Out of all the State aid investigations of recent years involving professional football clubs, the outcome of the Real Madrid case was probably the most eagerly awaited. Few football clubs have such a global impact as this Spanish giant, and any news item involving the club, whether positive or negative, is bound to make the headlines everywhere around the globe. But for many Spaniards, this case involves more than a simple measure by a public authority scrutinized by the European Commission. For them, it exemplifies the questionable relationship between the private and the public sector in a country sick of never-ending corruption scandals.[1] Moreover, Spain is only starting to recover from its worst financial crisis in decades, a crisis founded on real estate speculation, but whose effects were mostly felt by ordinary citizens.[2] Given that the Real Madrid case involves fluctuating values of land that are transferred from the municipality to the club, and vice versa, it represents a type of operation that used to be very common in the Spanish professional football sector, but has come under critical scrutiny in recent years.[3] 

By ordering the recovery of the granted State aid, the Commission showed that certain (land) transaction agreements between a public authority and a private entity can be caught by EU (State aid) law, regardless of the size and fame of the private entity. The ‘Real Madrid Saga’ (which, in addition to the Commission’s final decision, also includes the Commission’s opening decision, a number of rulings by Spanish national courts[4], a more than likely review by the Court of Justice of the EU, and a new deal between the club and the municipality) might serve as harbinger, in the professional football sector at least, for a shift towards more transparent and responsible conduct by clubs and public authorities.

This two-part blog will attempt to provide an overview of the ‘Real Madrid Saga’ in its broadest sense. The first part will briefly[5] outline the facts that led to the opening of the State aid investigation, and then analyse the role played by the Spanish national courts in the ‘Saga’. The second part will focus on the recovery decision of 4 July 2016 and dissect the arguments used by the Commission to reach it.  

The facts

The municipality of Madrid and Real Madrid have a rich history of land transactions. In fact, a particular agreement from 2001 was already questioned by a Member of the European Parliament, even though the European Commission, at that time, saw no reason to launch a full State aid investigation.

However the agreement of 29 July 2011 did not manage to escape Commission scrutiny. This agreement, referred to by the Commission as the “2011 settlement agreement”[6], settled two earlier agreements between the city Council and Real Madrid dating from 1991 and 1998 respectively. A simple analysis of the 2011 settlement agreement clarifies why the Commission doubted its legality. In 1998 Real Madrid transferred half of their old training grounds to the municipality. Additionally to a large sum of money, the club was to receive a number of terrains spread out over the municipality, including a terrain located in the area called Las Tablas valued by the technical services of the municipal administration at €595.194 in 1998.[7] At that time, the two parties “were of the opinion that the classification ‘reserved for sport’ would not exclude its transfer to private ownership”. This land was however never officially transferred to Real Madrid, and the entry of a local urban law in 2001 made the actual transfer legally impossible, because it stipulates that plots reserved for sport must be in public ownership. This was confirmed in 2004 by the Tribunal Superior de Justicia de Madrid (Madrid High Court), which ruled that the local urban laws prevent any private entity from holding the legal property over this type of plot (like the terrain in Las Tablas).[8] As a result, in 2011, the Council decided to compensate the football club not for the original value of €595.194 but for a staggering €22.693.054,44! Once again, this value was determined by the technical services of the municipal administration. Real Madrid was not compensated in the form of a sum of money, but rather it was presented with a packet of terrains including four terrains of a total area of 12.435 m/2 in the street Mercedes Arteaga in the Carabanchel district of Madrid.[9]

This last plot of land transferred to Real Madrid formed the subject of another land agreement dating from November 2011. The agreement became known as operation Bernabeú-Opañel and consisted of the following: The Council is to transfer to the club a terrain which borders the Bernabéu stadium. This would permit Real Madrid to cover its stadium with a roof, and to build a shopping centre and a hotel on the façade situated on the Paseo de la Castellana (one of Madrid’s most important streets). In return, the club agreed to transfer to the Council the shopping centre Esquina del Bernabéu, which is situated on the other side of the stadium. The Council would then demolish the shopping centre and convert it into a public park. The club also promised to transfer back to the Council parts of the four terrains located in the street Mercedes Arteaga that it received as part of the 29 July 2011 Agreement. In addition to the transfers of the old shopping centre and the terrains located in the street Mercedes Arteaga, Real Madrid is also to pay €6.6 million to the Council. The Council, however, encountered an obstacle in its own urban laws, which did not permit private parties, like Real Madrid, to construct on public terrains owned by the Council. Therefore, on 16 November 2012, the Government of the autonomous region of Madrid announced that the local urban law was to be modified ad hoc to enable the operation Bernabeú-Opañel.[10]

