Introduction
The year 2015 promises to be crucial, and possibly revolutionary, for
State aid in football. The European Commission is taking its time in concluding
its formal investigations into alleged State aid granted to five Dutch clubs
and several Spanish clubs, including Valencia CF and Real Madrid, but the final decisions are due for 2015.
A few months ago, the Commission also received a set of fresh State aid complaints originating from the EU’s newest Member State
Croatia. The complaints were launched by a group of minority shareholders of
the Croatian football club Hajduk Split, who call themselves Naš Hajduk. According to Naš Hajduk, Hajduk Split’s eternal rival, GNK Dinamo
Zagreb, has received more than 30 million Euros in unlawful aid by the city of
Zagreb since 2006.
Investigations into potential aid granted to Dinamo are not something
new. Croatia’s most successful club was already under scrutiny by the Croatian
Competition Agency (CCA) prior to the country joining the EU on 1 July 2013. In
a highly controversial decision dated from 13 June 2013, the CCA decided to
terminate the proceedings. With Croatia joining the EU, the CCA ceased to have
the legal competence to carry out State aid investigations. Instead, the
European Commission has the exclusive competence to deal with the Dinamo Zagreb case.
It is no secret that football and politics, including direct State
intervention, go hand-in-hand in many EU Member States. Remarks made by Spanish Government officials after
news broke out that the Commission commenced formal investigations relating to
Spanish clubs illustrate this point, thereby making it more sensitive for the
Commission to decide these cases.
In that sense, the Dinamo Zagreb case
could prove a real snake pit, since State funding of professional sports
undertakings is authorised by a national law known as the “Sports Act”. In Naš Hajduk’s eyes, joining the EU has not
changed existing practices since Dinamo is still receiving unlawful State aid. In
fact, they believe that the main reason for the City of Zagreb’s public funding
is to preserve the dominant position of Dinamo Zagreb in Croatian football. Furthermore,
according to the complainant, the CCA’s decision to declare the aid compatible
with Croatian national law was unjustifiable because the CCA did not correctly
interpret the relevant provisions stipulated in the Stabilisation
and Association Agreement between the European Communities and its Member
States and the Republic of Croatia and the Treaty concerning the accession to
the EU of the Republic of Croatia.
This blog post will briefly discuss the measures imposed by the relevant
Croatian authorities regarding public funding to Croatian sporting entities in
general and Dinamo Zagreb in particular in light of the decision of the CCA. Furthermore,
now that a complaint has been lodged with the Commission, I will analyse the
key legal issues raised by the case.
Background
Since Croatia gained its independence from Yugoslavia in 1991, GNK
Dinamo Zagreb has been the country’s most successful football club by a
distance. It has won 16 national championships in total, and is currently well
on its way to win its 10th consecutive title. Notwithstanding all
the sporting success, it has suffered great financial difficulties in this
period of time, which climaxed in a Croatian Court declaring the football club
bankrupt in 2002. However, after restructuring the club, Dinamo was allowed to
remain active in the highest professional football league of Croatia.[1]
Since the introduction of the latest version of the Sports Act in 2006,
Dinamo has been consistently included in the public financing programs adopted on
the basis of Articles 74-76 (Sport Financing) of this Act. Article 75 allows
public funding in sport on State level, whereas Article 76 allows for public
funding in sport on regional and local level. Article 76 (1) lists the types of
programs that are suitable for public finding. The list includes: implementing
sporting activities of children, youth and students; sports preparations,
Croatian and international competitions, as well as the general and special
health protection of athletes; hiring persons to do professional work in sports
and; planning, construction, maintenance and use of sports facilities important
to the public authorities.[2]
In Zagreb, for example, the system of public funding works as follows:
The Zagreb Sports Association (SSGZ), a public institution or “sports community”
created by the City of Zagreb, submits a proposal to the city regarding the
public needs for sport within the city.[3]
The final decision on this proposal and the annual budget for the public needs
for sporting entities within the city lies with the governing body of the City
of Zagreb in accordance with Article 74 (2) and 76 (4).
In general terms, the
program on public funding in sport of the SSGZ includes:
Investing in the development of young
athletes;
Encouraging
participation in sport for larger number of citizens, especially children and
youth.
However, the program also includes:
Improving the quality of elite professional
sport that encourages the development of sport and contributes to the
reputation of the City of Zagreb
Planning, construction, maintenance and
use of sports facilities important to the City of Zagreb.
