Editor’s note: Rhys Lenarduzzi recently completed a Bachelor of Law (LL.B) and Bachelor of Philosophy (B.Phil.) at the University of Notre Dame, Sydney, Australia. As a former professional athlete, then international sports agent and consultant, Rhys is interested in international sports law, policy and ethics. He is currently undertaking an internship at the T.M.C. Asser Institute with a focus on Transnational Sports Law.

As one may have gathered from the series thus far, the question that comes out of this endeavour for me, is whether redistribution in football would be better divorced from the transfer system?

In my introductory blog I point towards historical, cultural, and of course the legal explanations as to why redistribution was established, and why it might be held onto despite obvious flaws. In my second blog, I point out how the training compensation and solidarity mechanisms work in practice through an African case study, as well as the hindrance caused and the Eurocentricity of the regulations. The key take-away from my third blog on the non-application of training compensation in women’s football might be that training compensation should apply to both men’s and women’s football, or neither. The sweeping generalisation that men’s and women’s football are different as justification for the non-application to the women’s game is not palatable, given inter alia the difference between the richest and poorest clubs in men’s football. Nor is it palatable that the training compensation mechanism is justified in men’s football to incentivise training, yet not in women’s football.

In the fourth blog of this series, I raise concerns that the establishment of the Clearing House prolongs the arrival of a preferable alternative system. The feature of this final blog is to consider alternatives to the current systems. This endeavour is manifestly two-fold; firstly, are there alternatives? Secondly, are they better? 

1. Is training compensation necessary to incentivise training?

It might be the case that this question does not receive adequate attention. Though we are told there exists a need to incentivise training and the system as it stands is justified by this notion, is that truly what the redistributive mechanisms in the current form achieve? Furthermore, for all the flaws in reasoning and hindrance created by the mechanisms, is it really worth it?

During my time as an agent, I have personally never heard from a director or executive of a football club, the words or sentiment that, time - effort - money placed towards their youth football programs is done so solely, predominantly, or at all in anticipation of training compensation or solidarity payments.  Nor have I ever come across the sentiment from within any club, that a club would not care for or abandon its youth programs without the ‘dangling carrot’ of potential compensation. FIFA now refer to the redistributive mechanisms as ‘training rewards’, though one may reasonably struggle to connect these training rewards with a true definition of incentive. It appears more likely to be the case that any desire or expectation to be rewarded or compensated is an after the fact conclusion, when a player progresses professionally and a training club concludes that they are part of the reason for that players’ success. In a macro sense, given how infrequent it is for a training club to develop a professional, this seems to add weight to an argument that compensation does not create the purported incentive, or at least that clubs do not rely on the prospect.  It is because of this that I tend to lean towards the view that the incentivisation to train youth as a justification for redistributive measures may not have aged well. In any event, it would be interesting to test that intuition derived from experience, through a proper social scientific survey of clubs. Systems with such far-reaching implications should be grounded in a proper study of the socio-economic drivers of the training of football players.

On the other hand, the possibility of attracting large and exciting transfer fees is often spoken about within club walls.  For these ‘selling clubs’ with a clear intention to invest in youth and capitalise later in the form of transfer fees, such fees may be seen as compensation of sorts, but more likely as a remuneration for a deliberate though hardly risk-free investment. Moreover, these clubs do not simply abandon their first team and focus on youth and potential transfers exclusively. First team squads are also the beneficiary of strong youth systems and commonly the main reason a club invests in youth. Additionally, clubs can have a strong connection to their communities and see a combined duty and benefit of having strong youth programs. Clubs not only play a role in sustaining the social fabric of the communities to which they are situated, but benefit commercially through the many ways in which fans add value.

If it is true that compensation does not amount to incentivisation, then it is difficult to conclude that it is necessary. However, even if training compensation and the solidarity mechanism are not deemed necessary, a strong case can still be made for redistribution so long as the gap between wealthy and poor clubs remains or grows, and entire continents continue to be nurseries and the source of the muscle drain.

2. Imagining Alternative Redistributive Mechanisms

Proposing an alternative to the existing FIFA systems of redistribution is a difficult task. I have raised the concern of the Eurocentricity of the current regulations, and in proposing something else, one must be mindful that these are global regulations. If one suggests a form of taxation or tariff to redistribute, awareness of the myriad cultural differences on taxation and the multiplicity of enforcement contexts might be important. Also, whilst I have raised the question on whether compensation ought to be divorced from the transfer system, reasons for redistributing at all should be axiomatically better than not having a system of redistribution.

