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

Invalidity of forced arbitration clauses in organised sport…Germany strikes back! - By Björn Hessert

Editor's note: Björn Hessert is a research assistant at the University of Zurich and a lawyer admitted to the German bar.

 

The discussion revolving around the invalidity of arbitration clauses in organised sport in favour of national and international sports arbitral tribunals has been at the centre of the discussion in German courtrooms.[1] After the decisions of the German Federal Tribunal[2] (“BGH”) and the European Court of Human Rights[3] (“ECtHR”) in the infamous Pechstein case, this discussion seemed to have finally come to an end. Well…not according to the District Court (LG) of Frankfurt.[4] On 7 October 2020, the District Court rendered a press release in which the court confirmed its jurisdiction due to the invalidity of the arbitration clause contained in the contracts between two beach volleyball players and the German Volleyball Federation[5] (“DVV”) – but one step at a time. More...

International and European Sports Law – Monthly Report – September - October 2020 - By Rhys Lenarduzzi


The Headlines


Human rights and sport  

Caster Semenya

Human rights issues are taking the headlines in the sporting world at present. A short time ago, Caster Semenya’s appeal at the Swiss Federal Tribunal against the CAS decision was dismissed, perhaps raising more questions than answering them. Within the last few days however, the message from the Semenya camp has been that this is not over (see here).  See the contributions from a range of authors at Asser International Sports Law Blog for a comprehensive analysis of the Semenya case(s) to date.

Navid Afkari

As the sporting world heard of the execution of Iranian Wrestler Navid Afkari, a multitude of legal and ethical questions bubbled to the surface. Not least of all and not a new question: what is the responsibility of sport and the governing bodies therein, in the space of human rights?  And, if an athlete is to acquire a high profile through sporting excellence, does that render athletes vulnerable to be made an example of and therefore in need of greater protection than is currently afforded to them? There are differing views on how to proceed. Consider the following from the World Players Association (Navid Afkari: How sport must respond) and that from the IOC (IOC Statement on the execution of wrestler Navid Afkari) which shows no indication through this press releases and other commentary, of undertaking the measures demanded by World Players Association and other socially active organisations. (See also, Benjamin Weinthal - Olympics refuses to discuss Iranian regime’s murder of wrestler).

Yelena Leuchanka

As this is written and relevant to the above, Yelena Leuchanka is behind bars for her participation in protests, resulting in several sporting bodies calling for her immediate release and for reform in the sporting world around how it ought to deal with these issues. As a member of the “Belarus women's national basketball team, a former player at several WNBA clubs in the United States and a two-time Olympian”, Leuchanka has quite the profile and it is alleged that she is being made an example of. (see here)

Uighur Muslims and Beijing Winter Olympics

British Foreign Secretary, Dominic Raab does not rule out Winter Olympics boycott over Uighur Muslims. ‘The foreign secretary said it was his "instinct to separate sport from diplomacy and politics" but that there "comes a point where that might not be possible".’ Though Raab’s comments are fresh, this issue is shaping as a “watch this space” scenario, as other governments might echo a similar sentiment as a result of mounting pressure from human rights activist groups and similar, in lead up to the Winter Games. More...



The Specificity of Sport - Comparing the Case-Law of the European Court of Justice and of the Court of Arbitration for Sport - Part 2 - By Stefano Bastianon

Editor’s note: Stefano Bastianon is Associate Professor in EU Law and EU sports law at the University of Bergamo and lawyer admitted to the Busto Arsizio bar.


1. EU law and the CAS case-law

Bearing in mind these questions, it is possible to affirm that under EU law, the specificity of sport

i) refers to the inherent characteristics of sport that set it apart from other economic and social activities and which have to be taken into account in assessing the compatibility of sporting rules with EU law; and

ii) under EU law these inherent characteristics of sport must be  considered on a case by case  basis, per the Wouters test as developed by the ECJ in the Meca Medina ruling.

Both aspects can be found in the CAS case-law too, although the CAS case-law shows some remarkable differences and peculiarities. From a general point of view, the application of the principle of specificity of sport in the CAS case-law represents an aspect of the more general issue related to the application of EU law by the CAS. However, the purpose of this paper is not to fully examine if and to what extent the CAS arbitrators apply EU law rules on free movement and competition; rather, the aim is to analyse the way the CAS deals with the concept of the specificity of sport, highlighting similarities and differences compared to the ECJ.

Taking for granted that ‘a CAS panel is not only allowed, but also obliged to deal with the issues involving the application of [EU] law’,[1] as far as the compatibility of sporting rules with EU law is concerned the CAS case-law shows different degrees of engagement. For instance, in the ENIC award concerning the so-called UEFA integrity rule, the CAS panel went through a complete competition-law analysis in perfect harmony with the Wouters et al. ruling by the ECJ.[2] On the contrary, in the above-quoted Mutu case, the issue of compatibility of the FIFA’s transfer regulations with EU competition law was analysed in a rather simple way, merely stating that the FIFA rules at stake were not anti-competitive under EU competition law without giving any reason to support this conclusion. More recently, in the Galatasaray and Milan A.C. awards, concerning the UEFA’s financial fair-play regulations, the CAS  applied a detailed analysis of EU competition law. However, in both cases, according to the CAS the proportionate character of sanctions listed in the UEFA’s financial fair-play regulations cannot affect the evaluation of the legitimacy of these regulations under Art. 101 TFEU. This conclusion represents a clear breaking point with respect to the ECJ case-law, according to which the evaluation of the restrictive effects of a rule necessarily presupposes the analysis of the proportionate character of the sanction imposed in the event of a violation of that rule as well.[3]   In regard to EU free movement, the CAS case-law tends to be less analytical in terms of the principle of proportionality. For instance, in the RFC Seraing award  which concerned both EU free movement and competition law, the CAS panel mainly focused on the legitimate objectives of the contested rule (FIFA’s ban on Third-Party Ownership – TPO), merely affirming that the restrictive measures under EU free movement were justified and inherent in the pursuit of those objectives.More...