Even though no formal State aid complaint was ever submitted, the Commission nonetheless opened a formal investigation on 18 December 2013 based on “press reports and information sent by citizens”.[11] In its opening decision, the Commission provided a preliminary assessment of the 2011 settlement agreement under the EU State aid rules. It expressed doubts with regard to the legality of the transfer of the terrain in Las Tablas to Real Madrid; with regard to the evaluation of the market value of the Las Tablas plot of land; and with regard to market conformity of the value of the properties which were transferred to Real Madrid by the 2011 settlement agreement. Interestingly enough, although the Commission barely mentioned the operation Bernabeú-Opañel in its preliminary assessment (let alone assess it), it also doubted whether the subsequent exchange of land around the Bernabéu Stadium was carried out at market conditions.[12] 

The role of the national courts

In January 2012, the ecological movement Ecologistas en Acción (EeA) found several legal irregularities with regard to the Bernabeú-Opañel agreement, including the fact that no mention was made of the 2011 settlement agreement. It subsequently started legal proceedings in front of the Spanish administrative Court claiming that the ad hoc modification of the urban regulations was contrary the general interest and sought its annulment under Spanish law. In March 2013, a second action for annulment of the operation Bernabéu-Opañel was sought by the Ruiz-Villar family. For the sake of clarification, in the past this family was the owner of the land on which the Bernabéu stadium is build, as well as the plot of land next to the Bernabéu stadium that the Council wants to transfer to Real Madrid. Their action led to the judgment by the Madrid High Court of 2 February 2015, which will be elaborated on below. 

The Order for Interim Measures of 31 July 2014

At the time the European Commission opened a formal investigation in December 2013, EeA’s action for annulment under Spanish law was pending at the Madrid High Court. The fact that the European Commission was investigating the matter provided EeA the legal opportunity to invoke the so-called ‘standstill obligation’. The ‘standstill obligation’, found in Article 108(3) TFEU has direct effect and can therefore be called upon in front of national courts. Article 108(3) reads as follows: “The Member State concerned shall not put its proposed measure into effect until this procedure has resulted in a final decision (by the Commission)”. In other words, from the moment the Commission starts investigating the alleged State aid measure, the national court has an obligation to protect competitors and other third parties against (potential) unlawful aid since the Commission’s own powers to do so are limited.[13] It is, furthermore, settled case law that third parties who are not affected by the distortion of competition resulting from the aid measure can also have a sufficient legal interest of a different character, such as EeA, in bringing ‘standstill’ proceedings before a national court.[14]

EeA could not invoke the ‘standstill obligation’, as regards the 2011 settlement agreement, since the land transactions subject to that agreement had already taken place. Therefore, its focus was on preventing Real Madrid from carrying out the Bernabéu-Opañel project until the Commission closed its State aid investigation. On the one hand, this focus made sense given that EeA was also involved in a case in front of the same Court aiming to annul the operation Bernabéu-Opañel. On the other hand, it was not prima facie clear whether the ‘standstill operation’ also applied to the operation Bernabéu-Opañel, since the Commission’s opening decision made little reference to this project. In other words, it was not known whether the Commission was, in fact, actually investigating this operation.

In its Order for Interim Measures of 31 July 2014, the Madrid High Court stated that“(i)t does not correspond to this Chamber to determine at this procedural moment whether the transaction constitutes an illegal State aid or not but the inclusion of [the plots located in the street Mercedes Arteaga] in the scope of the [operation Bernabéu-Opañel] are sufficient circumstantial elements in order to determine a direct connection between the investigation undertaken by the Commission and the object of the present appeal”.[15]

With the link between the 2011 settlement and the operation Bernabéu-Opañel established by the Court, it recognised two possible reasons to suspend the renovation of the Bernabéu stadium:

- To safeguard the interests of the justiciable;

- To protect the affected parties by the distortion of competition caused by the aid.[16]

As regards the former, in essence the Madrid High Court had to decide whether EeA had standing to request the ‘standstill’. The CJEU has been quite clear on this matter: in principle, national procedural rules apply to ‘standstill’ proceedings.[17] In Spain, in administrative cases involving urban matters, the so-called acción publica urbanística, or urban public action principle, applies. This principle grants very extensive procedural rights to third parties who have a limited direct interest to launch proceedings in urban matters, including EeA in the Real Madrid case.[18] Indeed, given the possibility that procedural rights for third parties in urban matters are broader in Spain than in some, if not most, other EU Member States, standstill proceedings in other Member States could well be declared inadmissible for lack of interest under similar conditions.

