective recovery. The aid can be recovered by means of a cash payment. However, alternative measures are allowed provided that the Member State ensures that the measure chosen is transparent and eliminates the distortion of competition caused by the unlawful aid. 


The consequences of a negative decision

The direct consequence of a negative decision for Real Madrid is that the situation existing before the aid was unlawfully granted would have to be re-established. Whether this situation concerns the time before the agreement of 1998, the Agreement of 29 July 2011 or before the operation “Bernabéu-Opañel” was conducted will depend on the Commission’s decision. An analysis of other Commission decisions involving land transactions in which the Commission ordered recovery of the aid indicates that the Commission does not simply undo the land transaction itself. The Commission decision that led to the Konsum Nord case included the order directed to the Swedish authorities to recover an amount equal to the difference between the amount offered for a land by the supermarket “Lidl” and the amount paid by the supermarket “Konsum”.[12] With regard to a Dutch case on an alleged sale of land below market price, the Commission established that the amount to be recovered consisted of the difference of the price paid by the undertaking “SJB” and the price initially agreed between the “SJB” and the local authorities. A third very recent example concerned unlawful forest swap transactions in Bulgaria. The Commission ordered Bulgaria to either recover the incompatible State aid granted or undo the swaps concerned. In other words, undoing the land transaction is merely an option and never an obligation.

Keeping the Commission practice in mind, in case of a negative Commission decision, the most likely scenario is that the Commission will oblige Spain to recover the advantage Real Madrid obtained from the transactions, but that the transactions themselves will not be undone. Therefore, the obvious direct consequences for the football club will constitute in paying a lump sum to the Spanish authorities equal to the difference between the valuation of the parcels as established by the Commission and as valued by the Council of Madrid.  

A more far-reaching consequence, such as an unlimited suspension of the operation “Bernabéu-Opañel”, are rather unlikely. The recovery will be done under national law[13], thus further recovery actions mainly depend on Spanish national law. The ad hoc modification of the Plan General de Ordenación Urbana de Madrid de 1997 (PGOU) that opened up the possibility of constructing on the terrain between the stadium and the “Paseo de la Castellana” can, therefore, only be challenged under national law.

If the consequences of a negative decision are only limited to paying a lump sum and, given the fact that Real Madrid is possibly financially the most powerful football club in the world, one could legitimately ask the question what the fuss is all about. Indeed, why would Real Madrid worry about paying a lump sum of, say, €20 million when its turnover exceeds €600 million per year, and when it is capable of spending more than €100 million in summer transfer fees? In my opinion, the aspects that make the Real Madrid case unlike any other State aid case are not to be found in the amount that constitutes the total financial advantage for the club nor, consequentially, the amount that would have to be recovered. What makes this case special is the very specific role played by citizens and the position Real Madrid has in the football sector. A negative State aid decision involving one of the richest and most successful football clubs in the world would serve as a warning to the entire European football sector that the Commission is serious regarding unlawful State aid granted to football clubs.  

To be continued….


[1] SA.33754 (2013/C) (ex 2013/NN) – Spain Real Madrid CF, §36

[2] Article 107(2) and Articles 107(3)a), b) and d) are also justifications, but are not relevant to the case at hand

[3] Community framework for State aid for research and development and innovation, OJ C 323, 30.12.2006, p. 1, point 1.3.