Intent and what is to be achieved needs to be clear. Is the ideal system of redistribution in place to reward ‘something’ or should redistribution be directed more deliberately and where it is needed, acting as welfare of a kind? I have already suggested that compensation does not incentivise clubs, though conversely, might clubs be disincentivised to grow if they only remain the beneficiaries of redistribution insofar as they stay sufficiently small and poor, whatever that threshold might be? Or could a system still incentivise growth, with clubs the beneficiaries of an amount that would not be enough to sustain themselves in full, yet enough to help them to continue to grow and commercialise? Whether greater commercialisation is a desirable change is another worthwhile question.

Despite the difficulties in suggesting an alternative, one can hope that a system of redistribution can be non-discriminative, does not create the hindrance effect to the current extent or encourage risky circumvention of the regulations (see blog 2 for detail), and is able to attain its legitimate aims. I would submit that the current systems do not tick these boxes. In this section, I provide some food for thought regarding potential alternatives, though I must caveat that I am not an economist and have not yet settled on an alternative myself.

a)     Coubertobin Tax

I will begin this section by introducing Andreff’s Coubertobin tax, in the interest of highlighting that others have thought about alternative systems of redistribution and have perhaps proposed alternatives that are arguably better than the current systems. Whilst I hope to present the Coubertobin tax adequately, one will need to read Andreff for the full picture.  Though valuable food for thought, I do not endorse the Coubertobin tax per se, as it has its flaws and remains connected to the transfer system, albeit to a lesser extent.

Inspired by a mix of the economic thought of James Tobin and Pierre de Coubertin, the idea of a Coubertobin tax “is to levy a tax at a 1 % rate on all transfer fees and initial wages agreed on in each labour contract signed by athletes and players from developing countries with foreign partners.”[1]

The objectives are as follows:

1. slightly covering the education and training cost, for his/her home developing country, of any athlete or player transferred abroad;
2. providing a stronger disincentive to transfer an athlete or a player from a developing country, the younger he/she is when the transfer takes place;
3. thus, slowing down the muscle drain from developing countries and toward professional player markets in developed countries; and
4. accruing revenues to a fund for sports development in the home developing country from the tax levied on every athlete or player transfer abroad.[2]

There is little wonder why Andreff desires to redistribute to developing countries. He has done extensive work on the correlation between economic prosperity and sporting success. This list is by no means exhaustive, but for instance, he writes extensively on the muscle drain, where athletes from developing nations move for financial and developmental reasons, which creates a myriad of follow-on issues to the home-country. He identifies the toll poverty takes on a developing country’s domestic leagues and competitions due to the muscle drain and the inability to train professionals to a world class standard. He notes that some athletes defect to other nations early and qualify for the adopted country’s national team. Per Andreff and in summary “the overall context of sport underdevelopment does not provide a strong incentive for talented players to stay in their home country even if a professional championship does exist there.”[3]

Andreff’s proposal is not set in stone and an admirable element to his work on the matter is the consistent offering of caveats that suggest, with more study and/or work, a certain piece of the Coubertobin system may benefit from amendment. Andreff describes his system as “a solution (not a panacea) which is likely to alleviate, along with some of the financial problems of developing countries, the aforementioned problem of the muscle drain.”[4] Most relevant is perhaps the idea that, the younger the player is in question regarding a transfer, the higher the tax (see suggested formulae).[5] This he submits, may put a brake on the muscle drain at such early ages, or result in greater amounts of money moved to developing nations if a club wishes to recruit a player at a significantly young age.

Andreff acknowledges hindrances, though takes a macro view that encompasses protecting minors, as well as strengthening local leagues in developing countries given the talent will remain for longer periods. One can envisage an additional positive result, in having young athletes finish non-football education having stayed at home until a later date.

Though this is my interpretation, I suspect Andreff finds it an easy task to identify the beneficiaries or winners of these transactions and therefore those parties should be the ones who pay the Coubertobin tax, on “the bill for the transfer fee and the first year wage”.[6]

Andreff raises the concern of “bargaining and corruption surrounding the tax collection in developing countries”,[7] though offers a plausible solution. “[T]he collection of the Coubertobin tax should be monitored and supervised by an international organization, either an existing one (UNDP or the World Bank) or an ad hoc one to be created.”[8] This is plausible as it is not so different to the way FIFA intends to outsource the operation of the Clearing House to a suitable and reputable organisation that would be subject to audit (see blog 4).

