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 entitlement to Training Compensation of “previous” clubs under EU Competition Law. By Josep F. Vandellos Alamilla

Editor’s note: Josep F. Vandellos is an international sports lawyer associated to RH&C (Spain). He is also a member of the Editorial Board of the publication Football Legal and a guest lecturer in the ISDE-FC Barcelona Masters’ Degree in Sports Management and Legal Skills.


Article 6 of Annexe IV (Training compensation) of the FIFA-RSTP (Ed. 2016) contains the so-called “Special Provisions for the EU/EEA” applicable to players moving from one association to another inside the territory of the European Union (EU) or the European Economic Area (EEA).
The provisions regarding training compensation result from the understanding reached between FIFA and UEFA with the European Union in March 2001[1], and subsequent modifications introduced in the FIFA-RSTP revised version of 2005 to ensure the compatibility of the transfer system with EU law.[2]
This blog will focus on the exception contained in article 6(3) Annexe IV of the FIFA-RSTP. According to this article, when “the former club” fails to offer a contract to the player, it loses its right to claim training compensation from the players’ new club, unless it can justify that it is entitled to such compensation. Instead, the right of “previous clubs” to training compensation is fully preserved irrespective of their behaviour with the player.[3] From a legal standpoint, such discrimination between the “former club” and the “previous clubs” raises some questions that I will try to address in this paper.
For that purpose, the author will depart from the restrictive interpretation of article 6(3) adopted by the FIFA Dispute Resolution Chamber (DRC) and continue with a substantive assessment of the rule, firstly by looking at its purposive aim and secondly, by evidencing the potential negative impact on players’ mobility and its inherent anticompetitive effects. 

