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.