With the standing of EeA recognized, the Court went on to suspend the renovation of the stadium not only to protect EeA of the distortion of competition caused by the concession of the aid, but also to protect Real Madrid itself. Allowing the renovation to go ahead could have very negative consequences for the football club if the aid were ordered to be recovered, such as the demolition of the newly renovated part of the stadium.[19] The argument that the suspension served to protect Real Madrid is hard to follow, since, as the EU State aid rules stipulate, it is up to the Member State to decide how incompatible State aid is recovered.[20] The Spanish authorities ordering Real Madrid to demolish its own stadium seems to be a rather exaggerated eventuality. Furthermore, one wonders whether suspending the renovation of the stadium really helps Real Madrid when, at that stage, there were not that many indications that the Commission was actually investigating the operation Bernabéu-Opañel.  

The judgment of 2 February 2015 ordering the annulment of the operation Bernabéu-Opañel

Any remaining criticisms regarding the Madrid High Court’s decision to suspend the renovation of the stadium were swiftly set aside when the same Madrid High Court annulled the whole operation in its judgment of 2 February 2015. As explained above, this was based on the action of annulment sought by the Ruiz-Villar family. This blog will not analyse this judgment in full detail, because it does not make any reference to the State aid investigation or any other aspect of EU law. The important element to take from this judgment, however, is that an ad hoc modification of the (local) urban law is only valid if it fulfils the general interest and not just the interest of one (private) party.[21] Real Madrid has publicly expressed that it intends to “convert the Club in a sporting institution of reference in the world. The aim is for the stadium to have a maximum level of comfort and services superior to the most modern and advanced sporting stadiums in the world”.[22] This objective was not considered by the court to be an objective of general interest and, consequently, does not allow for an ad hoc modification of the urban laws.

As a result, Real Madrid had to restart its entire renovation project while a potential negative decision State aid decision from the European Commission was still looming. Moreover, as will be shown in the second part of this blog, even though this judgment did not make a single reference to the State aid investigation, it still played an important role in the final outcome of the investigation.

[1] Elena G. Sevillano and Bruno G. Gallo, “Así gana el Madrid”, El País, 6 November 2011. See also “Ten Spain corruption scandals that will take your breath away”, The Local, 28 January 2016.

[2] Ozlem Akin et al., “The Real Estate and Credit Bubble: Evidence from Spain”, Barcelona GSE Working Paper Series Working Paper nº 772.

[3] See for example Nefer Ruiz Crespo, “Urban speculation by Spanish football clubs”, in Transparency International, “Global Corruption Report: Sport”, Routledge February 2016; and “Spain Corruption Report”, GAN Business Anti-Corruption Portal.

[4] Most notably Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo - Pieza de Medidas Cautelares- 357/2013 – 01, 31 July 2014; and Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo – Procedimiento Ordinario 371/2013, 2 February 2015.

[5] The background information on the Real Madrid case is more extensively found in a previous blog entitled: Oskar van Maren, “The EU State aid and Sport Saga – A blockade to Florentino Perez’ latest “galactic” ambitions (part 1)”.

[6] Commission decision SA.33753 of 4 July 2016 on the State aid implemented by Spain for Real Madrid CF, para. 6.

[7] Ibid, para. 10.

[8] Ibid, paras. 13-15.

[9] Oskar van Maren, “The EU State aid and Sport Saga – A blockade to Florentino Perez’ latest “galactic” ambitions (part 1)”.

[10] Ibid.

[11] Commission decision SA.33753, para. 1. For more information on why the Commission opened this case without a formal complaint, 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.

[12] Commission decision SA.33753 of 18 December 2013, State aid– Spain Real Madrid CF, paras. 41-43.

[13] Commission notice of 9 April 2009 on the enforcement of State aid law by national courts (2009/c 85/01), para.25. See also: Oskar van Maren, “The Real Madrid case: A State aid case (un)like any other?” 11 Competition Law Review 1:104.