A. Article 6(3) Annexe IV of the FIFA-RSTP (Ed. 2016)

Article 6(3) of the FIFA-RSTP reads as follows: “3. If the former club does not offer the player a contract, no training compensation is payable unless the former club can justify that it is entitled to such compensation. The former club must offer the player a contract in writing via registered post at least 60 days before the expiry of his current contract. Such an offer shall furthermore be at least of an equivalent value to the current contract. This provision is without prejudice to the right to training compensation of the player’s previous club(s).”[4]
In summary, as a general rule, the former club of the player loses its right to claim training compensation if it fails to offer the player a contract in the terms described by the article, or cannot demonstrate a legitimate interest.
So far, the DRC has been consistent in interpreting that the obligation to offer the player a contract lies exclusively with the former club of the player as opposed to the previous clubs. In other words, the previous club is entitled to ask for training compensation when the player signs the first professional contract[5] no matter whether they offered the player a contract or showed bona fide interest in retaining him.
At first glance, this rigid interpretation might appear controversial in light of the more pragmatic approach towards the formal requirements of article 6(3) adopted in the CAS award 2009/A/1757 between MTK Budapest v. FC Internazionale Milano SpA[6]. In this case, in order to conclude that MTK Budapest was still entitled to request training compensation despite not having offered the player a contract in the terms indicated in the regulation, the adjudicating Panel emphasized that “[the] aims of sporting justice shall not be defeated by an overly formalistic interpretation of the FIFA Regulations which would deviate from their original intended purpose”.[7]
The DRC has thus systematically admitted claims of previous clubs against clubs that have registered professional players for the first time (e.g. DRC decision of 17 May 2016[8]) without delving into whether such clubs are indeed entitled to training compensation or not.
In an attempt to defy such dogmatic approach to the issue, I question whether the different references made in Annexe IV of the FIFA RSTP to the “former club[9] could and should instead be interpreted more extensively, so as to include all former clubs (thus including previous clubs) where a player has been registered. Firstly, by having a look at the systematic context of the rule and its purposive interpretation[10], and secondly, by taking into consideration the potential competitive disadvantages between European clubs resulting from the regulation.
As to the rationale of the rule, the FIFA DRC jurisprudence (vid. e.g. DRC Decision of 27 April 2006 ref. no. 461185[11]) indicates that “the spirit of and purpose of article 6 para 3 of Annexe 4 of the RSTP, 2016 edition, is to penalise clubs which are obviously not interested in the players’ services as a professional, no matter if the club would have to offer the player an employment contract for the first time or a renewal due to the expiry of an already existing contract.”[12]
It appears therefore, contrary to the spirit of the rule that a club that has shown no interest in keeping the player as a professional, a roster or for its academy, can at a later stage request to be rewarded for the training of that player, irrespective of whether it was the former club, strictly speaking, or the former former club, so to speak (i.e. the previous club in the RSTP exact wording).
One could easily argue at this point, and I would subscribe to it, that at very young ages it is either legally prohibited for training clubs to offer a contract, or unreasonable to require clubs to offer contracts to all its players in order to safeguard their potential right to training compensation.  This was highlighted by the CAS Panel in the CAS award 2006/A/1152 ADO Den Haag v. Newcastle United FC[13] which was the appeal against the above cited DRC Decision of 27 April 2006.
However, nothing prevents training clubs to at least show a genuine interest in retaining the player as an amateur by formally offering him to continue training with them or even through a simple positive evaluation of the player. In order to alleviate the unreasonable burden that such obligation would suppose on training clubs, a solution could be to require the genuine interest at least, for players as from the season of their 16th birthday. This would coincide with the age when in most EU countries players are legally allowed to sign employment contracts, and form a strict sportive perspective, the age from when training compensation is calculated in full according to article 5(3) of Annexe IV.
The final reference in article 6(3) (i.e. “This provision is without prejudice to the right to training compensation of the players’ previous club(s)”) helps to ground this interpretation. It is difficult to justify from a legal standpoint, why previous clubs should be exempted (as they, in fact, are) from observing the same rules and obligations as the former clubs, especially considering the principle of free movement of workers in the EU. The right to claim training compensation is, being redundant, “without prejudice to the right (…) of the players’ previous club(s)”. Previous clubs should therefore, demonstrate as well their entitlement to training compensation by evidencing a genuine interest in the player, such as former clubs do. 
To illustrate the situation, consider the case were an EU football club omits to offer one of its players (e.g. 18 years old) a professional contract in the terms of article 6(3) of Annexe IV, and that player further registers as an amateur with another EU club for one season. That second club also fails to offer the player (now 19 years old) a professional contract. After two seasons as an amateur, the player, finally signs a professional contract with a third EU club at the age of 20 years. The current interpretation of the exception leads to conclude that the first club, which failed to offer the player a professional contract, perhaps because he was simply not sufficiently interesting to retain, would now be reinstated in the right to claim training compensation, while the former club, under identical circumstances and reasons would be deprived from it.
Within those parameters, de lege ferenda the exception of article 6(3) could reasonably be extended to those previous clubs that failed to show the so-called bona fide interest. This way, by failing to show real interest in keeping a player, the previous clubs would be also prevented from asking training compensation upon the first registration of the player as a professional, to the same extend as the former club when it fails to offer the player a contract, in the terms indicated by the exception.
Turning now the attention, to EU law, the conclusions on why article 6(3) Annexe 4 current interpretation seems unfair and should be reformulated, point towards the same direction. 
 