The criteria of what can be considered “elite professional sport” are
found in the Conclusion on the allocation
criteria for the promotion of professional sport.[4] Funding for elite professional sport could be awarded
to all sporting entities who have won a European title, who have gained the
right to participate in European competitions, or that are successful in
domestic and/or European professional competitions. Based on these criteria,
special agreements were signed between the City of Zagreb and elite
professional sport entities such as basketball club KK Cibona, waterpolo club HAVK Mladost, handball club RK Lokomotiva Zagreb and
football club GNK Dinamo Zagreb.[5]
The City of Zagreb
argued that public funding to these elite sport clubs was needed because the
private market did not provide sufficient sponsor money in order for these
clubs to compete at an adequate competitive level. Nonetheless, the complaints
were launched by people who believe that the part of the program that allows
specific funding for elite professional sport creates a financial advantage for
a selective groups of professional sport clubs, which in turn can lead to
unlawful State aid under EU law or under article 70 (1) (iii) of the
Stabilisation and Association Agreement.[6] It was therefore no great surprise that the Croatian Competition Agency was
urged to decide whether the public funding to one of the recipients, Dinamo
Zagreb, amounted to a breach of the EU State aid rules.
The CCA’s decision
The CCA considered
the measures not to constitute unlawful State aid under the Stabilisation and
Association Agreement.[7]
More specifically, the CCA argued that until Croatia joined the EU on 1 July
2013, the City of Zagreb complied with all the requisites of the Program of
public needs in sport and with Article 76 of the Sports Act. Given that “the Sports Act, which is in force and
applicable in the Republic of Croatia (…), enables the financing of
professional sports by local and regional governments, including the City of
Zagreb, the (CCA) has found that there are no legal requirements for assessing
whether the resources assigned to Dinamo Zagreb (should be) considered illegal
state aid.”[8]
However, the CCA underlined that from the date of
accession onwards EU Law will be applicable to Croatia and recognised that the
Sport Act could contradict the EU State aid rules.[9] Consequently, the CCA recommended the Croatian
legislator to reformulate the relevant provisions in the Sports Act.[10]
Therefore, since joining the EU the Sports Act contains a new paragraph which
reads as follows: In accordance with the
provisions of (the Sports Act), the financing of professional sports by the
national, regional and local governments of Croatia and the city of Zagreb that
effects trade between the Croatian State and other EU Member States is only
possible if (the financing) is in line with the rules regarding State aid.[11] However, according to the CCA, with
Croatia joining the EU, the CCA seized to have the competence for carrying out
further State aid investigations for the measures granted to Dinamo Zagreb from
both before as after the date of accession.[12]
The question whether aid
granted to Dinamo Zagreb specifically due to a lack of sponsor money
constituted unlawful State aid was also discussed by the CCA in its decision.
In the end, the CCA held that it was “unable to determine whether the
sponsoring contracts signed between publicly owned legal persons and (Dinamo
Zagreb) contained State aid due to the following: from 2010 to 2012 (Dinamo
Zagreb) did not receive financing from sponsoring contracts concluded with
(public entity) Zagrebacki Holding, whereas at the moment of signing of the
concerned contracts (public entity) Croatia Osiguranje acted as a market
economy investor while the City of Zagreb Tourist Board and (public entity) Hrvatska
Elektroprivreda signed sponsoring contracts not only with (Dinamo Zagreb) but
also with other professional sport clubs.”[13]
The CCA’s decision to consider the public funding in line with the
Sports Act and the Program of public needs in sport was heavily criticised, especially by Naš
Hajduk. In their view, the CCA erred in their decision to justify the aid
granted to Dinamo Zagreb. Their second concern involves the funding programs themselves,
which are still in place after Croatia’s accession to the EU. Since 2006, Dinamo
has received up to 244 million Kuna (31.7 million Euro) by the City of Zagreb for
a variety of services, and there is no indication that the City of Zagreb is
planning to seize the funding any time soon.
The complainants’ arguments
Firstly, the complaint stipulates that Dinamo Zagreb is receiving
unlawful State aid because it is allowed to use the Maksimir Stadium and
several training grounds free of charge. This “free of charge lease agreement”
has been anchored in several agreements signed between the City of Zagreb and
Dinamo Zagreb, the latest of which being signed on 13 October 2011 for a period
of five years with the possibility of extending that lease. Using the football
stadium and the training grounds for free constitutes a selective advantage,
they argue, because no private operator would consider leasing out real estate
free of charge.
Secondly, Naš Hajduk argues that the maintenance costs of the stadium are
not being paid by Dinamo Zagreb, but by the City of Zagreb. In fact, the
maintenance costs for the period 2010 – 2014 amounted to 4.8 million Euro. This
amount can be considered as an unlawful aid granted to Dinamo Zagreb.
Thirdly, the City of Zagreb has funded (and still does) the operating costs
of “sport clubs of a particular importance for the city”. Operating costs
include: Youth development and expenses made by Dinamo Zagreb’s youth
categories; travel and accommodation costs for matches played in European
competitions, international friendlies and training programs; the organisation
of home games in European competitions; and “other development programs”.
