Spanish football clubs ordered to repay millions in illegal state aid

The European Commission said up to nearly €70 million in total could have to be repaid by seven clubs, including Real Madrid and Barcelona, after determining aid they were awarded gave them "an unfair advantage over other clubs" under EU state aid rules.

State aid is an advantage or incentive granted by a national or local government to commercial companies, and can take a variety of forms including grants, tax reliefs, guarantees, government holdings of all or part of a company or the provision of goods and services on preferential terms. To ensure fair competition across the EU, state aid is generally prohibited unless it can be justified for general economic development reasons.

The Commission conducted three separate investigations into aid granted to the seven clubs by Spanish authorities.

It said Real Madrid, Barcelona, Athletic Bilbao and Atlético Osasuna illegally benefited from Spanish "tax privileges" and estimated each club would need to pay between €0 and €5m to "return the unpaid taxes". The exact amount each club will need to repay is to be determined by the Spanish authorities, the Commission said.

The Commission also investigated a land transfer deal agreed between Real Madrid and the City of Madrid. It found that Real Madrid had agreed to acquire the land for €18.4m less than what the property was valued at and said the club must now repay that money to account for the "unjustified advantage" it gained.

Valencia, Hercules and Elche were also ordered to repay money they received from Valencia's Institute of Finance after the Commission deemed loans they were granted were issued on "more favourable terms" than was justified. It said Valencia must repay €20.4m, Hercules €6.1m and Elche €3.7m.

EU competition commissioner Margrethe Vestager said: "Using tax payers' money to finance professional football clubs can create unfair competition. Professional football is a commercial activity with significant money involved and public money must comply with fair competition rules. The subsidies we investigated in these cases did not."

Competition law specialist Angelique Bret of Pinsent Masons, the law firm behind Out-Law.com, said: "The requirements imposed on clubs to repay significant amounts of aid show that the European Commission will not shy away from investigating and taking action in relation to aid in the sports context. Given the sometimes complex arrangements between local authorities and clubs in terms of the funding of sports infrastructure, this case highlights the need for the clubs themselves to ensure that the agreements they enter into are on market terms."

"In a recent case concerning a loan provided to a company running Coventry's Ricoh Arena sports stadium by Coventry City Council the UK courts confirmed that, although public support must be on market terms, public bodies do have a good degree of commercial discretion when considering how they invest public funds," she said.

Despite the UK’s vote to leave the EU, it is important that public bodies do not view the Brexit vote outcome as a reason to set aside compliance with state aid rules, Bret said.

"The UK’s future ability to negotiate a trade deal with the EU is sure to be dependent on it respecting the common market in the interim. Legal compliance with state aid law is therefore still very much an issue. Until a new agreement is reached with the EU, the EU state aid rules continue to have direct effect and therefore claims for damages and injunctive relief against recipients of alleged aid can continue to be brought in the domestic courts. If the UK negotiates a free trade deal similar to the terms of the EEA, this would likely entail a requirement to adhere to the state aid rules."

In a separate decision the Commission cleared Dutch authorities of granting illegal state aid to five football clubs in the Netherlands, including reigning league champions PSV Eindhoven.

The Commission had investigated the municipality in Eindhoven over the arrangements it formed when it bought land from PSV for more than €48 million and then leased it back to the club. It concluded that the arrangements did not involve state aid and had been "carried out on terms acceptable to a market investor".

"From a club perspective, the fact that a local authority can at least in theory be a source of financial support is invaluable, particularly for those looking to develop new or enhance existing facilities or simply enter into a sale and leaseback arrangement," said sports law expert Trevor Watkins of Pinsent Masons. "Often a local authority will want to support such development or secure the future of a club."

"The decisions make clear that the local authority and club can create legal solutions that achieve those aims if careful thought is given to how any agreement is structured. It will likely encourage local authorities and clubs to explore such solutions more broadly now that clear guidance has been given. The ruling is timely given the likely wave of further development we predict across sports and leisure facilities fuelled by the need to meet spectator expectation given the advancement of technology and the customer experience demanded as teams and venues vie to not only attract people but maintain existing attendance numbers," he said.

"There will also be the need to ensure that, separate and distinct from state aid considerations, the implications of specific sporting rules are considered when structuring any solution. For example, for a number of professional football clubs it will be important to consider the  rules of Financial Fair Play and any others affecting development, costs and accounting policies," Watkins said.