[14] Commission notice on the enforcement of State aid law by national courts, para. 72. See also in that regard Case C-174/02, Streekgewest, ECLI:EU:C:2005:10, para. 19.

[15] Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo - Pieza de Medidas Cautelares- 357/2013 – 01, 31 July 2014, page 5. Disclaimer: This is an unofficial translation by the author of the blog.

[16] Ibid.

[17] Commission Notice on the enforcement of State aid law by national courts, para.70. See also Case C-368/04, Transalpine Ölleitung in Österreich, ECLI:EU:C:2006:644, para. 45. The Court also held that national procedural rules apply “as long as those national rules do not render excessively difficult the exercise of rights conferred by EU law”. In other words, if it is more difficult to get standing under national procedural rules than under EU procedural rules, then EU procedural rules apply.  

[18] Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo - Pieza de Medidas Cautelares- 357/2013 – 01, 31 July 2014, page 5.

[19] Ibid, page 6.

[20] Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules fort the application of Article 108 of the Treaty on the Functioning of the European Union, Article 16(3).

[21] Tribunal Superior de Justicia de Madrid - Sección nº01 de lo Contencioso- administrativo – Procedimiento Ordinario 371/2013, 2 February 2015, page 10.

[22] Ibid, page 9.

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.

Editor's note: Nicholas McGeehan is co-director of human rights research and advocacy group FairSquare, which works among other things on the nexus between sport and authoritarianism. He is a former senior researcher at Human Rights Watch and holds a PhD in international law from the European University Institute in Florence.

Boycotts, divestments and sanctions are each controversial and contentious in their own right, but when combined under the right conditions, they have explosive potential. BBC football presenter Gary Lineker found this out to his cost when he retweeted a call from Palestine’s BDS movement to suspend Israel from FIFA and the International Olympic Committee (IOC)  until such time the Israeli state ends what they called “the crime of genocide it is perpetrating in Gaza” and its occupation of Palestinian territory. Lineker quickly deleted his retweet but not before the UK’s most popular right-wing tabloid newspaper, The Daily Mail, spotted it and renewed their fulminating campaign against Lineker’s support for political causes that run contrary to the Mail’s editorial positions. The Daily Mail does not oppose sporting boycotts, in fact judging from an article by its football columnist, Martin Samuel, it was an ardent supporter of Russia’s ejection from European football in the aftermath of its invasion of Ukraine. “Why should Russian football get to be part of the continent in which it has murdered innocents?,” asked Samuel  and in that regard he was not alone and was echoing views heard across the political divide in the west at the time. 

The west continues to boycott Russia, its companies have divested from Russia, and its governments are sanctioning Russia. This includes in the sporting arena where nobody batted an eyelid when Russian football teams were excluded from FIFA and UEFA competition, and its athletes excluded from IOC competition.  So it seems obvious that it  is not so much BDS tactics that offend people in certain quarters, but rather their target. Russia can be BDS’d until the cows come home, but BDS’ing Israel is beyond the pale. You can see how it might be hard to explain to a child.

Through an examination of the widely divergent responses to Russia’s actions in Ukraine and Israel’s actions in Gaza, this piece argues that FIFA and the IOC have aligned themselves with the political positions of the countries of the global north. With reference to previous sporting boycotts, it demonstrates how an absence of rules has left FIFA and the IOC sailing rudderless into stormy geopolitical waters and argues that they need to institute rules to guide their responses to events of this gravity and magnitude. Dispensing once and for all with the canard that sport and politics can be kept apart would enable sport’s governing bodies to appropriately leverage their political power and not merely act as puppets of the global north.

Russia and a case of force majeure

On 28 February 2022, four days after Russia launched its ground invasion of Ukraine, FIFA and UEFA issued a joint statement suspending all Russian national and club teams from competition. Poland and Sweden had significantly upped the pressure two days earlier when they said they would refuse to play Russia in qualifying matches for the 2022 World Cup, which was scheduled to take place in December of that year. Their message was very clear - it’s them or us.

The Russian football federations took its case to the Court of Arbitration for Sport (CAS), arguing that  it had been punished arbitrarily for conduct that is neither mentioned nor proscribed in FIFA’s statutes. FIFA said its response was  “warranted and necessary in the face of the unprecedented and widespread reaction of the international community” and that it had the right to take its decision since Russia’s invasion of Ukraine was a case of force majeure (a catastrophic event that could not have been predicted), granting it the right under World Cup regulations to exclude Russia. (It is beyond the scope of this article to examine a similar case that the Russian football federation took against UEFA but detailed analysis of the two cases is available, courtesy of Antoine Duval.)

