It’s been a long wait, but they’re finally here!
On Monday, the European Commission released its decisions regarding State aid to seven Spanish professional football clubs (Real Madrid on two occasions) and five Dutch professional football clubs. The decisions mark the end of the formal
investigations, which were opened in 2013. The Commission decided as follows:
no State aid to PSV Eindhoven (1); compatible aid to the Dutch clubs FC Den
Bosch, MVV Maastricht, NEC Nijmegen and Willem II (2); and incompatible aid granted
to the Spanish football clubs Real Madrid, FC Barcelona, Valencia CF, Athletic
Bilbao, Atlético Osasuna, Elche and Hércules (3).
The recovery decisions in particular are truly historic.
The rules on State aid have existed since the foundation of the European
Economic Community in 1958, but it is the very first time
that professional football clubs have been ordered to repay aid received from
(local) public authorities.[1]
In a way, these decisions complete a development set in motion with the Walrave
and Koch ruling of 1974, where
the CJEU held that professional sporting activity, and therefore also football,
is subject to EU law. The landmark Bosman case of 1995 proved to be of great significance as
regards free movement of (professional) athletes and the Meca-Medina case of 2006 settled that EU competition rules were
equally applicable to the regulatory activity of sport. The fact that the first
ever State aid recovery decision concerns major clubs like Real Madrid, FC
Barcelona and Valencia, give the decisions extra bite. Therefore, this blog
post will focus primarily on the negative/recovery decisions[2],
their consequences and the legal remedies available to the parties involved.[3]
The launch of the
formal investigations
The three Commission decisions to launch formal State
aid investigations into alleged aid granted to Spanish professional football
clubs were all made public
on 18 December 2013. The first investigation concerned “possible privileges regarding corporate
taxation of Real Madrid, FC Barcelona, Athletic Bilbao, and Atlético Osasuna. These
four clubs are exempted from the general obligation for professional football
clubs to convert into sport limited companies. The effect of this exemption is
that these clubs enjoy a preferential corporate tax rate of 25% instead of 30%
applicable to sport limited companies.” The second investigation involved Real Madrid specifically, and was opened
after the Commission expressed its doubts over “a very advantageous real
property swap with the City of Madrid. This swap was based on a re-evaluation
of a plot of land at a value of €22.7 million, instead of its earlier supposed
value in 1998 of €595 thousand”. The third investigation dealt with three clubs from the autonomous region of
Valencia: Valencia CF, Elche FC and Hércules CF. In this case, the Commission
decided to investigate State guarantees by the Valencia Institute of Finance
for a bank loans of (1) €75 million to Valencia CF; (2) €14 million to Elche
CF; and (3) €18 million to Hércules CF. The Real
Madrid real property swap case and the Valencia
CF case have previously been analyzed on this blog (here, here and here).[4]
Purely based on the decisions to open formal
investigations, there was little doubt as to whether the criteria of Article
107(1) were fulfilled[5]:
The football clubs in question received a selective economic advantage deriving
from a measure taken by public authorities and which involved a transfer of
State resources. This advantage has affected trade and threatens to distort the
internal market. What remained unclear was whether the Member States could
convince the Commission to declare the State aid compatible under Article
107(3)c) TFEU,[6]
and, if not, how high the recovery would be. The complexity of the Real Madrid case in particular led to
uncertainty as to whether a possible recovery decision would merely imply Real
Madrid having to pay a lump sum to the city of Madrid, or whether one or more
land transactions would have to be undone.[7]
Last but not least, it should be kept in mind that
ordering recovery of State aid is a politically sensitive decision. Given that
State aid investigations are always directed at the Member State (with limited
room for interested party intervention, including the beneficiary), such proceedings
are inherently political. Furthermore, from analyzing Commission speeches and
policy documents, such as the recently published Report on Competition Policy 2015, one will reach the conclusion that actively
enforcing EU competition law, including State aid law, in sport, is not a
Commission priority. Any recovery decision in the professional sport sector,
therefore, would need to serve as a blueprint for future cases: it should prevent
other public authorities to grant State aid to professional sport clubs in contravention
of State aid rules.