[4] SA.31722 Supporting the Hungarian sport sector via tax benefit scheme, §85-90

[5] SA.37109 (2013/N) – Belgium Football stadiums in Flanders, §28-34

[6] SA.33754 (2013/C) (ex 2013/NN) – Spain Real Madrid CF, §38-40

[7] Commission Regulation (EC) No 794/2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, Recital 10

[8] Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, Article 14(3)

[9] Case C-480/98 Spain v Commission [2000] ECR I-8717, §25

[10] Commission Decision SA.24123 Alleged sale of land below market price by the Municipality of Leidschendam-Voorburg, §107

[11] Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, Article 14(2)

[12] Commission Decision No C 35/2006 – implemented by Sweden for Konsum Jämtland Ekonomisk Förening, §74-77

[13] Council Regulation (EC) No 659/1999, Article 14(3)

Comments (9) -

  • Florentino Perez

    9/30/2014 11:12:08 PM |

    Nice description but I do believe that you are underestimating the consequences of a decision against Real Madrid. Whilst the Commission may or may not order the recovery of the aid in the form of paying the difference as a lump sum as opposed to unravelling the transactions, the Spanish courts (Tribunal Superior de Justicia de Madrid) are already looking at the issue and may order that unravelling. As a matter of fact that court has already halted the Bernabeu redevelopment until the Commission adopts its decision to avoid that the construction works could go ahead in the pieces of land that were exchanged in the 2011 agreements thus preventing the unravelling of the July 2011 agreement (see as.com/.../1406899063_287580.html). It is therefore very likely that, should the Commission confirm that the July 2011 was done at a too favourable price for Real Madrid, the Spanish courts will abort the July 2011's transfer of the land, thus preventing the Bernabeu from being redeveloped and presumably forcing the club to either stick to his old stadium or build a new stadium in the Valbebebas area near its new training grounds if it wanted to increase its match-day revenue. Real Madrid is in deeper trouble than one may think both in this case (Florentino recently said that he was giving his life to get the stadium redeveloped) and in the Spanish Sports Law case but they will not admit it.

    In addition to this, the Commission also expressed doubts in its decision regarding the prices of the second exchange of land (land in the poorer Carabanchel district being exchanged against prime land in La Castellana, probably Madrid's most expensive area) and the price difference could be much bigger than €20 million (probably in the region of €60m although it is difficult to quantify).  

    Kind regards

    • Oskar van Maren

      10/1/2014 2:32:14 PM |

      Thank you for your comment. My predictions were purely based on previous Commission decisions ordering the recovery of aid regarding land transactions. You are however right in saying that in addition, the national court could impose other and more far-reaching sanctions. As regards the decision by the Tribunal Superior de Justicia de Madrid to suspend all the construction works on the stadium until the Commission reaches a final decision, I would like to stress that one of its arguments was to protect all interested parties, including Real Madrid itself, in case the Commission were to order such a sanction as the unraveling of the land transaction. The damages would be much higher for the football club in case the construction works have already started.
      Personally, I do not deem it likely that the Spanish courts would undo the agreements leading to the construction works for two reasons: Firstly, because the same Tribunal Superior de Justicia de Madrid  has allowed the project under Spanish law in July 2012 (futbol.as.com/.../1342592815_850215.html). Secondly, since I don't think the Commission would oblige Spain to unravel the land transactions, I cannot see a reason why the Spanish court would take such a politically charged measure. I would be glad to hear your opinion on this matter.
      Lastly, as to the current financial numbers of Real Madrid, it is true that several media reports have been saying that they are in trouble. However, other press reports show that the club is in fact not so economically unhealthy as estimated (as.com/.../1411600377_994920.html).
      Either way, let's hope that the Commission's final decision answers many of these questions, because I am very eager to find out.

      Kind regards

      • Florentino Perez

        10/2/2014 1:11:26 PM |

        Many thanks for your response. In terms of the Tribunal Superior de Justicia de Madrid (TSJM) protecting the interests of all parties (including Real Madrid) and whilst this may be in theory the case, the reality though is that this was a huge blow for Real Madrid's plans since both Real Madrid (RM) and Madrid City Council (MCC) were very keen to start the construction works as soon as possible to follow a strategy of fait accompli that would make more difficult that the July 2011 agreement could be unravelled thus ensuring that RM would only have to pay the difference (otherwise as you rightly point out there would be damages for the club for having to stop the construction works and MCC could argue that if the transaction had to be unravelled, RM could sue MCC for damages). This strategy is no longer possible due to TSJM's decision and MCC (acting as always as instructed by RM) immediately challenged that decision with no luck so far.