CAS sided with FIFA, noting that neither FIFA statutes nor the World Cup regulations contained any specific provisions that addressed wars of aggression, but agreeing with FIFA’s position that it had to respond urgently and that “the consequences of the military action were a force majeure event”. The CAS panel also noted that sanctions usually apply to the team who refuses to play but justified its reversal of established rules and precedent, by saying that  “circumstances of this particular case are to date unique.” The CAS panel’s comments on Russia’s argument that FIFA’s actions were inconsistent with its inaction in previous instances of state aggression are worth repeating here in full.

The Panel does not consider it helpful to compare previous global conflicts and the responses of other international sports federations in relation to a particular country’s involvement in those conflicts. The Russian State’s annexation of Crimea or the activities of the Assad regime in Syria, both recent examples of military conflict, have not, for better or for worse, elicited the same global reaction from governments, nongovernmental organisations, international bodies or the wider public (whether or not in the view of some people or entities, it should have). The reality is that this military conflict has elicited an unprecedented global reaction, including amongst the general public, and it was the consequences of that reaction to which FIFA considered it was required to act in order to fulfil its statutory objectives.

It was political pressure from the Global North, via European football federations, that forced the hand of FIFA.

The International Olympic Committee came under similar pressure. A few days after Russian troops entered Ukraine, the IOC issued a statement saying that it was “united in its sense of fairness not to punish [Russian] athletes for the decisions of their government” but nonetheless recommended that International Sports Federations and sports event organisers not invite or allow the participation of Russian (and Belarusian) athletes. 

In September 2022, two independent UN human rights experts (known as Special Rapporteurs), Professor Alexandra Xanthaki and Professor E. Tendayi Achiume  wrote to IOC President Thomas Bach expressing “serious concern” about the sanctions imposed on athletes. They described the decision to relocate or cancel events in Russia and Belarus and not to play their anthems in sporting events as “ sanctions that can be considered as legitimate, as they directly target these States or their official representations” but said that exclusion of athletes based solely on nationality violated the principle of non-discrimination and was at odds with international human rights law as well as the Olympic Charter. In January 2023, the IOC reversed its decision, under what they called “strict conditions”. Russia and Belarussian athletes could participate in competitions as “neutral athletes” and on the proviso that they “have not acted against the peace mission of the IOC by actively supporting the war in Ukraine.” The following month representatives of 35 governments - 27 of them European - issued a joint statement of concern at the IOC’s decision and expressing their support for a blanket ban. “We have strong concerns on how feasible it is for Russian and Belarusian Olympic athletes to compete as ‘neutrals’ … when they are directly funded and supported by their states (unlike, for example, professional tennis players)”, read the statement, which was also signed by the United States, Australia, Canada, New Zealand and Japan. “The strong links and affiliations between Russian athletes and the Russian military are also of clear concern”, it added.

One of the UN Special Rapporteurs, Alexandra Xanthaki, came under fierce criticism online after tweeting about the IOC’s decision to reverse the ban. “If my country did what russia is doing (invading a sovereign country) I would leave and refuse to associate with my national identity until it stopped - they should do the same” wrote one Twitter user. “The US waged an illegal war in 2003. I don’t remember people trying to ban Michael Phelps from swimming”, responded Xanthaki. 

Xanthaki and Achium had made this same point in more formal channels, in their first communication to the IOC the previous year. “Please explain how the Executive Committee of the International Olympic Committee has responded to other instances in which a State has engaged in territorial aggression toward another State. Please clarify whether the committee has banned athletes of other nationalities on the basis of the territorial aggression of the State to which they belong as a citizen previously.” 

In October 2023, the IOC suspended the Russian Olympic Committee for assuming control of regional sports organisations in Ukrainian territory illegally annexed by Russia, arguing that it was a violation of the Olympic Charter, but without providing specific details of the provisions it deemed Russia to have violated. 