The Commission’s press
release ordering the State aid recovery
Though the press release does not provide all the
facts, it includes many interesting elements. First of all, the privileges
regarding corporate taxation of Real Madrid, FC Barcelona, Athletic Bilbao, and
Atlético Osasuna were found to be incompatible State aid, and each club has to
repay between €0 and €5 million depending on what the Spanish authorities
determine in the recovery process. The press release further states that Spain
adjusted its legislation on corporate taxation to end this discriminatory
treatment. This last point is especially important, because it demonstrates
that the “bite” of State aid could exceed a mere recovery order. Simply opening
a formal investigation into this issue has made the Spanish authorities
reconsider its corporate taxation and adjust it accordingly to prevent future
State aid being granted. Moreover, tackling unfair corporate tax advantages has
been a priority for the Commission for the last few years.[8]
As regards Real Madrid’s advantageous real property
swap with the City of Madrid, the Commission concluded that the football club
was only entitled to a compensation of €4.3 million, so that Real Madrid
obtained an advantage of €18.4 million. In other words, the city of Madrid
needs to recover €18.4 million from Real Madrid. Although this calculation
seems rather straightforward, it should be noted that the press release only
refers to the re-valuation of one of the lands transferred. This means that
only one land transaction was found to be incompatible with EU State aid rules,
while all the land transactions remain valid.
In the third and final decision the Commission
determined that Valencia, Hércules and Elche will need to repay €20.4 million,
€6.1 million and €3.7 million respectively. The Commission acknowledged that
the three clubs were in financial difficulties when the public institution
Valencia Institute of Finance, placed a public guarantee on bank loans provided
to the football clubs, but did not find this difficulties sufficiently severe
to declare the aid compatible with the internal market.[9]
The fact that the clubs paid no adequate remuneration for the guarantees, and
that the State financing was not linked to any restructuring plan, made the
Commission decide to order the recovery of that aid. The arguments brought
forward by the Spanish authorities defending the State aid measure will not be
known until the non-confidential version of the decision is published in a few
months. What we do know is that at the time the formal investigation was
launched in December 2013, the Spanish authorities had not communicated any
restructuring or liquidation plan to the Commission, nor were any of the
conditions met for authorizing restructuring aid under the Community Guidelines on State aid for rescuing and
restructuring firms in difficulty, even
though the three clubs were in severe financial difficulties.[10]
The consequences of the
negative and recovery decisions
It is important to make a distinction between negative
decisions and recovery decisions.[11]
They are, in fact, two separate decisions. As can be read in
Articles 9(5) and 16(1) of the State Aid Procedural Regulations 2015/1589, the negative decision precedes the recovery decision. Under a negative
decision, the Commission decides that the aid shall not be put into effect for
not being compatible with the internal market. Any plans to grant future State
aid under that measure will automatically be halted. The recovery decision can
only be granted if the aid, or part of the aid, has been granted in the past,
such as in the cases at hand.[12]
The decision orders the Member State concerned to take all necessary measures
to recover the aid from the beneficiary.[13] As
can be read in the Commission’s Recovery Notice, the main objective of the recovery order is to
re-establish the situation existing before the aid was unlawfully granted.[14]
The recovery, which is subject to a limitation period of 10 years[15],
“shall be effected without delay and in accordance with the procedures under
the national law of the Member State concerned”.[16]
This means that it is up to Spain to decide
on the procedure of how and when it recovers the aid, in accordance with its
own national law.
Since the negative and recovery decisions are
addressed to Spain, it may institute proceedings against the negative decision
and/or the recovery decision, pursuant to Article 263 TFEU. The Spanish central
government has not yet announced its position regarding the decisions or
whether it plans to launch an appeal. The city of Madrid and the autonomous region of Valencia on the other hand, have both declared that they wish
to recuperate the State aid granted to the respective football clubs.[17]
Article 263 TFEU also allows any natural or legal person to challenge a
Commission decision that is of direct and individual concern to them. In other
words, now that for example Real Madrid is ordered to repay €18.4 million to
Spain, it is directly affected by the recovery decision and has already publicly stated that it will initiate proceedings against the
Commission.