Andreff admits the tax “would meet with both hindrance and resistance”,[9] it would “not be easy to implement and enforce insofar as it has to be accepted on a worldwide basis”,[10] the system would contain administrative costs that would need sorting and ironing out, and there would need to be a method for disputes and perhaps fines for non-compliance.  Even so, the Coubertobin tax provides much food for thought as it is proposed for all professional sport and not just football. It attempts to address the muscle drain and the taxes proposed may prove less a hindrance than the current FIFA systems.

b)    Abolishment and Free Market Economics

If this was day one of football, there might be a strong argument for a free market approach, with emphasis on club management to make sure intelligent decisions are made to sustain clubs, with wealth the responsibility of the clubs themselves. However, we are not at the beginning of football.  Certain clubs in certain regions are the victims of much more than mismanagement, adding weight to an argument for a need to redistribute equitably.

As it stands, an equitable system or one where redistribution is directed to where it is most needed, is not in place and has not been proposed. Could it be the case, at least in the interim, that the free market is the best and fairest? The current systems appear at least somewhat a case of over-regulation with side effects that were not, or could not have been anticipated, like the hindrance effect and the pressures on vulnerable clubs to waive compensation to name just a couple.  It then seems defensible to abolish systems that do not work in the interim, than to hang on to those flawed systems until a better proposal is put forth. Instead, all efforts could be placed into study and research to remedy the obvious flaws.

Conversely, the free market in modern football would not appear to improve the situation for the kind of club I have identified frequently throughout this series, and although it may eliminate the hindrance effect, destination clubs would have their pick of players and poor clubs would undoubtedly lose all talent. Furthermore, if a system of redistribution was to be created that clearly improved football and the free-market approach had been adopted in the interim, a valid consideration might be the difficulty the relevant bodies would have in re-introducing a system of redistribution, having gone back to the free market for a period.  It is for these reasons that I can not endorse such an approach, however sympathetic I am to abolishment and the idea of alleviating hindrance and promoting free movement.

c)     FIFA Funded Solidarity: A New Model

As he addressed the Confederation of African Football’s (CAF) 42nd ordinary general assembly, FIFA President Gianni Infantino said, “I believe in Africa. I count on Africa, and you can count on me to help you to bring Africa to the top.” However admirable and applaudable are the purported goals of FIFA for Africa, and the sentiment warm, one cannot help but wonder if this African project, relevant to this blog series, could not be expedited by a substantial FIFA based investment. Infantino went on to say, “I want to see at least 50 national teams and 50 clubs from all over the world that can compete for the title of world champions with realistic chances of winning. And why shouldn’t Africa be at the top, with the incredible talent that we see shining every week, mainly in Europe’s top clubs? I am convinced it’s only a matter of commitment, work and engagement by all of us together.”

To answer the President’s question, one cannot see African clubs on top in a global sense, so long as all the best African players play, as the President said, in Europe. Further, we will continue to be less likely to see an African national team win a World Cup, whilst some of the best African players play for other nations to which they moved when they were younger, and whilst African federations are unable to organise like European federations, given they do not have the same resources.  I could of course go on, but one likely gathers my point. 

So, could FIFA make an investment sufficient to prop up Africa as it supposedly desires? Perhaps. How about an amount equal to the frequently referred gap between what is owed and paid when it comes to the redistributive mechanisms of FIFA? Could FIFA at least cover that gap? If one considers the annual financial reports, certainly, and probably further and in a more specific and deliberate fashion. Surely direct, targeted investment is preferable to leaving redistribution to the whim of a club’s good fortune to have registered a player that would go on to be a professional. That is, of course, if that player’s club did not have to waive training compensation to render a transfer possible.

The FIFA Forward Development Programme is described by FIFA as “global football development and the way we share the success of the FIFA World Cup”. It is an encouraging and frankly exciting initiative, and again one must applaud the efforts. Under the Infantino administration, FIFA has pledged more funding in this way than ever before. “On 13 June 2018, the FIFA Congress decided to increase investment in the FIFA Forward Development Programme still further for the next cycle of 2019-2022 with a 20% increase in the annual entitlement for each of the 211 member associations and six confederations.”