The Olympic Charter is replete with references to its contribution to “peaceful societies” and “solidarity” and the “development of humankind” and nobody would contest the fact that Russia’s brutal and bloody war on Ukraine is entirely inconsistent with those values, but one could say the same of numerous conflicts and aggressions that did not stir the IOC to act. If the Olympic Charter contained references to international legal norms - to illegal annexation or violations of jus cogens norms or war crimes or occupation or aggression or crimes against humanity - then a decision to exclude Russia would have a substantive rationale, but it does not. And, as noted by CAS, nor do FIFA’s statutes. 

The responses of FIFA and the IOC to Russia’s actions in Ukraine were not based on rules, they were responses to the political positions of the powerful states of the global north. If there were any doubt about that, the failure of these sporting bodies to respond to Israel’s actions in the aftermath of the Hamas war crimes of October 7 surely provide conclusive evidence. 

To boycott or not to boycott

At the time of writing Israel’s actions in Gaza have resulted in South Africa filing a case against it at the International Court of Justice arguing that it is committing genocide. The ICJ issued provisional measures on Russia in March 2022 and 32 states formally intervened in the case, most of them the very same western states who criticised the IOC’s decision to repeal its blanket ban on Russian athletes. None of those states have intervened in support of the case against Israel despite the compelling evidence presented by South Africa’s legal team. On the contrary, Germany has intervened in support of Israel’s defence. The United States has called the South African submission “meritless, counterproductive and completely without any basis in fact.” The United Kingdom’s foreign secretary called the case “nonsense.” 

Anyone who has even  skimmed through South African’s  84-page submission would have to concede that there is a very strong case to answer and facts listed still jar the senses.

One Palestinian child in Gaza has been killed approximately every 15 minutes since Israel commenced military action in Gaza on 7 October 2023. … 61 hospitals and health care facilities in Gaza have been damaged or destroyed …Babies are dying from preventable causes: in addition to disease and malnutrition, premature babies have died due to lack of fuel to supply hospital generators; others have been found decomposing in their hospital cots…Over 60 per cent of homes in Gaza have been damaged or destroyed. …93 per cent of the population in Gaza is facing crisis levels of hunger, with more than one in four facing “catastrophic conditions” — with death imminent. 

Despite these very well-documented facts, there have been no calls in the west to exclude Israel from FIFA or UEFA competitions, or for its athletes to be disqualified from the Paris 2024 Olympics. As things stand, a hastily-deleted Gary Lineker retweet arguably represents the high-water mark of western support for a boycott of Israeli sporting teams. As noted by Karim Zidan, “This discrepancy in handling international conflicts highlights a concerning double standard that undermines the credibility of these sporting organizations.” It should also be noted that arguments to suspend Israel predate its response to Hamas’s October 7 war crimes. Antoine Duval highlighted Israel as the most obvious example of the double standard inherent in FIFA’s and UEFA’s decisions to exclude Russian football teams from competition in an article published long before October 7. “The FUR is no more directly responsible for the illegal Russian invasion of Ukraine than the IFA for the illegal occupation by the Israeli army of the Occupied Palestinian Territories. Why are other wars not deemed so disruptive that they must lead to the suspension of national teams?”

Outside of the west, a call to suspend Israel from sporting competition is far less controversial and has some clear and obvious precedents. In December 2023, the Jordanian Football Association called for all Israeli sports federations to be suspended from international competition in a move that recalls the 1974 expulsion of Israel from the Asian Football Confederation following a Kuwaiti motion. Israeli’s national team spent two decades in the sporting wilderness until UEFA agreed to allow Israel to be part of the European confederation in the 1990s.

At the time of Israel’s expulsion from the AFC, sporting boycotts were in vogue. FIFA excluded the South African football team from competition in 1961 on account of the state’s apartheid policy, its athletes were excluded from the 1964 Olympic games and South Africa was expelled entirely from the IOC in 1970. South Africa was only readmitted to the IOC and FIFA in 1992, which was the same year that UEFA disqualified Yugoslavia from the European Championships. In this case, UEFA’s hand was forced by international law, more specifically United Nations Security Council issued Resolution 757 , which was issued a few months before the tournament began and among other things called on all states to “take the necessary steps to prevent the participation in sporting events on their territory of persons or groups representing the Federal Republic of Yugoslavia (Serbia and Montenegro).”

In the realm of sporting boycotts, the case of Yugoslavia appears to be one of the few instances where the exclusion of a sporting team - however morally justified - was driven by precise rules and due process. Those rules and processes were that of the UN Security Council, an anachronistic and profoundly anti-democratic body controlled by its five permanent members - Russia, China, the United States, the United Kingdom, and France - none of whom could ever be called peaceniks.