B. Article 6(3) Annexe IV of the FIFA RSTP and EU competition law

The Bosman ruling and its most recent successor, the Bernard ruling, stand out as constant reminders that EU Law applies to the realm of European club football insofar as it constitutes an economic activity in the sense of Article 2 of the Treaty.[14] It is nowadays unarguable that football is a real economic activity and that the regulations adopted by its governing bodies must respect EU Law as long as they apply in the territory of the EU, or in case the player concerned has a European passport and is transferring to an EU Member State. Only rules which are “inherent to sport” such as the rules of the game, and other “practices likely to be exempted” meaning, those activities not necessarily linked to sport but which are worth of protection, could potentially fall outside the remit of EU competition law (the sporting exception) as pointed out by the “Helsinki Report on Sport” in 1999. However, the decision in the Meca-Medina case went even further, overcoming the traditional distinction between rules of purely sporting nature from others, to determine that rules cannot be of purely sporting nature when they have economic repercussions, and consequently, making it possible to explore new legal avenues to test regulations that in principle may seem outside the scope of EU competition law (such as the doping regulations in Meca-Medina).
According to Bosman[15] and Bernard, training compensation is a practice worth of protection, but it is undeniable that its rules have strong economic implications, for they are expressly meant to financially reward[16] football clubs involved in the training and education of players when these move to other clubs. For that reason, they fall under the remit of EU Law.
The legitimate aim of the training compensation system is also embraced by legal scholars. For example, while delving into the aftermath of the Bosman case and the agreement reached between FIFA and the EU Commission in 2001, S. Weatherill remarked that “(…). Sport has special features that deserve respect. In accordance with Bosman, it should be regarded as legally permissible for football to devise an internal taxation system to transfer money into the hands of nursery clubs, as part of a scheme for sustaining a larger number of clubs than would survive in ‘pure’ market conditions and to diminish gaps in economic strength between clubs.”[17]
However, it is my firm belief that Annexe IV of the FIFA RSTP has in many ways gone beyond the indications in Bosman, the Helsinki Report[18] and later in Bernard. In this last case, the Court referred to a system meant to compensate[19] and not reward training; and it is precisely that difference regarding the foundations of the system implemented by FIFA that leads to disproportionate results when the amounts to pay as training compensation are superior to the real costs incurred by the training clubs.[20]
All these issues jeopardize free mobility within the EU[21], for they restrict the chances of clubs to recruit players, and have an impact on the commercial relations between clubs and players in the sense of Article 101. By way of example, a Romanian football club registering a 21-year old player trained in Romania as a professional for the first time, would end up paying the training club a significantly lower amount of training compensation than a Hungarian club of the same category, wishing to sign that same player. The reason for that is that whilst in the first scenario the Romanian club would be subject to the internal training compensation mechanism; in the second scenario, the Hungarian club would be subject to the FIFA regulations that impose higher training compensations.
With these premises in mind, the testing of article 6(3) Annexe IV of the FIFA RSTP under EU competition law seems appropriate, although the application of EU competition law in this type of cases will probably remain an exception.[22]
In short, Article 101 TFEU[23] prohibits agreements, decisions of associations and concerted practices which may affect trade between Member States and have as their object or effect the prevention, restriction or distortion within the internal market.[24] Saskia King, explaining the so-called “objective criterion”[25], has highlighted that “when determining whether an agreement restricts competition under Article 101(1) TFEU, ‘object’ expresses a true alternative to ‘effect’ and as such requires separate consideration”. Therefore, if the object of the agreement is anticompetitive, there is no need to look behind the effects.
A primary aspect of competition law is the identification of the relevant market where a possible anticompetitive practice takes place. In the present context, the relevant market is the transfer market of football players, that is, the market on which the offer and supply of players meets and clubs compete against each other to recruit the best players.[26] Geographically speaking, the market is limited to the territory of the Member States of the EU.
Assuming also, that the FIFA RSTP (ed. 2016) qualifies as a “decision by an association of undertakings[27] and that the rules of training compensation have an appreciable affect in trade between Member States[28] since any change of clubs for players under the age of 23 requires the payment of a training compensation[29]; the questions left to answer are therefore, whether or not article 6(3) of Annexe IV of the FIFA-RSTP (Ed. 2016), in its current formulation is (1) likely to prevent, restrict or distort competition in the EU transfer market of football players under Article 101(1) TFEU and more importantly, (2) whether the restrictive effects are proportionate and “[reasonably] necessary for the organization and proper conduct of sport?”[30]
As to the first question, it is my view that both the object and the effects produced by, article 6(3) restrict and distort competition between clubs, for they discriminate former clubs vis-à-vis previous clubs with regard to their right to claim training compensation. Additionally, the compensation limits the ability of clubs to take on players acting as free agent.
As to the second question, the Meca-Medina case –though in a different context[31]- offered valuable guidance to test the compatibility of rules of sports associations with EU competition law: “42. Not every agreement between undertakings or every decision of an association of undertakings which restricts the freedom of action of the parties or of one of them necessarily falls within the prohibition laid down in Article 81(1) EC. For the purposes of application of that provision to a particular case, account must first of all be taken of the overall context in which the decision of the association of undertakings was taken or produces its effects and, more specifically, of its objectives. It has then to be considered whether the consequential effects restrictive of competition are inherent in the pursuit of those objectives (Wouters and Others, paragraph 97) and are proportionate to them.”
Following the Meca-Medina reasoning, and focusing on the rationale behind article 6(3) Annexe IV, in the CAS award 2006/A/1152 ADO Den Haag v. Newcastle United FC, the CAS Panel corrected the view of the original DRC decision of 27 April 2006. Specifically, it remarked that the aim of the rule is “to ensure that no player, whether amateur or professional, in whom the training club has no interest, is impeded to accept the offer of another club because he carries some sort of ‘compensation price tag”[32] rather than to penalize clubs failing to offer a contract to their amateur players. The unquestionably legitimate goal of “the exception to the exception” - as the Panel calls article 6(3) - is thus to limit the obstacles to the free mobility of players aforementioned.
However, as to “whether the consequential effects restrictive of competition are inherent in the pursuit of those objectives and are proportionate to them” there cannot be a positive answer. To me it is doubtful whether the anticompetitive effects produced by establishing different conditions between former clubs and previous clubs are inherent or a necessary consequence to ensure the objective of rule (i.e. contributing to free mobility). I believe the contrary to be true. (i.e. uently,conditions ctive of the rule, tt of EU Law. by scholars.r compensation. in the application of such principle. nsatI bI be The effects generated by the current interpretation of article 6(3) collide with the aim of the rule (i.e. protecting free mobility), for reinstating previous clubs in their rights to claim training compensation irrespective of their behaviour vis-à-vis the player, compromises free movement within the EU and creates unfair competitive advantages for previous clubs.
In conclusion, my suggestion is to rethink, the current formulation of article 6(3) (if not the entire training compensation system) and correct its detrimental effects by preventing all previous clubs that fail to offer players a professional contract or to show bona fide interest as from the season in which a player turns 16 years old from requesting training compensation. It is certainly not the role of the CAS to do so, but the responsibility of the EU Commission to take an active lead to ensure full compliance of football regulations with EU law. 