Anyone can go to the webpage for the FIFA Forward Programme, roll their cursor over the interactive map and see that FIFA are investing money in places of need. Disappointingly, not overly specific information is provided regarding the exact use of funding, though there are encouraging articles that unpack some of the investments and initiatives and these efforts should be commended (the FIFA Foundation Community Programme is another example of some of the encouraging work being done).  One element that is interesting and appealing within these funding programs, is the toying with an application process to be granted some form of investment. This perhaps shows an increased awareness that money ought to be distributed specifically and deliberately, to address a genuine need. Though not a trial per se, this kind of process could be used as one and may turn out to be preferable to clubs in need, who would for instance prefer to bypass the national association if that relationship is not so sturdy.   

At first glance, the almost even allocation of investment per member association found in Circular no. 1659 - FIFA Forward Development Programme – regulations (FIFA Forward 2.0) may seem equitable, though taking into account that some of the wealthier associations may be the beneficiaries of the systemic exploitation and drain that has featured in this blog series, might render the near even distribution questionable. Whilst “an additional amount of up to USD 1,000,000 is available for member associations with an annual revenue of USD 4 million or less”, one might reasonably wonder if that amount of extra funding to smaller and/or poorer associations is sufficient to affect real change.

Whilst I hope I have made clear that FIFA’s efforts ought to be commended, the overarching theme of this section is to consider if more could be done and if so, might those extra efforts to distribute funds be preferable and able to replace the current systems of redistribution connected to the transfer system. I do not find impressive the self-congratulatory theme of the statement from Alejandro Domínguez, Chairman of the FIFA Finance Committee, of being hundreds of millions of dollars under budget in the 2019 annual report, as well as possessing “sufficient liquidity”. FIFA, a not-for-profit organisation, was delighted to report that “at the 2019 year-end, total assets had increased to USD 4,504 million (four billion, five hundred and four million), chiefly made up of cash and financial assets (82%). Reserves also remained at a very satisfactory level at USD 2,586 million (two billion, five hundred and eighty-six million), clearly above the amount budgeted.”[11]

Proposing FIFA fund more redistribution is not a risk free, nor a concern free proposition, but it does appear the idea could be taken more seriously by the relevant stakeholders. FIFA’s predominate money maker is the FIFA World Cup, which is in a sense, a way of using the produce of the richest clubs in the world, which have in turn benefitted from some of the poorest clubs nursing the players until they are of age. FIFA, filling the frequently mentioned gap from the profits of the World Cup makes as much sense as any proposal. Is this not simply a case of, if more can be done then more should be done? Going off FIFA’s reports, it has the resources.

Within this potential alternative, where FIFA are responsible for raising and redistributing funding that would otherwise supposedly come from the current redistribution systems, is a change to the modality of redistribution. From what is currently intimately connected to training and transfers, this alternative provides for the much-needed decoupling, not only based on the philosophical flaws, but additionally due to the preferable practical implications that divorcing redistribution, training and the transfer market could achieve. In terms of a body or mechanism to implement an alternative like this, how might a Clearing House kind of project unfold, that adopts a specific and deliberate ethos to distributing FIFA funds? To expand, following a substantial process of planning and allocation of adequate resources, the creation of a specific arm dedicated to researching and identifying those areas of football most in need, as well as receiving and vetting applications for funding. Might that or a similar solution be achievable? It could be in-house or outsourced the same way the Clearing House is intended to be, geared to make suggestions, provide expert economic advice and proposals, reporting its findings back to FIFA for an extra layer of approval. Food for thought in any case.

3. Concluding Remarks

There is a core of wealth in football that has benefitted from, been propped up by, and drained the periphery. It is important to ensure the strength and survival of football outside this core of wealth and to actively make sure value is added to the periphery. Football needs to promote this notion and in doing so ask the question, where will the big clubs turn for talent and youth if those reservoirs which they drain are emptied and unable to continue to produce talent? 

If one is convinced that it is not necessary to incentivise training, that the current regulations have significant negative effects, that any system of redistribution should be non-discriminative, provide minimal hindrance to free movement and pursue deliberate legitimate aims, then one is in favour of overhaul. Further then, surely there is an obligation to address what can be in the immediate sense. Namely, to either default to the free market, until a convincing system of redistribution is created, or perhaps preferably, for FIFA to take the reins and fund redistribution to the periphery of football to a greater extent.