        TSJM has already adopted a number of politically difficult decisions in the past and the case for declaring the July 2011 null and void under Spanish law is very very strong since the amount owed by RM to MCC for RM's failures to comply with the 1991 agreement (parking lot, etc.) greatly exceeds the amount owed by MCC to RM for the Las Tablas property (which should not exceed €1.5m even under the most favourable valuations for RM) and there was simply no need to include any piece of land in the July 2011 agreement. The only logical solution is that RM pays the difference to MCC and that no land is transferred to RM.

        By the way, Florentino Perez promised back in December that he would hold a press conference to explain all the issues surrounding the EU cases as soon as they were communicated to RM ("Cuando nos llegue una comunicación oficial, daré una rueda de prensa para clarificar esto" www.cadenaser.com/.../Tes) but ten months later we are still awaiting that press conference .

        The reason is that the problems are much deeper than he originally thought and that he has realised that, once the issue hit the public domain, the EU authorities are not as easy to influence as their Spanish counterparts. So far he has been comfortable under the protection of Almunia and his Spanish team that includes some hardcore RM supporters but the situation will change significantly at the end of October when the new commission takes over. As Juan Varela rightly points out, the trust in the commission state aid policies needs to be restored and I do not see any reason why the new commission would not apply the law and simply order Spain to unravel the agreement. Any other solution would set a very dangerous precedent and be very damaging for the reputation of the EU (plus expose the EU unnecessarily to litigation from RM's competitors).

        Keep up the good work, your articles are very enjoyable.

        Best

        • Florentino Perez

          10/16/2014 8:33:56 PM |

          TSJM has confirmed earlier today that, despite Real Madrid's and Madrid City Council's appeals, the Bernabeu redevelopment will continue to be halted pending the EC's decision: www.elmundo.es/.../543faf3922601db7658b4590.html
          Things do not look good for Perez.

  • Juan Varela

    10/1/2014 12:29:14 PM |

    I agree with the previous comment, but I would go a step further:

    The Commission Decision underlines that there was no reason to undo the land exchange in Las Tablas and compensate Real Madrid in the first place. This, in my opinion, complicates very much Real Madrid's position, since they did not take any legal action to demand the ownership of the Las Tablas plot, and by now probably the available legal actions have expired.

    The compensation being undue, a normal Market Economy Investor(?) would not pay a compensation which he is not legally obliged to pay.

    Besides, the aim of state aid recovery is to re-establish the situation in the market prior to the granting of the aid.

    The benefits that Real Madrid has derived from the series of land exchange operations (which are all marred from the outset) are obviously greater than the mere - although substantial - difference in price between the plots given and the plots received.

    In my opinion, it would go clearly against the aim of State aid control to allow Real Madrid to retain the plot by paying a more or less small or large amount of money, since the exchanges are flawed not only by the unbalanced values, but by the ceasing to exist of the basis of the transactions. I think this fact distinguishes this case from the Konsum or the Bulgarian cases.

    Will the European Commission take this into account? It is doubtful, considering the reluctance it has shown so far to investigate Spanish football. But such a decision obliging to undo the land swaps would definitely help to restore trust in the European Commission's neutrality.

  • Florentino Perez

    10/20/2014 4:54:34 PM |

    Diario As informs that Real Madrid will now hire lawyers specialised in competition law to deal with the club's ever growing amount of competition cases.

    futbol.as.com/.../1413592348_489006.html

    Bring them on!

  • sultan

    1/25/2015 12:40:49 PM |

    how long will it take for the European commission to decide this case?

    • Oskar van Maren

      1/26/2015 10:20:57 AM |

      Good question! I wish I could tell you, but unfortunately I do not know. A Commission decision was already expected not only for this case, but for the other State aid cases in sport (i.e. Valencia, Spanish tax advantages and aid granted to Dutch football clubs) as well. Hopefully we don't have to wait too long anymore.