[1] See FIFA Executive Committee, “Commentary on the Regulations for the Status and Transfer of Players”, Annex 4 (29 June 2005) at page 124.

[2] European Commission Press Release of 5 March 2001, “Outcome of discussions between the Commission and FIFA/UEFA on FIFA Regulations on international football transfers”.

[3] A bona fide and genuine interest in keeping the player must be demonstrated before the DRC cf. Arbitration CAS award 2009/A/1757 MTK Budapest v. FC Internazionale Milano S.p.A., award of 30 July 2009.

[4] FIFA Regulations on the Status and Transfer of Players, article 6(3) Annexe IV.

[5] In cases of subsequent transfer, the club entitled to claim training compensation will always be the “former club”.

[6]“17. As noted earlier, it is the 2005 Regulations which apply in the present case. At the same time, however, FIFA itself has clarified that the aim of the revisions introduced in 2005 was simply to “facilitate the evidence of a contract offer being made”. In its Decision, the DRC stated that “...when revising the Regulations it was decided to integrate in the 2005 edition of the Regulations some formal preconditions in order to facilitate the evidence that a contract offer was effectively made...This is the actual aim of the relevant formalities”. Consequently, the Panel does not interpret the 2005 revisions to the Regulations as constituting a substantive or material alteration to the 2001 regulatory regime because, as FIFA has said, the changes introduced related only to matters of form, and not of substance.”

[7] See para. 31 of the award. Although, the transfer structure used in this case could qualify as a bridge transfer used for the purpose of circumventing the FIFA regulations on transfer compensation.

[8] Decision of the Single Judge of the Sub-committee of the DRC case Budapest Honved FC (Hungary) v. AFC ASA 2013 Targu Mures (Romania) ref. TMS 243. Unpublished.

[9] See also FIFA RSTP, article 2 para. 2 of Annex IV.

[10] See the CAS award 2007/A/1363 TTF Liebherr Ochsenhausen v/ETTU, award of 5 October 2007 para 12 page 8: “10. By interpreting rules and regulations of associations, the starting point and the predominant element of construction is the wording (literal interpretation). Other elements such as the systematic context, the purpose and the history of the rule may contribute to the correct understanding of the meaning of the rule. This principle is accepted in both civil and common law and it has been constantly applied by CAS panels. It is also embedded in the law of Luxembourg (see, e.g., Art. 1156 of the Code Civil of Luxembourg) and the parties have not argued otherwise.” Emphasis added.

[11] Decision not published.

[12] De Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2nd Edition, 2016. Page 401.