[1] Wladimir Andreff (2001). The correlation between economic underdevelopment and sport. European Sport Management Quarterly, 1, p.274.

[2] Wladimir Andreff, “A Coubertobin Tax Against Muscle Drain”, 4th Play the Game Conference: Governance in Sport: The Good, the Bad & the Ugly, Copenhagen, 6-10 November (2005) p.10.

[3] Ibid, p.5.

[4] Ibid, p.9.

[5] Ibid, p.11.

[6] Ibid, p.12.

[7] Ibid.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] FIFA Annual Report 2019 p.124.

On 18 May 2016, the day the first part of this blog was published, the Commission said in response to the Hungarian MEP Péter Niedermüller’s question, that it had “not specifically monitored the tax relief (…) but would consider doing so. The Commission cannot prejudge the steps that it might take following such monitoring. However, the Commission thanks (Niedermüller) for drawing its attention to the report of Transparency International.”

With the actual implementation in Hungary appearing to deviate from the original objectives and conditions of the aid scheme, as discussed in part 1 of this blog, a possible monitoring exercise by the Commission of the Hungarian tax benefit scheme seems appropriate. The question remains, however, whether the Commission follows up on the intent of monitoring, or whether the intent should be regarded as empty words. This second part of the blog will outline the rules on reviewing and monitoring (existing) aid, both substantively and procedurally. It will determine, inter alia, whether the State aid rules impose an obligation upon the Commission to act and, if so, in what way.

In order to correctly decipher the potential consequences of Hungary’s behavior under EU State aid law, it is necessary to make a distinction between the part of the aid scheme declared compatible in the tax benefit scheme in the Hungarian sport sector decision, i.e. the donations for the sport infrastructures used by the professional sport organizations, and the donations used to cover personnel costs. Due to the fact that these two types of donation destinations were allowed based on two different exception procedures (the general exception found in Article 107(3)c) TFEU for the aid to sport infrastructure, and the General Block Exemption Regulation or the de minimis aid Regulation for the aid to cover personnel costs), the rules on reviewing and monitoring aid differ slightly. This blog will only focus on the review and monitoring rules of the tax benefit scheme in the Hungarian sport sector decision. 

Reviewing and monitoring State aid schemes – a Commission obligation?

A decision to approve an aid scheme (also known as a “positive decision” under Article 9(3) of the Procedural Regulation 2015/1589), should not fully release the Commission from any obligations regarding ex post control of that scheme. As can be read from Article 108(1) TFEU, “(t)he Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measure required by the progressive development or by the functioning of the internal market.”

The Commission’s responsibilities appear straightforward. After declaring the Hungarian tax benefit scheme compatible with EU law, it is obliged to review the implementation and usage of the aid by the Member State and the beneficiary, or beneficiaries. The CJEU settled as far back as 1974 that the Commission’s obligation to review existing aid is binding and that the Member States in question the obligation to cooperate with the Commission.[1] In fact, as Advocate General Lenz stated in his opinion in the Namur-Les Assurances du Crédit case, the Commission’s task to constantly review aid is even more necessary for aid schemes, like the Hungarian tax benefit scheme, as compared to individually authorized aid measures.[2] Pursuant to Article 108(1) TFEU and Article 21 of the Procedural Regulation, where the Commission considers that an existing aid scheme is not, or is no longer, compatible with the internal market instead of immediately launching a formal investigation, the Commission must issue a recommendation to the Member State concerned. The recommendation may propose, in particular:

1. Substantive amendment of the aid scheme;
2. Introduction of procedural requirements; or
3. Abolition of the aid scheme.[3]

It is important to note that in accordance with Article 288 TFEU, fifth sentence, recommendations have no binding force. Therefore, the proposed measure itself is not binding for the Member State. Only where the Member State accepts the proposed measure, shall it be bound by its acceptance to implement the appropriate measure.[4] However, if the Member State refuses to accept and implement the recommendations, the Commission could launch a formal investigation in accordance with Article 108(2).[5] Article 108 (1) TFEU and Article 21 of the Procedural Regulation also require the Member States to cooperate with the Commission for the purpose of reviewing aid schemes. This cooperation is further specified in Article 26 of the Procedural Regulation, which obliges Member States to submit annual reports on existing aid schemes to the Commission.[6] The reports allow the Commission to monitor the compliance with the positive decision by the Member State. As was already discussed in part 1 of this blog, Hungary too is required to submit a yearly monitoring report containing information on the total aid amount allocated, the sport infrastructure projects funded, their beneficiaries, etc.[7] A failure by Hungary to submit an annual report, would allow the Commission to propose an appropriate measure as listed above.[8] Whether Hungary actually submits annual reports to the Commission is currently unclear.      

