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The EU State aid and sport saga: The Real Madrid Decision (part 1)

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.

Comments (5) -

  • Florentino Perez

    2/11/2017 8:33:52 AM |

    If there was no formal complaint, why did the Commission say in the first paragraph of its opening decision of 18 December 2013 that "Spain was asked to comment on the complaint on 20 December 2011"? Why should they ask Spain to comment on a complaint that does not exist?

  • Oskar van Maren

    2/15/2017 4:27:54 PM |

    Thank you for your interesting question Florentino. The way I see it, Spain was asked to comment on press reports and detailed information sent by citizens. Information sent by citizens cannot be seen as a 'formal' complaint, because citizens are generally not considered an interested party. Indeed, in the final decision the Commission changed its wording and asked Spain to comment "on this information" instead of complaint.

  • Florentino Perez

    2/18/2017 11:35:43 AM |

    But the requirement to be an interested party in order to submit a formal complaint was only introduced by the Commission in 2013. The Commission asked Spain to comment on a complaint in 2011 (as confirmed in the opening decision of 18 December 2013) but then dropped any reference to that complaint in its final decision.  It is a very dodgy behaviour by any standard to change the description of the events five years later. This may explain why they had to act, there was a "Schrodinger" complaint.

  • Oskar van Maren

    2/22/2017 11:14:29 AM |

    You are right, it is a bit strange that the Commission changed the description in the final decision. I still think, though, that the description of "the complaint" in the opening decision is a direct reference to the description of "detailed information sent by citizens" in the sentence before. Since I don't know who these citizens were (let alone know how the information sent was formulated), it is difficult to determine whether this information can be considered "a complaint" under the old requirements. Under the new requirements, it appears that this cannot be considered "a complaint".

  • Oskar van Maren

    2/22/2017 11:20:07 AM |

    In any case, I would be happy to continue this discussion with you, and share ideas on this issue. Therefore, feel free to contact me directly via email. Best, Oskar

Comments are closed