The Specificity of Sport - Comparing the Case-Law of the European Court of Justice and of the Court of Arbitration for Sport - Part 1 - By Stefano Bastianon

Editor’s note: Stefano Bastianon is Associate Professor in EU Law and EU sports law at the University of Bergamo and lawyer admitted to the Busto Arsizio bar.*

 

1. Introduction.

The so-called specificity of sport represents one of the most debated, if not the most debated, but still undefined issue under European Union (EU) law. A noteworthy peculiarity is that the specificity of sport is frequently mentioned in several legislative and political documents issued by EU institutions, however it is not expressly referred to in any judgment by the European Court of Justice (ECJ).Conversely, the Court of Arbitration for Sport (CAS) case-law on Art. 17 of FIFA Regulations on status and transfer of players (RSTP) has repeatedly and expressly referred to the specificity of sport.[1] Apparently, the concept of specificity of sport has different meanings and purposes in the ECJ and CAS jurisprudence. In this blog (divided in two parts), I will try to analyse those two different meanings and to what extent the CAS case-law is consistent with the concept of specificity of sport as elaborated under EU law. More...

SFT rejects Semenya appeal: nothing changes - By Andy Brown

Editor's note: Andy Brown is a freelance journalist who has been writing about the governance of sport for over 15 years. He is the editor of The Sports Integrity Initiative where this blog appeared first.


For the last three days, I have been struggling with what to write regarding the Swiss Federal Tribunal’s (SFT) Decision to dismiss a challenge from Caster Semenya and Athletics South Africa (ASA) against the Court of Arbitration for Sport’s (CAS) Decision to dismiss a challenge to the Eligibility Regulations for the Female Classification (Athletes with Differences of Sex Development), otherwise known as the DSD Regulations. From reading World Athletics’ statement welcoming the ruling, one could be forgiven for thinking that it had won a major trial. Sports journalists, accustomed to covering events now curtailed by Covid-19, focus on the fact that Semenya has ‘lost’ her case against the DSD Regulations. Neither assertion is strictly accurate.

The SFT’s powers to review the CAS’s ruling are severely limited. It can only consider whether the CAS Decision violates ‘widely recognised principles of public order’ on Swiss public policy grounds. The SFT has only reversed a decision based on a a violation of Swiss public policy once in 30 years.

The SFT didn’t reconsider the evidence put forward to the CAS. ‘For there to be incompatibility with public policy, it is not enough that the evidence has been poorly assessed, that a finding of fact is manifestly false or that a rule of law has been clearly violated’, its Decision reads. ‘The only question to be resolved is in fact whether or not the verdict of the CAS renders the referred award incompatible with substantive public policy’. 

There were questions about whether the appeal from Semenya and ASA qualified to be reviewed by the SFT in the first place. World Athletics is a private organisation headquartered in Monaco, and the SFT was troubled as to whether such a complaint brought by a South African athlete against an overseas private organisation is capable of violating Swiss public policy.

‘It is doubtful whether the prohibition of discriminatory measures falls within the scope of the restrictive concept of public order when the discrimination is committed by a private person and occurs in relations between individuals’, the Decision quotes from its pervious 29 July 2019 Decision, which refused the ASA’s request to provisionally suspend the application of the DSD Regulations. ‘In any event, there is no need to examine this question further here since […] the award under appeal does not in any way establish discrimination which would be contrary to public order’

The SFT ruled that the CAS was correct to uphold conditions of participation for 46 XY DSD athletes in order to guarantee fair competition for certain disciplines in female athletics. In doing so, the SFT was ruling on whether the decision taken by the CAS violates public policy, based only on the complaints brought forward by Semenya and ASA. 

Semenya and the ASA had challenged the CAS Decision based around the idea that the DSD Regulations are discriminatory. The CAS held that they are discriminatory, but agreed with the IAAF (as World Athletics was then named) that such discrimination was necessary to protect its female category. The SFT ruled that even if the discriminatory rules of a private organisation such as the IAAF were considered able to pose a threat to public order, Semenya and the ASA had failed to demonstrate that the CAS Decision was so egregious that it posed such a threat.

‘Caster Semenya essentially alleges a violation of the prohibition of discrimination’, reads the Swiss Federal Supreme Court statement. ‘The CAS has issued a binding decision based on the unanimous opinion of the experts who were consulted that testosterone is the main factor for the different performance levels of the sexes in athletics; according to the CAS, women with the “46 XY DSD” gene variant have a testosterone level comparable to men, which gives them an insurmountable competitive advantage and enables them to beat female athletes without the “46 XY DSD” variant. Based on these findings, the CAS decision cannot be challenged. Fairness in sport is a legitimate concern and forms a central principle of sporting competition. It is one of the pillars on which competition is based. The European Court of Human Rights also attaches particular importance to the aspect of fair competition. In addition to this significant public interest, the CAS rightly considered the other relevant interests, namely the private interests of the female athletes running in the “women” category.’