How sport might use its political leverage

Is it possible for sport to safely navigate its way through these choppy and dangerous geopolitical waters? Perhaps not, but it could at least chart a course.

It bears repeating that sport is profoundly political, and international sport is an important actor in geopolitical affairs. Rob Nixon, in his study of the sporting boycott of apartheid-era South Africa, beautifully articulated the point. “International sporting contests serve as a form of national recreation in more than one sense of the phrase. They are exhibitionist events imbued with the authority to recreate or simulate the nation, offering a vigorous display of a proxy body politic.” Exclusion from these events therefore comes at a political cost to the states affected. This means that sport has political power and leverage. Not as much as the United States or Russia or Israel maybe, but some.

The problem is that FIFA and the IOC are using their leverage largely  in the service of the political interests of the global north, excluding some states and turning a blind eye to others. To return to the point of Alexander Xanthaki, if illegal and ruinous wars of aggression were grounds for exclusion, the US-led invasion of Iraq in 2003 would have resulted in their athletes’ exclusion from the Athens Olympics in 2004. Might all of the UK’s national federations have been excluded from qualifying games for the 2006 men’s World Cup in Germany  for their participation in the Iraq war?  

In all likelihood these glaring double standards are of little concern to FIFA or the IOC, organisations which have grown fat on the billions of dollars in revenue that they generate from selling image and broadcast rights, but they should be of concern to people who genuinely care about the governance of sport. 

So what could progressive governance look like? Should FIFA and the IOC impose rules that provide for national teams to be excluded from competitions on political grounds? Well since they already do exclude teams, and given the leverage that they obviously possess, it would make a lot more sense for them to be proactive and set their own rules, than to be reactive and respond to the political whims of others. As Antoine Duval has argued, it would be preferable if sporting bodies were to “ openly acknowledge the need to take decisions on the basis of political or ethical considerations in certain situations and to introduce proper procedures and rules in their statutes and rulebooks to deal with such cases.”

In terms of what the rules should be, that would be a hotly-debated matter.  The argument that states should be excluded for gross and serious violations of human rights might be seductive to human rights advocates, but in practice it would be entirely unworkable - which violations? Decided by whom? A set of objective and measurable criteria is probably the only way that FIFA and the IOC could exercise their leverage appropriately. For the sake of argument, here are a couple of suggestions.

The ICJ is a highly reputable and well-established court that resolves disputes between states, all of whom accept its jurisdiction. On 26 January it issued a damning assessment of Israel’s conduct in Gaza and ordered it to desist from acts that violate the Genocide Convention. The ICJ issued similar provisional measures calling on Russia to “suspend the military operations that it commenced on 24 February 2022 in the territory of Ukraine” on 16 March 2022 - only a few weeks after the invasion. Russia has refused to abide by the court’s decision. It remains unclear if Israel intends to follow the court’s orders. FIFA and the IOC could fairly easily include a rule excluding teams and athletes from countries that don’t abide by the ICJ’s decisions. 

A second, more radical, suggestion would be to make ratification of critical international treaties that promote international peace and justice a prerequisite for participation in international sporting events. The Rome Statute of the International Criminal Court , for example, gives the ICC authority to prosecute individuals for the commission of the most serious international crimes and commits the 123 countries that have ratified the treaty of accepting its jurisdiction. The United States, Russia, China, India and Israel are among the states that have not ratified the Rome Statute. 

To reiterate, these are merely suggestions for the types of steps that  progressive sporting bodies might consider, and as one prominent campaigner has noted, “International justice has always fallen flat when it comes to dealing with powerful Western interests”. But consider a world where Israel’s participation in the Paris 2024 Olympics rested on it abiding by the ICJ’s decision. Imagine a situation where the United States, which has provided crucial political, military and financial support for Israel’s actions in Gaza, faced the prospect of hosting the 2026 World Cup without its national team involved unless it agreed to the jurisdiction of the ICC.

We should be clear-eyed about the fact that western support for Israel’s actions in Gaza has left the international rules-based order in tatters. Future generations may spend their lives rebuilding faith in and support for a more equitable and dependable system of global order and peace. Sport, for its part,will always be vulnerable to a battering by geopolitical forces that it cannot counter, but it can at least gird itself with rules that mitigate against it being used as a tool of unaccountable power.