The General Court shall have jurisdiction to hear and
determine at first instance actions referred to in Article 263 TFEU. A decision
by the General Court may be subject to a right of appeal to the Court of
Justice.[18]
Contrary to the General Court, the Court of Justice could decide, under Article
278 TFEU, that the recovery order should be suspended.
Conclusion
The negative and recovery decisions could have
consequences for the relationship between the Spanish State (particularly local
governments) and professional football. The practices now condemned by the
European Commission are known to have been taking place for decades. A recently
published report by Transparency International, for example, discusses how Spanish football clubs,
in collaboration with the local governments, would turn to urban speculation
with the objective of making easy money. The report used an agreement between
the city of Murcia and its local football club Real Murcia as an example. The Real Madrid case, which is also about
urban speculation, is another example of this standardized practice in Spain. The
fact that the Commission orders recovery of aid from the richest and most
successful club in Spain, should send a message to the smaller clubs and cities
that urban/ land agreements between clubs and public authorities are not
unconditionally accepted.
In addition, the decisions will especially be tough for Valencia,
Hércules and Elche, three clubs known to be in financial difficulties already. Valencia
has already announced that it “reserves the right to appeal to
the European Court of Justice”, but one wonders whether it is worth the risk,
considering the legal fees attached to such an appeal. On the other hand, the public authorities will realize
that granting State aid to professional football clubs can bounce back hard, if
it is not granted pursuant an objective of general interest and in a
transparent manner. Furthermore, rescue aid, such as in Valencia, cannot be
granted without implementing a restructuring plan at the same time. A proper
restructuring plan will help limit the possibility of the club returning to
financial difficulties in the future. Finally, clubs too must be aware that
they must live “within their own means” and that they cannot always depend on
local public institutions to bail them out of there financial troubles.
[1] For the discussion
on why there was (and still is) so little State aid enforcement in the
professional sport/football sector, 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.
[2] The distinction
between a negative decision and a recovery decision will be explained further
below.
[3] A specific blog post
on the State aid decision concerning the Dutch football clubs will be made
shortly.
[4] For an
even more detailed (factual) analysis of the Real Madrid case, see: Oskar van Maren, “The Real Madrid case: A State aid
case (un)like any other?” 11 Competition
Law Review 1:83-108.
[5] Even though Real
Madrid has always insisted the real property swap was not economically
advantageous, since the value of the real property was calculated in accordance
with market conditions. Supra note 4.
[6] Under this
provision, State aid that facilitates the development of certain activities or
of certain economic areas, where such aid does not adversely affects trading
conditions to an extent contrary to the common interest, may be considered
compatible with the internal market.
[7] It is a matter of
discussion whether the Real Madrid case
concerns only the land transaction of July 2011, or whether a second land
transaction of November 2011 should be included in the same investigation. Supra, note 4.
[8] Report from the
Commission COM(2016) 313 of 15 June 2016 to the European Parliament, the
Council, the European Economic and Social Committee and the Committee of
Regions – Report on Competition Policy 2015, pages 12-13.
[9] Contrary to the
State aid granted to FC Den Bosch, MVV, Willem II and NEC, where the Commission
determined that the aid was granted in line with the 2004
Guidelines on State aid for rescuing and restructuring firms in difficulty.
[10] Commission decision
of 18 December 2013 SA.36387 – Alleged aid in favour of three Valencia football
clubs, para.44.
[11] A third option, as
stipulated in Article 9(3) of the State aid Procedural Regulation, is the
positive decision. This is a decision where the Commission decides that the aid
is compatible with the internal market. The decision allowing the aid to the
Dutch clubs is an example of a positive decision. Challenging a positive
decision under Article 263 TFEU is also possible for the Member State
concerned, should it wish to do so.
[12] The aid is, for
example, not granted yet when the Member State simply notifies the Commission
of its plan grant State aid. Should the Commission declare the plan to grant
State aid incompatible with the internal market, then there will be no need to
order recovery as well.
[13] The Commission,
however, can decide against a recovery order if it believes that such a
recovery would be contrary to a principle of Union law. This gives the
Commission the possibility to declare a State aid measure incompatible with EU
law on the one hand, but not order recovery of that aid on the other.
[14] Notice from the
Commission (2007/C 272/05) of 15 November 2007 Towards an effective
implementation of Commission decisions ordering Member States to recover
unlawful and incompatible State aid, point 2.2.
[15] 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
17(1).
[16] Ibid., Article 16(3).
[17] It is worth
mentioning that at the time the State aid was granted, the Spanish Conservative
Party, PP, was in power in Madrid as well as in the autonomous region of
Valencia. These two local governments are nowadays formed by opposition
parties. On the other hand, the PP is still the biggest political party at
national level.
[18] Consolidated version
of the Treaty on the Functioning of the European Union C 326/47 of 26 October
2010, Article 256(1).