Such strong support for the principle behind its DSD Regulations was rightly welcomed by World Athletics. Its statement asserted that the SFT ‘acknowledged that innate characteristics can distort the fairness of competitions’. I would argue that the SFT ruling didn’t do this, but rather found that a CAS Decision asserting this didn’t violate Swiss public policy. Semantics, perhaps.

Likewise, when World Athletics quotes the SFT Decision as confirming that ‘It is above all up to the sports federations to determine to what extent a particular physical advantage is likely to distort competition and, if necessary, to introduce legally admissible eligibility rules to remedy this state of affairs’, it is paraphrasing two texts quoted in the SFT Decision. The first is ‘La qualification juridique des rules autonomes des organizations sportive’ by Jérôme Jaquier, 2004. ‘Inborn characteristics specific to athletes in a particular group can also distort the fairness of competition’, the SFT Decision quotes from Jaquier. ‘When they enact regulations, the objective of sports federations is to ensure fair and equitable competition’.

The context of the second quote, from ‘Sportrecht – Berücksichtigung der Interessen des Sports in der Rechtsordnung’ by Martin Kaiser, 2011, is even more interesting. It is preceded with a statement from the Swiss Federal Supreme Court, which reads: ‘It is not for the Federal Court to make, abstractly, comparisons between the disciplines to assess whether a particular athlete has an advantage that makes sporting competition meaningless’

‘It is above all for the sporting federations to determine to what extent a particular physical advantage is liable to distort competition’, the SFT Decision quotes from Kaiser. ‘And, if so, to establish legally admissible eligibility rules to remedy this state of affairs’. 

Again, such details might be considered as semantics. But – I would argue – important semantics. Reading the media maelstrom that has resulted from the SFT Decision, one could be forgiven for assuming that Semenya has lost her case, and has no chance of ever defending her 800m title. However, a statement issued by her lawyers reveals that she intends to challenge the ruling in European and domestic courts.

“I am very disappointed by this ruling, but refuse to let World Athletics drug me or stop me from being who I am”, the statement continues. “Excluding female athletes or endangering our health solely because of our natural abilities puts World Athletics on the wrong side of history. I will continue to fight for the human rights of female athletes, both on the track and off the track, until we can all run free the way we were born. I know what is right and will do all I can to protect basic human rights, for young girls everywhere.” More...



The Semenya Decision of the Swiss Federal Tribunal: Human Rights on the Bench - By Faraz Shahlaei

Editor's note: Faraz Shahlaei is a JSD Candidate at Loyola Law School, Los Angeles. His research and teaching interests are public international law, international sports law, international human rights and dispute resolution.

 

The issue of international human rights was a central contention in Caster Semenya case ever since the start of her legal battle against the regulations of the IAAF. However, the human rights arguments were poorly considered in the two proceedings related to this case. To put it in perspective, it is like having a key player nailed to the bench throughout the whole game; no coach ever tried to give it a chance while it had the potential to be the game changer for all parties.

In 2019, the Human Rights Council, the inter-governmental human rights body of the UN, expressed concern over issues of discrimination in sports in particular regarding IAAF female classification regulations. In June 2020, the United Nations High Commissioner for Human Rights submitted a report to the United Nations Human Rights Council on the “Intersection of Race and Gender Discrimination in Sport”. The report draws a detailed picture of how human rights in the Semenya case have been violated and also elaborates on the inherent problem of addressing human rights issues in alternative dispute resolution mechanisms favored by the sport governing bodies. However, despite an in-depth discussion of Caster Semenya’s case at both the CAS and then the SFT, the question of human rights, a key concern and a fundamental pillar of the case, hasn’t been adequately answered yet! More...


The SFT’s Semenya Decision under European human rights standards: Conflicting considerations and why a recourse could be successful at Strasbourg - By Kevin Gerenni

Editor's note: Kevin Gerenni is Assistant Professor in Public International Law (Facultad de Derecho de la Universidad de Buenos Aires) and LLM Candidate 2021 in Public International Law at the London School of Economics.


Even though the decision rendered by the SFT in the Semenya Case was foreseeable, the Tribunal did put forward some concerning reasoning in terms of public policy (“ordre public”) and human rights. In case Semenya decides to challenge the Swiss state before the ECtHR, one can expect the case to shake some grounds at the ECtHR, which would be faced with the question of the application to sport not of fair trial guarantees (as in Mutu & Pechstein) but of substantial human rights provisions such as the prohibition of discrimination on the basis of sex (Article 14 ECHR) and the right to private life (Article 8 ECHR).

Under Swiss law, the reasons that may lead to the annulment of an arbitral award are enumerated in art. 190 of the Swiss Private International Law Act (PILA). Semenya’s strongest case relied on art. 190(2)(e): the award’s incompatibility with public policy. Naturally, this point concentrated most of the SFT’s attention. In order to analyze the compatibility of the CAS award with Swiss public policy, the SFT focused on three main potential breaches of human rights: prohibition of discrimination, personality rights, and human dignity. In doing so, it put forward certain observations that differ with European human rights standards and the ECtHR’s jurisprudence. The purpose of this short article is to analyze those discrepancies and, consequently, Semenya’s prospects of success before the Strasbourg Tribunal.More...