Monitoring the tax benefit scheme in the Hungarian sport sector – not as straightforward as it appears

The Commission has repeatedly expressed its ambition for more and better monitoring of State aid schemes. This ambition follows from its primary objective to increase Commission enforcement focus on cases with the biggest impact on the internal market, as can be read from, inter alia, the State Aid Modernisation (SAM) Communication of 2012. Better targeted State aid control means an “increased responsibility of Member States in designing and implementing aid measures” for cases of a more local nature and with little effect on trade, as well as “enhanced ex post monitoring by the Commission to ensure adequate compliance” with the State aid rules.[9] In 2006, the Commission introduced a regular, ex post, monitoring exercise of existing aid schemes. The monitoring exercise gradually increased from 20 different schemes in 2006, to 75 schemes in 2014, covering all Member States, all main types of aid approved as well as block-exempted schemes.[10] The monitoring exercises conducted in 2014 led to the openings of four formal investigations.[11] The willingness to increase monitoring seems logical when taking into account EU case law, which imposes, in practice, an obligation for the Commission to review previously approved aid schemes. Yet, only a very small amount of existing aid schemes is monitored, nor is it realistically possible to do monitor all the schemes. As can be read in the recently published DG Competition Management Plan 2016, over the last 10 years the Commission declared over 3000 aid schemes or measures compatible with EU law after a the preliminary phase (“decisions not to raise objections”) alone.[12] This amount does not take into account positive decisions or block exempted aid schemes and measures, all of which should, strictly speaking, be monitored. Exact numbers on the amount of existing aid schemes currently running throughout the EU are not available, but one could safely say that the overwhelming majority of existing aid schemes are not monitored. Unless the State aid department of the Commission dramatically increases its resources, both in terms of finances and staff, monitoring all existing State aid schemes will remain utopic.  

The “specificity” of State aid to the professional sport sector and why extra monitoring in the sector should be considered

The Hungarian tax benefit scheme is not functioning in accordance with its original objectives: many of the sport infrastructure projects funded with public money do not seem strictly necessary and selected professional football clubs benefitted disproportionately. Under these circumstances, a monitoring exercise conducted by the Commission could be needed. If a monitoring exercise confirms disproportionate spreading of subsidies, a consequent set of appropriate measures taken by Hungary could bring the scheme in line with its original objectives. However, given that the majority of schemes are not monitored, there is a very big chance that the Hungarian tax benefit scheme is not one of the “lucky ones” selected. It is also unclear whether the Commission’s answer to the Parliamentary question of 18 May in any way increases that probability.  

The State aid complaint procedure as an alternative

Another way to force the Commission to look into the aid scheme, not yet discussed above, is through a State aid complaint procedure. Although the tax benefit scheme was already approved by the Commission in 2011, this should not rule out the possibility of an interested party submitting a complaint to inform the Commission of any alleged unlawful aid.[13] Pursuant to Article 12(1), the Commission is obliged to examine without undue delay a complaint by an interested party, thereby automatically triggering the preliminary State aid investigation of Article 108(3) TFEU. Although ‘unlawful aid’ refers to new aid put into effect in contravention of Article 108(3) TFEU[14], and not existing aid, such as aid schemes authorized by the Commission[15], ‘new aid’ also refers to existing aid that has been altered by the Member State.[16] In accordance with the Commission’s State Aid Manual of Procedures, for an aid scheme to be altered, the complainant would need to demonstrate that a change has taken place that affects “the evaluation of the compatibility of the aid with the common market”.[17] In addition to this, the complaint would need to include, inter alia, information on the (functioning of) the scheme, the amount of aid granted, and why the scheme is no longer compatible under Article 107(3).[18] A further highly important criterion is for the interested party to demonstrate to the Commission that the complainant is directly affected in its “competitive position” by the aid scheme.[19] This criterion empowers the Commission to separate formal complaints from the complaints that are “not motivated by genuine competition concerns”, thereby reducing considerably its workload of having to launch a (preliminary) investigation based on every single complaint it receives.[20] Complaints submitted by complainants, who the Commission does not consider to be interested parties, will be regarded as “general market information”[21] and do not oblige the Commission to investigate.  