[13] See para. 22 of the CAS award 2006/A/1152 ADO Den Haag v. Newcastle United FC, award of 7 February 2007.

[14] See also Case 36/74, Walrave and Koch v UCI, ECLI:EU:C:1974:140.

[15] Case C-415/93, Union Royale Belge des Sociétés de Football Association and Others v Bosman and Others, ECLI:EU:C:1995:463, paras. 106-110.

[16] See FIFA Executive Committee, “Commentary on the Regulations for the Status and Transfer of Players”, article 1(2) and Annex 4 para. 1 (Objectives), page 112.

[17] S. Weatherill, European Sports Law Collected Papers, Asser Press, 2nd Edition (2014), pages 218 and 219.

[18] See Report from the Commission to the European Council of 10 December 1999 with a view to safeguarding current sports structures and maintaining the social function of sport within the Community framework – The Helsinki Report on Sport - para. 4.2.1.3: The Report refers to a system of objectively calculated payments that are related to the costs of training.

[19] Case C-325/08, Olympique Lyonnais SASP v Olivier Bernard and Newcastle UFC, ECLI:EU:C:2010:143, paras. 44 and 45.

[20] As an example of this disproportionality, a simple comparison between the training costs established for Cat. III UEFA clubs (30.000 Euro per) with the training costs established for internal transfers by the Romanian Football Football Federation (5.000 RON per year equivalent to 1.107 Euro).

[21] Training compensation rules were recently tested against EU law, and in particular with regard to the freedom of movement of workers, by TAS-CAS in the Riverola case (CAS award 2014/A/Bologna FC 1909 SpA v. FC Barcelona). The award is not public, but a full comment and legal analysis is published in: Luca Smacchia, “The Riverola case: how the enforcement of FIFA rules may restrict the freedom of movement for workers within the EU”, Football Legal, #5 (June 2016), pages 20-24.

[22] See e.g. Ben Van Rompuy, “Sport and EU Competition Law: New developments and unfinished business”, Asser International Sports Law Blog (22 May 2015).

[23] Article 101 TFEU: “The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (…) (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;”

[24]The distinction between "restrictions by object" and "restrictions by effect" arises from the fact that certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition.” - Commission Staff Working Document of 25 June 2014, Guidance on restrictions of competition “by object” for the purpose of defining which agreements may benefit from the De Minimis Notice, page 3.

[25] Saskia King, “Agreements that restrict competition by object under Article 101 (1) TFEU: Past, present and future”, PhD Thesis – The London School of Economics and Political Science (2015), Page 28.

[26] “The combined investment of summer and winter transfer windows in the top five European leagues was almost €3.4 billion. That was up by 29 per cent versus last season and again a record high ever.” - Soccerex Transfer Review Winter Edition 2016, Prime Time Sport, page 4.

[27] See, for example, Case T-193/02, Piau v. Commission, ECLI:EU:T:2005:22, para. 69: “As regards, first, the concept of an association of undertakings, and without it being necessary to rule on the admissibility of the arguments put forward by an intervener which go against the claims made by the party in support of which it is intervening, it is common ground that FIFA's members are national associations, which are groupings of football clubs for which the practice of football is an economic activity. These football clubs are therefore undertakings within the meaning of Article 81 EC and the national associations grouping them together are associations of undertakings within the meaning of that provision.”

[28] For an in-depth economic data analysis see, e.g., FIFA T.M.S., Global Transfer Market 2012 Highlights, pages 14 and 15 – Overall Market Activity - and pages 23 and 24 - Player Age.

[29] David Nilsson, “The Revised FIFA Regulations for the Status and Transfers of Players’ Compatibility with EU competition law – the Transfer System revised”. Master Thesis. Faculty of Law - University of Lund, (September 2006).

[30] Supra, 30.

[31] Doping rules under EU competition law.

[32] See para. 20 page 7 of the award: The Panel does not share the DRC’s view that the purpose of the first sentence of Article 6 para. 3 is to penalise clubs which do not offer professional terms to their amateur players. Rather, in the Panel’s opinion, the purpose of the above provision is to ensure that no player, whether amateur or professional, in whom the training club has no interest is impeded to accept the offer of another club because he carries some sort of “compensation price tag”.

 

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

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

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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