Selected procedural issues –and questions– arising out the Caster Semenya Judgment of the Swiss Federal Tribunal - By Despina Mavromati

Editor's note: Dr Despina Mavromati is an attorney specializing in international sports law and arbitration (Sportlegis Lausanne) and a UEFA Appeals Body Member. She teaches sports arbitration and sports contracts at the University of Lausanne, Switzerland

 

As the title indicates, this short note only deals with selected procedural issues and questions arising out of the very lengthy Semenya Judgment. In a nutshell, the SFT dismissed Semenya’s appeal to set aside the CAS Award, which had denied the request of Caster Semenya (Semenya, the Athlete) to declare unlawful the Differences of Sex Development (DSD) Regulations of World Athletics (formerly IAAF).[1]

At the outset, it has to be reminded that the CAS Award dealt with the merits of the Semenya case in a final and binding way by rendering an arbitral award according to Article R59 of the CAS Code (and Article 190 of the Swiss Private International Law Act – PILA). Therefore, the SFT did not act as an appellate court but rather as a cassatory court, entitled to review only whether the exhaustively enumerated grounds for annulment set out in Article 190 (2) PILA were met (and provided that they were properly invoked and substantiated in the motion to set aside said award).More...

Caster Semenya Case Exposes Design Flaws in International Sports Governance - By Roger Pielke Jr.

Editor's note: Roger Pielke Jr. is a professor at the University of Colorado Boulder

 

The decision this week by the Swiss Federal Tribunal not to revisit the arbitral decision of the Court of Arbitration for Sport (CAS) in the case of Caster Semenya was not unexpected, but it does help to expose a major design flaw in international sports governance. Specifically, the institutions that collectively comprise, create and enforce “sports law” appear incapable of addressing flawed science and violations of basic principles of medical ethics.

While different people will have different, and legitimate, views on how male-female competition classifications might be regulated, the issues highlighted involving science and ethics are not subjective, and are empirically undeniable. In normal systems of jurisprudence, procedures are in place to right such wrongs, but in sports governance processes in place prevent such course corrections. And that is a problem.

The empirical flaws in the science underpinning the IAAF (now World Athletics) Semenya regulations are by now well understood, and have been accepted by WA in print and before CAS (I was an expert witness for Semenya, and was present when IAAF accepted responsibility for the flawed research). You can read all the details here and in the CAS Semenya decision. I won’t rehash the flawed science here, but the errors are fatal to the research and obvious to see.

One key part of the comprehensive institutional failures here is that the journal which originally published the flawed IAAF research (the British Journal of Sports Medicine, BJSM) has, inexplicably, acted to protect that work from scrutiny, correction and retraction. Normally in the scientific community, when errors of this magnitude are found, the research is retracted. In this case, the BJSM refused to retract the paper, to require its authors to share their data or to publish a critique of the IAAF analysis. Instead, upon learning of the major errors, the BJSM published a rushed, non-peer reviewed letter by IAAF seeking to cover-up the errors. All of this is non-standard, and a scandal in its own right.

The violation of basic principles of medical ethics required by the implementation of the WA Semenya regulations is also not contested. Both WA and the IOC have claimed to uphold the World Medical Association’s Helsinki Declaration on medical and research ethics. Yet, the WMA has openly criticized the WA regulations as unethical and asked doctors not to implement them. In response, WA has stated that it will help athletes who wish to follow the regulations to identify doctors willing to ignore medical ethics guidelines.

Flawed science and ethical violations are obviously issues that go far beyond the case of Caster Semenya, and far beyond sport. In any normal system of jurisprudence such issues would prove readily fatal to regulatory action, either in the first instance of proposed implementation or via review and reconsideration.

Sport governance lacks such processes. At CAS, the panel claimed that matters of scientific integrity and medical ethics were outside their remit. The SFT is allowed to reconsider a CAS decision only on narrow procedural grounds, and thus also cannot consider matters of scientific integrity or medical ethics. So far then, the flaws in the WA regulations – sitting in plain sight and obvious to anyone who looks, have not been correctable.

This leaves the world of sport governance in a compromised position. Some may look past the scientific and ethical issues here, perhaps judging that barring Semenya from sport is far more important that correcting such wrongs. 

Regardless of one’s views on sex and gender classification in sport, the WA regulations and the processes that produced and have challenged them reveal that sports governance has not yet entered the 21st century. Science and ethics matter, and they should matter in sport jurisprudence as well.  It is time to correct this basic design flaw in international sport governance.

Caster Semenya at the SFT – in 10 points - By Jack Anderson

Editor's note: Jack Anderson is Professor and Director of Sports Law Studies at the University of Melbourne

 

1.     Caster Semenya appealed to the Swiss Federal Court (SFT) arguing that World Athletics’ regulations violated human rights principles relating to gender discrimination and human dignity. The Swiss Federal Tribunal (as at CAS) held that World Athletics’ regulations may prima facie breach such human rights principles but were “necessary, reasonable and proportionate” to maintain fairness in women's athletics;


2.     Although in part addressed at the SFT, expect further legal argument on this in the domestic courts of South Africa or at the ECtHR, and in the following ways:

  • Necessity - is the athletic advantage that Caster Semenya has of such a scientifically-measurable extent that it is necessary for World Athletics to intervene in such an invasive manner? In a broader ethical sense, is the incidence of what the World Athletics’ regulations call “difference of sex development” of such prevalence in the general population, and specifically in middle-distance athletics, that, by way of the principle of “sporting beneficence”, intervention is justified. Or, in contrast, is the incidence of DSD not at a level which justifies a departure from the ethical principle of primum non nocere – first, do no harm?
  • Reasonableness - if World Athletics’ regulations are necessary, is the manner of implementation reasonable and in line with the principle of human and bodily integrity? In answering such a question, the focus must be on the fact that in order to continue to compete in her favourite events (such as the 800 metres) Caster Semenya will have to lower her testosterone level through medication;
  • Proportionate - if World Athletics’ regulations are necessary and reasonable is the manner of implementation proportionate? In answering such a question, the focus must be on whether the regulations disproportionately discriminate against a certain, limited group of athletes in a certain, limited number of events and in a certain, limited manner.More...


Asser International Sports Law Blog | Case note: State aid Decision on the preferential corporate tax treatment of Real Madrid, Athletic Bilbao, Osasuna and FC Barcelona

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

Case note: State aid Decision on the preferential corporate tax treatment of Real Madrid, Athletic Bilbao, Osasuna and FC Barcelona

On 28 September 2016, the Commission published the non-confidential version of its negative Decision and recovery order regarding the preferential corporate tax treatment of Real Madrid, Athletic Bilbao, Osasuna and FC Barcelona. It is the second-to-last publication of the Commission’s Decisions concerning State aid granted to professional football clubs, all announced on 4 July of this year.[1] Contrary to the other “State aid in football” cases, this Decision concerns State aid and taxation, a very hot topic in today’s State aid landscape. Obviously, this Decision will not have the same impact as other prominent tax decisions, such as the ones concerning Starbucks and Apple

Background

This case dates back to November 2009, when a representative of a number of investors specialised in the purchase of publicly listed shares, and shareholders of a number of European football clubs drew the attention of the Commission to a possible preferential corporate tax treatment of the four mentioned Spanish clubs.[2] The preferential tax treatment derived directly from a Spanish sports law of 1990, which obliged all Spanish professional sport clubs to convert into sport limited companies. The justification for the measure was that many clubs had been managed badly because neither their members nor their administrators bore any financial liability for economic losses. This law exempted from this duty to convert those football clubs which had a positive balance in the preceding 4-5 years. The only clubs who at that moment fulfilled these conditions were Real Madrid, Athletic Bilbao, Osasuna and FC Barcelona, and were consequently permitted to remain associations. Sports associations are non-profit entities and, as such, qualified for a partial corporate tax exemption under the Spanish Corporate tax Law. Instead of paying tax for their commercial income at the general rate of 30%, sport clubs were only required to pay tax at a rate of 25%. Moreover, Spain did not include a time period for a possible re-assessment of the financial position of the sport limited companies. Thus, no professional sporting entity has had its legal qualification modified since the original assessment of 1990, irrespective of how the financial health of the entity evolved.[3]

Intervention by the European Ombudsman

The complaint was given a “high priority status” by the European Commission[4] and the allegations of an unfair Spanish tax system were widely covered in the press (see for example here and here). Nevertheless, it took the Commission more than four years to launch a formal investigation and nearly seven to reach a final decision. In fact, there are reasons to believe that the Commission’s delay in investigating the matter was only halted after an intervention by the European Ombudsman. As stated above, the complaint was submitted in November 2011. More than 25 months later, and not having been informed about the progress of the case, the complainant turned to the Ombudsman. According to the complainant, the Commission had failed to decide, in a timely way, whether or not to open the formal investigation procedure. The Ombudsman agreed with the complainant and found that the Commission had not justified its failure to decide on the matter. Furthermore, the public suspicion that the Commission’s inaction might be linked to the fact that the then Commissioner for Competition, Joaquín Almunia, was a socio (member) of one of the football clubs (Athletic Club Bilbao) involved, were highlighted by the Ombudsman in its Recommendation.[5] Even though the Commission has denied that the delay in launching the formal investigation was linked to Almunia’s personal footballing preferences, on 18 December 2013 (a mere two days after receiving the Ombudsman’s recommendation) the Commission decided to open an in-depth investigation into the tax privileges granted to the four Spanish football clubs.[6] 

The Decision

As is the case with most, if not all, State aid and tax cases, the key question is whether the tax measure (or treatment in this case) leads to a selective economic advantage for one or more undertakings, in this case the four professional football clubs.[7] In order to uncover a selective advantage in the form of tax income, the case-law subscribes that one begins by identifying and examining the common regime/system applicable in the Member State concerned. Secondly, an assessment is made of whether the treatment derogates from that common system. This assessment includes deciphering the objective assigned to the tax system, as well as determining whether the economic operators in question (i.e. the four football clubs) are in a comparable factual and legal situation to the other economic operators falling under the common system.[8] If the four clubs are in a comparable factual and legal situation, but their tax treatment derogates from the common system, this treatment will be considered selectively advantageous. Third and lastly, it is necessary to appraise whether the tax treatment is justified by the logic and nature of the tax system.[9] As regards this justification appraisal, there are two important aspects to note: First of all, there is a shift in the burden of proof, since it is for the Member State which has introduced such a differentiation in charges in favour of certain undertakings active in professional football to show that it is actually justified by the nature and general scheme of the system in question.[10] Secondly, this justification appraisal has to be separated from the general justification appraisal of Article 107(3), the latter of which will only take place after State aid in the sense of Article 107(1) is fully established.