The “specificity” of State aid to professional sport – no complaints by other clubs

The “interested party” criterion was only added after the reform of the Procedural Regulation in 2013[22], and has affected the professional sport sector considerably. The two years prior saw great activity by the Commission in the sector, including the opening of four formal investigations into alleged State aid to professional football clubs like Real Madrid and Valencia CF.[23] The investigations into alleged aid granted to Real Madrid and Valencia CF were not launched after the submission of a complaint by an interested party, but after “the attention of the Commission was drawn by press reports and information sent by citizens in 2012-2013”.[24] The end of formal investigations into alleged aid granted to professional sport clubs coincided with the introduction of the “interested party” criterion: since citizens are not considered interested parties, the Commission does not have an obligation anymore to investigate complaints, or any form of information, submitted by them. At this moment, only complaints submitted by interested parties, i.e. a party directly affected in its competitive position, have the potential of triggering fresh State aid investigations in the professional sport sector.[25]

Which persons or undertakings fulfill the “interested party” criterion? The answer to this question requires a case by case analysis and depends on the aid measure or scheme chosen by the public authorities.[26] Nonetheless, where aid is granted to a professional sport club, the clearest example of an interested party would be another professional sport club. Getting professional sport clubs to submit State aid complaints is, however, easier said than done. Contrary to other economic sectors where competitors would complain if they feel that they are directly affected in their competitive position, no professional sport club has ever submitted a State aid complaint, nor is it likely to happen anytime soon. As is confirmed by Dutch professional football club FC Groningen’s director Hans Nijland in an article published on 18 May by the Dutch magazine De Groene Amterdammer , “if (another football club) manages to sign a deal with its municipality, I will not complain. In fact, I would say congratulations, well done”.[27] The same mentality probably prevails in Hungary, making it very unlikely that a Hungarian professional football club, or any other professional sport club, decides to submit a complaint alleging unlawful aid to, say, Puskás Akadémia FC due to the disproportionate distribution of subsidies under the tax benefit scheme.  

Why extra monitoring in the sport sector should be considered

The advantages of EU State aid control include efficient government spending in the economy as well as better accountability and transparency of aid measures.[28] Nonetheless, with the chances of the Commission monitoring existing aid in professional sport, such as the Hungarian tax benefit scheme, being very slim, and given the unlikeliness of a submission of a complaint by a competing professional sport club, how useful are the State aid rules to achieve better accountability and transparency in (professional) sport? Local governments will continue spending large amounts of public money on projects that distort competition and are contrary to the general public interest, without a meaningful risk of being called back. Furthermore, as long as the Commission does not prioritize State aid enforcement to the professional sport sector, similar to how it enforces the State aid rules regarding fiscal aid to multinationals[29], it is also unlikely that it will investigate ex officio.

From the “efficient use of Commission resources” viewpoint, it is, in a way, understandable that the Commission has decided not to prioritize State aid to professional sport. They are, after all, not the most distortive State aid cases. However, this lack of prioritization is not being compensated with the submission of complaints by interested parties, meaning that public authorities have less to fear from State aid control in the professional sport factor, as compared to other market sectors.

To prevent a complete carte blanche for the public authorities, I would argue that the Commission should impose upon itself stricter conditions as regards monitoring State aid measures and scheme to the benefit of professional sport clubs. The current monitoring system, where the chance of being monitored is smaller than not being monitored, is inefficient in a sector where competitors do not serve as watchdogs. Only by radically increasing the monitoring chance in the professional sport sector can better accountability and transparency of aid measures be achieved.

[1] Case 173/73, Italy v Commission, [1974] ECLI:EU:C:1974:71, para 24.

[2] Opinion of Advocate General Lenz in Case C-44/93, Namur-Les Assurances du Crédit SA v Office Nationale du Ducroire , [1994] ECLI:EU:C:1994:262, para 86.

