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Real Madrid FC: European Commission State Aid Investigation

By Tom Serby, Anglia Ruskin University Law School, Cambridge, United Kingdom In February 2016, three European MEPs (including Conservative MEP Daniel Dalton) requested in writing that the European Commission (EC) investigate a possible breach of the EU rules on ‘State Aid’ by the Spanish football club Real Madrid. The context for the complaint is the 2013 transfer of Welsh footballer Gareth Bale. The world record £85.3 m transfer fee included a bank guarantee provided by the Spanish Bank, Bankia. Bankia had received an 18bn Euro injection of tax-payers’ money when it was saved by the EU, and was, in effect, a nationalised company. MEP Dalton is quoted as saying: ‘Real Madrid are the world's richest football club and if it has used a state owned bank, owned by taxpayers to guarantee multi-million pound record transfer fees, then it is clearly something the EU should look to address to ensure there are no unfair competitive advantages given to football teams supported by taxpayer funded financial institutions’ See ‘Real Madrid could face investigation into bailed-out bank’s role in Gareth Bale transfer ‘The Independent’, 18 February). Gareth Bale has helped Real Madrid to win the UEFA Champions League, the Super Cup, Club World Cup and Copa Del Rey! EU competition law includes Treaty obligations (TFEU Articles 107-109) prohibiting the granting of State Aid to undertakings, without clearance from the EC, which distort competition and trade between Member States. The Treaty provisions are designed to prevent an undertaking gaining a commercial advantage over competitors through receipt of State Aid. Art 107 provides for derogations; aside from the ‘failing firm’ defence, of particular relevance to professional football clubs, is Article 107(3)(c) which states that Aid used to facilitate the development of certain economic areas or activities may not be incompatible with the internal market. For example, by a decision of 20 November (2013 (C(2013) 7889 final), the EC approved the Flemish government’ subsidy for the renovation and construction of football stadia as being compatible with Article 107(3)(c) TFEU (i.e. on grounds of the social, cultural and educational benefits provided by the multifunctional capabilities of the stadia). The European Commission in the 2011 policy document ‘Developing the European Dimension in Sport’ (at 3.3) states that notice should be given to the EC of State Aid to a sporting body, unless the Aid can be brought within the provisions of the General Block Exemption Regulation (which does not refer specifically to sport). Where the State Aid occurs in the sporting context, the ‘specificity of sport’ may require that the rule against State Aid to be applied in a nuanced manner. In certain European countries, notably France, there is considerable State subsidy for sporting clubs (see ‘Public grants to professional clubs’, Aid N118/00- France, [2001] OJ C333/6 (28 November 2001). The EC has approved such funding, where it is targeted at clubs with State approved youth training centres, on grounds that it contributes to education and has obvious community and social benefits, but the EC has imposed conditions that accounts be kept and that the subsidy is targeted at training activities. In 2013, the EC approved the grant of State Aid for arena development in Germany (Decision SA.35135 (2012/N) - Germany Multifunktionsarena der Stadt Erfurt) and in Finland and Denmark (see EC press release IP/13/394, 2 May 2013). The justification, in each case, was again the public policy benefits of ensuring access to sport. The issue of State Aid and football must also be seen in the context of UEFA’s Financial Fair Play Regulations, specifically the ‘break-even’ requirement that was introduced and took effect for the first time during the 2013-14 season. The ‘break-even’ requirement (see Serby, ‘The devil is in the detail’, GSLTR June 2014, at pp. 6-10 (both inclusive) was intended to introduce fiscal stability among overspending football clubs by making it a requirement - through a phased introduction - that clubs licensed to appear in UEFA competitions do not spend more than their footballing income. Clubs adhering to the ‘break-even’ requirement should not require any baling out by the State; and, in March 2012, the EC Vice President in charge of competition policy, Joaquin Almunia, issued a joint statement with the then UEFA President, Michel Platini, supportive of the Financial Fair Play Regulations, adding, curiously, that they did not contravene EU rules against State Aid. See EC Press release IP12/264. Spanish football is no stranger to allegations of State Aid. In December 2013, the EC announced investigations into possible State aid to several Spanish football clubs, commenting: ‘The Commission will firstly investigate possible tax privileges for Real Madrid, Barcelona, Athletic Bilbao, and Osasuna. In another inquiry it will assess whether a widely reported land transfer between the city of Madrid and the club Real Madrid involved any state aid in favour of the club. Finally, it will examine the compliance with EU state aid rules of guarantees given by the State-owned Valencia Institute of Finance for loans that were used to finance the three Valencia clubs Valencia, Hercules and Elche, while those clubs were seemingly undergoing financial difficulties’ See EC Press release IP/13/1287. Various of the EC investigations referred to above are ongoing and now they are joined by a new one. The novelty of the Bale case is that the Aid has come not from the State (or a local authority) but EU taxpayers generally, although only indirectly in the form of a guarantee - which was not called on. Nevertheless, as Commissioner Almunia stated in 2013 on the occasion of the commencement by the EC of its investigations into the funding of five professional Dutch football clubs, the principle is a clear one:   ‘Professional football clubs should finance their running costs and investments with sound financial management rather than at the expense of the taxpayer. Member States and public authorities must comply with EU rules on state aid in this sector as in all economic Sectors’ See EC Press Release IP/13/1287. Given the leeway granted by the EC to UEFA in regard to the anti-competitive effects of the Financial Fair Play Regulations, which many scholars see as prima facie infringing TFEU Article 101, it would be a brave decision by the EC to take on the social and cultural icon of Real Madrid FC through the application of this aspect of EU law. See, for example, Bastianon, ‘The Striani Challenge to UEFA Financial Fair-Play. A New Era after Bosman or Just a Washout?’ in ‘The Competition Law Review’ vol 11/1 7-39, 2015.      
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Prof. Dr. Ian S. Blackshaw

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Prof. Guglielmo Maisto
Maisto e Associati, Milano

Dr. Dick Molenaar
All Arts Tax Advisors, Rotterdam

 

Mr. Kevin Offer
Hardwick & Morris LLP, London

Mr. Mario Tenore
Maisto e Associati, Milano

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