The common system applicable and the objective assigned to the system

In both the Decision to open a formal investigation and the final Decision, the Commission considered that the common system applicable is that of the corporate tax law. This has been the common system since the professional sporting entities had to convert to limited companies in 1990. The Commission also held that the objective assigned to the system is generating State revenues on the basis of company profits.[11]


Are the four clubs in a comparable factual and legal situation?

The Commission believes that Real Madrid, Athletic Club Bilbao, Osasuna and FC Barcelona are in a comparable factual and legal situation as other professional sport companies in light of the abovementioned objective of the tax system, and cannot see how they should be treated differently. Nonetheless, Spain and the clubs argued that the clubs were not in the same factual and legal situation, because the clubs’ aim was not to make profits. Instead, all profits made have to be reinvested in the club itself. They also claimed that the CJEU’s case law allows for exceptions “in light of the peculiarities of cooperative societies which have to conform to particular operating principles”. Indeed, “those undertakings cannot be regarded as being in a comparable factual and legal situation to that of commercial companies, provided that they act in the economic interest of their members, the members being actively involved in the running of the business and entitled to equitable distribution of the results of economic performance”.[12] The fact that clubs cannot distribute profits to shareholders is a relevant peculiarity in the eyes of Spain.

The Commission rebutted Spain’s claim that sport associations and sport limited companies are not in the same factual and legal situation.   It firstly criticised Spain’s obligatory conversion of all-but-four sport associations into sport limited companies in 1990 by highlighting that “differences in the economic performance cannot justify different treatment as regards the obligatory form of organisation or the lack of choice in that respect. Losses are not intrinsic to a certain form of organisation. The business performance is therefore not an objective criterion justifying different taxation bases or imposing certain forms of incorporation for an indefinite period”.[13] Moreover, not being able to distribute profits to shareholders “cannot support a lower taxation of certain football clubs when compared to other professional sporting entities. (…) Those four clubs, although they are non-profit entities, actively seek to make profit themselves”, in a comparable way to other professional sporting entities.[14] Indeed, “the fact that clubs are obliged to reinvest the income they realise (…) does not weaken their competitive position, nor justifies a different, more favourable, tax treatment with respect to other entities active in professional sport. It rather drives them to improve their facilities”.[15]


Justification by the nature and logic of the tax system

As stated above, it is up to the Member State concerned to argue why the different tax treatment is justified under the general tax system. The Decision shows that Spain, the four clubs and La Liga (who was given interested party status by the Commission) presented a variety of arguments that in their eyes justified the different treatment. Three of these arguments were the followings:

1. Associations have stricter internal control mechanisms than sporting limited companies;

2. Associations have fewer possibilities of access to the capital market than sporting limited companies;

3. Associations are placed at a disadvantageous position under UEFA’s Financial Fair Play rules compared to sporting limited companies.

As regards the first justification brought forward, it underlines the liability regime imposed on the management body of a sport association. For example, a club’s management board “must provide a bank guarantee covering 15% of the club’s budgeted spending in order to guarantee any losses generated during its term. In addition, management board members will be strictly liable, in an unlimited manner, with their present and future personal assets, for any losses generated that exceed this guaranteed amount.”[16] Nonetheless, the Commission held that this justification is at odds with the rationale for the conversion of the other sport clubs to sport limited companies in 1990, which was the fact that many clubs had been managed badly. “If there was a need for certain clubs to be subject to stricter controls, the obligatory transformation into a limited company would not be necessary to pursue the purpose of that law.[17]

Further, Spain’s claim that clubs have fewer possibilities of access to the capital market cannot be seen as a justification for deviating from the common tax system. Simply put, “if the disadvantages of the clubs in this respect are as manifest as [Spain and the clubs] assert, they always have the possibility to change their corporate form”.[18]

Last, the Commission considers the Financial Fair Play rules of the UEFA to be “internal rules set by a football organisation which aim to ensure a reasonable financial management of sport entities and to avoid continuous loss making. They cannot justify a different taxation of profits by the State”.[19] With this last consideration, the Commission displays a rather benevolent attitude towards UEFA’s Financial Fair Play Rules. Indeed, refusing to attack these rules in any way is very much in line with its previous public statements on FFP, such as the Commission’s and UEFA’s Joint Statement on FFP of March 2012 and the Cooperation Agreement between the Commission and UEFA of October 2014.


Compatibility assessment under Article 107(3)

As can be read from paragraph 85 of the Decision, neither Spain nor the beneficiaries have claimed that any of the exceptions provided for in Article 107(2) and 107(3) TFEU apply in the present case. Generally speaking, successful justifications under Articles 107(2) and (3) are uncommon in State aid and taxation cases. Two possible reasons for this can be deciphered: On the one hand, Member State and interested parties seek justifications by the nature and logic of the tax system, i.e. they argue that the justification rules out a selective advantage for one more undertakings, thereby ruling out State aid under Article 107(1). On the other hand, State aid through tax advantages are in most cases considered as operating aid. Operating aid can normally not be considered compatible with the internal market under Article 107(3) TFEU in that it does not facilitate the development of certain activities or of certain economic areas, nor are the tax incentives in question limited in time, digressive or proportionate to what is necessary to remedy to a specific economic handicap of the areas concerned.[20] In the preferential corporate tax treatment of four Spanish football clubs case, the Commission noted that a lower tax burden than one that should normally be borne by the clubs in the course of their business operations, should be considered as operating aid.[21] Hence, this type of aid cannot be considered compatible aid under any of the exceptions of Article 107(3).