  • Anonymous complainant

    2/11/2015 1:18:39 AM |

    Bye bye New Bernabeu!

    High Court overturns decision on Bernabéu redevelopment

    as.com/diarioas/2015/02/10/english/1423606995_940982.html

Comments are closed
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Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

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The new “Arrangement” between the European Commission and UEFA: A political capitulation of the EU

Yesterday, the European Commission stunned the European Sports Law world when it announced unexpectedly that it had signed a “partnership agreement with UEFA named (creatively): ‘The Arrangement for Cooperation between the European Commission and the Union of European Football Associations (UEFA)’. The press release indicates that this agreement is to “commit the two institutions to working together regularly in a tangible and constructive way on matters of shared interest”. The agreement was negotiated (as far as we know) secretly with UEFA. Despite recent meetings between EU Commissioner for sport Vassiliou and UEFA President Platini, the eventuality of such an outcome was never evoked. It is very unlikely that third-interested-parties (FIFPro, ECA, Supporters Direct etc.) were consulted in the process of drafting this Arrangement. This surprising move by an outgoing Commission will be analysed in a three-ponged approach. First, we will discuss the substance of the Arrangement (I). Thereafter, we will consider its potential legal value under EU law (II). Finally, and maybe more importantly, we will confront the political relevance of the agreement (III).  More...

Sports Politics before the CAS: Early signs of a ‘constitutional’ role for CAS? By Thalia Diathesopoulou

It took almost six months, a record of 26 witnesses and a 68 pages final award for the CAS to put an end to a long-delayed, continuously acrimonious and highly controversial presidential election for the Football Association of Thailand (FAT). Worawi Makudi can sit easy and safe on the throne of the FAT for his fourth consecutive term, since the CAS has dismissed the appeal filed by the other contender, Virach Chanpanich.[1]

Interestingly enough, it is one of the rare times that the CAS Appeal Division has been called to adjudicate on the fairness and regularity of the electoral process of a sports governing body. Having been established as the supreme judge of sports disputes, by reviewing the electoral process of international and national sports federations the CAS adds to its functions a role akin to the one played by a constitutional court in national legal systems. It seems that members of international and national federations increasingly see the CAS as an ultimate guardian of fairness and validity of internal electoral proceedings. Are these features - without prejudice to the CAS role as an arbitral body- the early sign of the emergence of a Constitutional Court for Sport? More...

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Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

“The Odds of Match Fixing – Facts & Figures on the integrity risk of certain sports bets”. By Ben Van Rompuy

Media reports and interested stakeholders often suggest that certain types of sports bets would significantly increase the risks of match fixing occurring. These concerns also surface in policy discussions at both the national and European level. Frequently calls are made to prohibit the supply of “risky” sports bets as a means to preserve the integrity of sports competitions.

Questions about the appropriateness of imposing such limitations on the regulated sports betting, however, still linger. The lack of access to systematic empirical evidence on betting-related match fixing has so far limited the capacity of academic research to make a proper risk assessment of certain types of sports bets. 

The ASSER International Sports Law Centre has conducted the first-ever study that assesses the integrity risks of certain sports bets on the basis of quantitative empirical evidence. 

We uniquely obtained access to key statistics from Sportradar’s Fraud Detection System (FDS). A five-year dataset of football matches worldwide, which the FDS identified as likely to have been targeted by match fixers, enabled us to observe patterns and correlations with certain types of sports bets. In addition, representative samples of football bets placed with sports betting operator Betfair were collected and analysed. 

The results presented in this report, which challenge several claims about the alleged risks generated by certain types of sports bets, hope to inform policy makers about the cost-effectiveness of imposing limits on the regulated sports betting offer.More...

The Pechstein ruling of the Oberlandesgericht München - Time for a new reform of CAS?