[3] Procedural Regulation 2015/1589, Article 22. Contrary to the decision options of formal investigations, a decision to order a recovery of the aid from the beneficiary or beneficiaries, as listed in Procedural Regulation, Articles 9(5) and 16, is not an option for the “review procedure”.

[4] Ibid., Article 23(1).

[5] The Enterprise Capital Funds (ECF) decision is a good example of a formal investigation based on ex post review and monitoring. Following a “selected” monitoring exercise in 2011, it was discovered that the UK had failed to take the appropriate measures to bring an aid scheme in line with the Commission Guidelines on Risk Capital , even though it had promised to do so. This led to the Commission opening a formal investigation in November 2011.

[6] Pursuant to Procedural Regulation, Article 26(1), the obligation to submit annual reports applies to decisions “to which no specific reporting obligations have been imposed in a conditional decision”. Under a conditional decision, the Commission attaches to a decision conditions subject to which aid may be considered compatible with the internal market. The tax benefit scheme in the Hungarian sport sector decision has no specific conditions attached to it, apart from the usual obligation for the Member State concerned to submit an annual report to the Commission.

[7] Commission Decision of 9 November 2011, SA.31722 – Hungary - Supporting the Hungarian sport sector via tax benefit scheme , para 57.

[8] Procedural Regulation 2015/1589, Article 26(2).

[9] EU State Aid Modernisation Communication of 8 May 2012 , para 19.

[10] Commission Staff Working Document of 4 June 2015, “ Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on Competition Policy 2014 ”, page 10.

[11] Ibid. One of the investigations involved the Enterprise Capital Funds scheme – Supra n5.

[12] DG Competition document of 18 March 2016 REF. Ares(2016)1370536 “ Management Plan 2016 ”, page 15.

[13] Procedural Regulation 2015/1589, Article 24(2).

[14] Ibid., Article 1(f).

[15] Ibid., Article 1(b)(ii).

[16] Ibid., Article 1(c).

[17] Internal DG Competition working documents on procedures for the application of Articles 107 and 108 TFEU of 10 July 2013, State Aid Manual of Procedures , Section 5, para 1.2.1.

[18] A complaint that does not comply with the compulsory complaint form, or if the complainant does not provide sufficient grounds to show the existence of unlawful aid can be withdrawn by the Commission. See Procedural Regulation 2015/1589, Article 24(2).

[19] Form for the Submission of Complaints Concerning Alleged Unlawful State Aid or Misuse of Aid , point 3.

[20] Draft Report by the European Parliament of 19 March 2013 on the proposal for a Council Regulation amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty (COM (2012) 725 final) , page 17.

[21] Supra., No 19.

[22] Council Regulation (EU) No 734/2013 of 22 July 20-13 amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty [2013] OJ L204/14.

[23] An explanation on why the public financing of sports infrastructure and professional sports clubs only started to attract State aid scrutiny in recent years can be read in: 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.

[24] See, for example Commission decision of 18 December 2013, SA.36387 Spain – Alleged aid in favour of three Valencia football clubs, para 3. The other formal investigations to professional football clubs (i.e. Real Madrid , five Dutch football clubs and four Spanish football clubs ), were also launched after the Commission received information through citizens and/or the press.

[25] Or the Commission decides to open an investigation ex officio pursuant to Procedural Regulation 2015/1589, Article 12(1). However, this is very unlikely, given the lack of priority given by the Commission to sport.

[26] For example, in the case of the Hungarian tax benefit scheme, clubs or associations not active in the sport sector (e.g. theatre clubs, art clubs, etc.), could potentially argue that they have been placed in a disadvantageous position, since they cannot receive donations under the scheme. An aid measure provided in the form of advantageous land transactions, such as the Real Madrid case, could directly affect any undertaking interested in purchasing the same land, or any other plot of land against other market conditions.

[27] Hester den Boer and Bram Logger, “ Een spits van belastinggeld; Onderzoek – Lokale overheden blijven profvoetbal massaal steunen ”, De Groene Amsterdammer, 18 May 2016, page 5.

[28] See for example Oskar van Maren, “EU State Aid Law and Professional Football: A threat or a Blessing?” , European State Aid Law Quarterly, Volume 15 1/2016, pages 31-46.

[29] High profile formal State aid investigations into alleged aid granted by means of selective tax agreements between Member State governments and multinationals like Starbucks, Fiat, Amazon or Apple, have launched in the last few years.