Yet, the tax benefit scheme in the Hungarian sport sector decision of 2011 provides an example of a tax benefit scheme for the sport sector that is declared compatible State aid under Article 107(3)c) TFEU. In this case, the Commission held that the scheme was introduced in a sufficiently transparent and proportionate manner, i.e. that the measure was well-designed to fulfil the objective of developing the country’s sport sector.[22] Moreover, the Commission acknowledged the special characteristics of sport and held that the objective of the scheme is in line with the overall objectives of sport as stipulated in Article 165 TFEU, namely that the EU “shall contribute to the promotion of European sporting issues”, because the sport sector “has enormous potential for bringing the citizens of Europe together, reaching out to all, regardless of age or social origin”.[23]

As regards the preferential corporate tax treatment of four Spanish football clubs case, no reference was made by Spain or the interested parties to Article 165, or how the preferential tax treatment could contribute to the promotion of sporting issues or values. Perhaps Spain and the four clubs were aware that such a justification would not fly, since the preferential tax treatment is only beneficial to four football clubs and not to the sports sector in general.


Recovery of the aid

Given that the Commission considered the preferential tax treatment to be unjustifiable State aid, a recovery decision was adopted. According to the Commission, the amount of the aid to be recovered from the four football clubs consists of the difference between the amount of corporate tax which the clubs actually paid and the amount of corporate tax which would have been due under the general corporate regime starting from the year 2000.[24] The Commission further recalls that the exact amount of the aid to be recovered will be assessed on a case by case basis during the recovery proceeding which will be carried out by the Spanish authorities in close cooperation with the Commission.[25]

In this regard, it is important to mention that Spain amended the corporate tax rules in November 2014 and new rules entered into force on 1 January 2015.[26] Under the amended law, the corporate income tax rate of 30% for all limited companies will be reduced to 28% for 2015 and to 25% from 2016 onwards. This includes limited sport companies as well, which will, from 2016, be submitted to that 25% corporate tax rate.[27] In other words, since there is no longer a different tax treatment for associations compared to sport limited companies as of 2016, Spain has seized to grant (unlawful) State aid to the four professional football clubs. The recovery will thus only involve the advantages obtained until the end of 2015. 


Conclusion

Few will disagree with the Commission in that the Spanish corporate tax system allowed for an economic selective advantage to be granted to Real Madrid, Athletic Club Bilbao, Osasuna and FC Barcelona over more than 25 years, and without the presence of an acceptable justification for such a favourable treatment. Having said this, this particular “saga” has not quite ended after it became clear that Athletic Club de Bilbao (at least) appealed the Commission’s Decision in front of the General Court of the EU.

Notwithstanding the upcoming Court case, the practical impact of this Decision will probably be very limited. Firstly, the actual aid that needs to be recovered by Spain will be relatively low in financial terms. As can be read in the Commission’s press release of 4 July 2016, it is estimated that the amounts that need to be recovered are around €0-5 million per club.[28] The Spanish government is yet to announce how much it will recover, but Real Madrid and FC Barcelona in particular will have no difficulties returning the aid, irrespective of what the amount exactly is. Secondly, by lowering the corporate tax rate for all limited companies in 2015 and 2016, Spain cannot be considered anymore as granting State aid to its professional football associations based on the corporate tax system. This also means that there is no more reason to believe that the European Commission could “force” the four clubs to change their legal status from club to sport limited company through the enforcement of EU State aid rules, as some have insinuated. The fans of these clubs were dreading this outcome because becoming a sport limited company would open the doors to external investors, who would not necessarily in their eyes have the best interest of the clubs in mind.



[1] The Commission has previously published: Commission Decision of 4 July 2016, SA.41613 on the measure implemented by the Netherlands with regard to the professional football club PSV in Eindhoven; Commission Decision of 4 July 2016, SA.40168 on the State aid implemented by the Netherlands

in favour of the professional football club Willem II in Tilburg; Commission Decision of 4 July 2016, SA.41612 on the State aid implemented by the Netherlands in favour of the professional football club MVV in Maastricht; Commission Decision of 4 July 2016, SA.41614 on the measures implemented by the Netherlands in favour of the professional football club FC Den Bosch in 's-Hertogenbosch; Commission Decision of 4 July 2016, SA.41617 on the State aid implemented by the Netherlands in favour of the professional football club NEC in Nijmegen; and Commission Decision of 4 July 2016, SA.33754 on the State aid implemented by Spain for Real Madrid CF. The last remaining decision to be published is Commission Decision of 4 July 2016, SA.36387 Aid to Valencia football clubs.

[2] Draft recommendation of 16 December 2013 of the European Ombudsman in the inquiry into complaint 2521/2011/JF against the European Commission, points 1-3.

[3] Commission Decision of 4 July 2016, SA.29769 on the State Aid implemented by Spain for certain football clubs, paras. 5-9.

[4] Draft recommendation of the European Ombudsman in the inquiry into complaint 2521/2011/JF against the European Commission, point 13.

[5] “Rather than allaying suspicions regarding a conflict of interests, and regarding inappropriate influences on the decision making process, the Commission's failures here have actually added to those suspicions”.