Fourthly, Naš Hajduk regards the fact that the City of Zagreb has
(partially) paid the salaries of the football trainers working for Dinamo for
the last three years as further evidence of unlawful State aid. As a rough
average, the city pays the club 100.000 Kuna (13.000 Euro) a year per trainer.
According to the complainant, 30 trainers received this amount in 2012, 23 in
2013 and 22 in 2014. In fact, the operating costs and the payment of trainer
salaries combined would amount to nearly 4.9 million Euros.
Fifthly, in addition to describing which measures should be deemed as
unlawful State aid, Naš Hajduk argued in the complaint that regardless of
whether the measures are considered illegal State aid or not, the Croatian
authorities failed to meet their notification obligation as stipulated in Article
108 (3) TFEU and Article 2 of the Procedural Regulations 659/1999. A notification by the Croatian authorities,
they argue, is not just a procedural obligation for Member States, but it would
also lead to greater transparency on public funding and would take away any
doubts disagreeing citizens, such as themselves, might have about how the State
spends public money.
Lastly, the complainant pointed out to the Commission that the CCA erred
in its decision to justify the public funding under the national Sports Act. The
principle of supremacy of EU law is also applicable as regards accession
treaties such as the Stabilisation and Association Agreement between the
European Communities and its Member States and the Republic of Croatia and the Treaty concerning the accession to the EU of
the Republic of Croatia.
Is Dinamo Zagreb receiving (unlawful)
State aid?
Naš Hajduk believes, and perhaps rightly so, that the advantages gained
by the free of charge lease contract, the maintenance costs of the stadium, the
operating costs reimbursements and the trainer salaries cannot be justified
because of “lack of sponsorship from the private sector”. Moreover, as regards
the lease and maintenance agreements between the club and the city, there is a
realistic possibility that the City of Zagreb did not behave in accordance with
the Market Economy Investor Principle[14]
and that Dinamo gained a financial advantage from these deals. It would not be
the first time that the Commission would find such agreements contrary to
Article 107 (1) TFEU. For example, in its decision regarding alleged municipal
aid to several professional Dutch football clubs, the Commission found that the
payment agreement between the municipality of Tilburg and the football club
Willem II for the stadium provided a selective advantage to Willem II with the
use of public resources. In essence, the Commission accepted the possibility
that stadiums belonging to municipalities that are not rented out at market
conditions to professional football clubs could entail State aid.[15]
Similarly, it cannot be denied that an undertaking would gain a
financial advantage if the public authorities were to fund a large part of its
operational costs, such as travel expenses, accommodation costs and (youth)
trainings. The question remains however, whether the payment by the City of
Zagreb of the operational costs endured by Dinamo Zagreb are selective. It is
important to note the legal basis for the measures are found in the Sports Act,
which is applicable in the entire Republic of Croatia. Even though it is not
clear whether the public funding granted to other sport clubs in Zagreb differed
from the public funding granted to the football club Dinamo, the measures do
appear to be selective. Firstly, the criteria for public funding set by the SSGZ distinguish between professional sport that can be considered
elite and (professional) sport not considered elite. Because Dinamo is
considered an “elite professional sports clubs”, it is entitled to receive
public funding. However, other professional sporting entities that are not
considered “elite professional sports clubs” do not receive this public
funding. Therefore, if the contested measures by the City of Zagreb are solely
granted to Dinamo Zagreb for being an “elite sporting entity”, the measures
could be considered selective in the light of Article 107 (1) TFEU. Secondly,
the selectivity criterion should also be assessed by comparing how different
regional and local governments fund their respective “elite sporting entities”.
Once a discrepancy is found from one region to another regarding the amount of
money granted to sports (i.e. because some local governments simply have more
money to spend), the measure could be deemed selective.
Apart from determining whether the public funding of Dinamo could entail
State aid, as is the case with all State aid cases, one has to look at possible
arguments that could justify the measures. Keeping in mind recent State aid
decisions, it becomes clear that measures that support sport’s educational,
public health, social and recreational functions will be declared compatible
with EU law.[16]
It is therefore worth remembering that Article 76 (1) of the Croatian Sports
Act, also includes the possibility of public funding with the aim of implementing
sporting activities of children, youths and students, protecting the health of
athletes and hiring persons to do professional work in sports. Furthermore, on numerous
occasions in the last few years, the European Commission has declared State aid
provided for sports infrastructure compatible, with EU law.[17]
The facts of the Dinamo Zagreb case
show that at least part of the aid measures are aimed at supporting the
educational functions of sport, i.e. covering expenses of Dinamo’s youth teams.
Moreover, the City of Zagreb’s decision to aid Dinamo paying for the
maintenance costs of the stadium and training grounds could show similarities
with Commission decisions where such aid was declared justified. These measures
may, in principle, be compatible with EU law, where there is a clear common objective.
However, the positive effects on the common objective must outweigh the
negative effects on competition and trade in order for these measures to be
compatible with EU law. Therefore, in the Dinamo
Zagreb case, this balancing test has to determine whether the objectives of
the measures (i.e. improving the quality of elite professional sport that
contributes to the reputation of the City of Zagreb and the planning,
construction, maintenance and use of sports facilities important to the City of
Zagreb) outweigh the negative effects this could have on other entities
in general, and football clubs in particular.
In addition, it should not be forgotten that Croatia joined the EU on 1
July 2013. This means that Dinamo Zagreb received the contested aid before and
after the date of accession. Therefore, another key question is to what extent
the Commission can sanction Croatia for aid measures implemented before the
accession date. It follows from settled EU case law that Articles 107 – 109
TFEU and the Procedural Regulations 659/1999 are applicable on to a Member
State only as from its accession to the European Union.[18]
Moreover, it follows inter alia from EU
case law[19],
and Article 19 of the Procedural Regulations that existing aid can be found to
be incompatible with prospective effect only. With regard to the Dinamo Zagreb case, this effectively
means that the Commission can only order a recovery of the aid granted to the
football club after the date of accession. Therefore, should the Commission,
for example, decide that the stadium lease agreement (signed in 2011) constitutes
unlawful State aid, it can only order the recovery of the advantage gained
through this agreement as of 1 July 2013.
The last point that Naš Hajduk addressed in their complaint to the
Commission that the CCA incorrectly allowed the aid to be granted to Dinamo
because it was compatible with Croatian national law. Irrespective of whether
the CCA interpreted the Accession Treaties correctly or incorrectly, it is my
understanding that EU law does not allow the Commission the power to overrule
the CCA’s decision. As has been stated above, since the Commission can only order
the recovery of the aid granted after the date of accession, it has no
competence to decisions made regarding State aid before the date of accession.
In other words, any options Naš Hajduk could have in challenging the CCA’s
decision have to be found in national appeal procedures.
The Dinamo Zagreb State aid
case currently finds itself in a preliminary investigatory phase. Given the
Commission’s inconsistency regarding the time frames to decide whether to
commence formal investigations or not, it is impossible to say if we can expect
news from Brussels any time soon. Nonetheless, this case will certainly drive
forward the discussion in the quickly expanding field of State aid and sport.
[1] Vanja Smokvina,
“Case Law of the Croatian Supreme Court in the Fields of Sports Law – Emphasis
on Labour Relations”, International
Sports Law Journal, 2012/1-2, pages 106 - 108
[2] Article 76 (1) points 2, 4, 5
and 8 of the Sports Act
[3] Article 76 (2) of
the Sports Act
[4] A Croatian version of the
Program is available on: http://www.zagreb.hr/default.aspx?id=60227.
[5] CCA UP/I 430-01/13-05/001, Financing of the Football Club Dinamo by the
City of Zagreb and other publicly owned legal entities, pages 7 – 10
(Croatian version).
[6] Article 70 (1) (iii): “The
following are incompatible with the proper functioning of the Agreement, in so
far as they may affect trade between the Community and Croatia: any State aid
which distorts or threatens to distort competition by favouring certain
undertakings or certain products.”
[7] CCA UP/I 430-01/13-05/001, Financing of the Football Club Dinamo by
the City of Zagreb and other publicly owned legal entities, (English version), page 1
[8] CCA UP/I 430-01/13-05/001, Financing of the Football Club Dinamo by the
City of Zagreb and other publicly owned legal entities, pages 19
[9] Ibid, page 18
[10] Tatjana Jakovljević,
“Public Support for Sports: The Name of the Game – Football!”, EStAL, 3/2013, page 445
[11] Article 74 (3) of
the Sports Act
[12] CCA UP/I 430-01/13-05/001, Financing of the Football Club Dinamo by
the City of Zagreb and other publicly owned legal entities, (English version), page 1
[13] Ibid
[14] The essence of the MEIP is
that when a public authority invests in an enterprise on terms and in
conditions which would be acceptable to a private investor operating under
normal market economy conditions, the investment is not a State aid.
[15] SA.33584 – Alleged municipal aid to
professional Dutch football clubs Vitesse, NEC, Willem II, MVV, PSV and FC Den
Bosch in 2008-2011, paras. 51-52
[16] See for example: SA.31722 - Supporting the Hungarian sport
sector via tax benefit scheme
[17] See for example: SA.37109 – Football Stadiums in
Flanders;
SA.35440 - Multifunktionsarena der Stadt Jena and; SA.37342 - Regional Stadia Development in
Northern Ireland
[18] Case C-262/11 Kremikovtzi AD, paragraph 50
[19] Ibid, paragraph 54