[6] Interestingly enough, on that same day, the Commission decided to open an in-depth investigation into State guarantees in favour of three Spanish football clubs in Valencia and land transfers by the Council of Madrid to Real Madrid: Commission decision of 18 December 2013, SA.36387, Spain—Alleged aid in favour of three Valencia football clubs; Commission decision of 18 December 2013, SA.33754, Spain—Real Madrid CF.

[7] C Quigley, “European State Aid Law and Policy”, Hart Publishing (2015), pages 109-127.

[8] See for example Joined Cases C-78/08 to C-80/08 Paint Graphos and others ECLI:EU:C:2011:550, para. 49.

[9] Commission Decision of 4 July 2016, SA.29769, para. 51.

[10] Commission Decision of 4 July 2016, SA.29769, para. 59. See also Case T-211/05 Italian Republic v Commission ECLI:EU:T:2009:304, para. 125.

[11] Commission decision of 18 December 2013, SA.29769, Spain—State aid to certain Spanish professional football clubs, para. 16; and Commission Decision of 4 July 2016, SA.29769, para. 53.

[12] Commission Decision of 4 July 2016, SA.29769, para. 62; and joined Cases C-78/08 to C-80/08 Paint Graphos and others ECLI:EU:C:2011:550, para. 61.

[13] Commission Decision of 4 July 2016, SA.29769, para. 56.

[14] Ibid, para. 65

[15] Ibid, para. 67.

[16] Ibid, para. 24.

[17] Ibid, para. 61.

[18] Ibid, para. 68.

[19] Ibid, para. 71.

[20] See for example Commission Decision of 10 October 2015, SA.38374 on State aid implemented by the Netherlands to Starbucks, para. 433.

[21] Commission Decision of 4 July 2016, SA.29769, para. 86.

[22] Commission Decision of 9 November 2011, SA.31722 – Hungary - Supporting the Hungarian sport sector via tax benefit scheme., paras 95-98.

[23] Ibid, paras 86-87. For more information on the tax benefit scheme in the Hungarian sport sector decision, see O. van Maren, “The EU State aid and Sport Saga: Hungary’s tax benefit scheme revisited? (Part 1)”, Asser International Sports Law Blog, 18 May 2016.

[24] According to Article 17(1) of the State Aid Procedural Regulation 2015/1589, the powers of the Commission to recover aid are subject to a limitation period of ten years. Since the Commission asked Spain for information for the first time in 2010, the recovery of the tax difference starts with the taxation year 2000.

[25] Commission Decision of 4 July 2016, SA.29769, paras. 93-97.

[26] Ley 27/2014 de 27 noviembre 2014, del Impuesto sobre Sociedades, BOE of 28 November 2014. Article 29(1) stipulates that “El tipo general de gravamen para los contribuyentes de este Impuesto será el 25 por ciento”.

[27] Commission Decision of 4 July 2016, SA.29769, para. 34.

[28] European Commission - Press release IP/16/2401 of 4 July 2016, State aid: Commission decides Spanish professional football clubs have to pay back incompatible aid.

Comments (2) -

  • Boris

    11/7/2016 7:50:54 PM |

    Very interesting analysis.

    "there are reasons to believe that the Commission’s delay in investigating the matter was only halted after an intervention by the European Ombudsman"

    This is really scary stuff, very close to corruption, why was the EC protecting a few companies? why does the EC take such huge reputational risks? It is all very strange. Looking at this, it is not really surprising that the US believes that the EU's competition policy is biased.

    One question, EC has stated that Spain has already amended the tax rules and you say that the discriminatory treatment has ended in 2015 but under the current Spanish corporation tax law (articles 109-111) the sport clubs are still exceptionally allowed (as partially exempted entities) to treat many items of revenue as fully exempt for corporation tax purposes. The tax rate may now be the same but the tax base selective advantage still exists. Has the EC asked Spain to eliminate this preferential treatment or are lower corporation tax bases a clever loophole that could be used by the likes of Luxembourg and Ireland to favour specific companies? At the end of the day, these countries could achieve the same result whether it is by reducing the tax base or by granting a lower tax rate.

    The EC has ruled Real Madrid and Barca will have to calculate their taxes since 2000 as if they had been sport limited companies but sport limited companies can only participate in one sport discipline (i.e. they cannot participate in football and basketball simultaneously). Will an exception be made for Real and Barca or will they have to calculate their football and basketball taxes separately? How could the EC justify the exception?

    The Telegraph referred to a €7m annual tax saving due to the ability to set-off basketball losses against football profits (www.telegraph.co.uk/.../) and over 16 years this could add up to a huge amount.

    Have you noticed that there is a provision in the new corporation tax law (seventh additional disposition) that states that the conversion of the sport clubs into PLCs shall be free of corporation tax (for the undertakings that would receive the assets) and free of personal tax (for the non-profit members that would make a handsome profit by receiving the shares of the clubs). This is a very weird transaction for any non-profit and the model could be replicated elsewhere to circumvent state aid rules. Why should the conversion not be taxed according to the general tax rules for both corporations and individuals? Has the EC asked Spain to end this discriminatory treatment?

    Many thanks

    • Oskar van Maren

      11/8/2016 12:33:25 PM |

      Dear Boris,

      Thank you very much for your comment.

      You pose a series of questions that will require me to look into the matter thoroughly.

      I shall get back to you as soon as possible and look forward to the discussion with you.

      Best,

      Oskar

Comments are closed