Football clubs pay the penalty for illegal public support

The European Commission has ordered seven football clubs in Spain, including FC Barcelona and Real Madrid, to repay several million Euros in respect of public support measures granted by Spanish public authorities. The Commission ruled that the public support gave these clubs an unfair advantage over other football clubs in Europe, in breach of State aid law.

The illegal State aid in these cases, according to the Commission, came in various forms:

• Four of the clubs were awarded tax privileges, by virtue of being treated (erroneously) for tax purposes as non-profit organisations, which entitled them to pay 5% less tax on profits than limited liability companies.
• Real Madrid benefited from a land transfer to the City of Madrid, whereby the land purchased from Real Madrid was overvalued by €18.4 million.
• State guarantees were provided by the state-owned Valencia Institute of Finance for loans granted to three clubs based in Valencia. The public guarantees enabled the clubs to obtain loans on more favourable terms than would otherwise have been the case. As the clubs paid no adequate remuneration for these guarantees, this gave them an unfair advantage over other clubs, who would have to raise money without state backing.

Sending a message

Commissioner Margrethe Vestager, in charge of EU competition policy, commented: “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.”

These decisions underline the wider importance of State aid rules in creating a level playing field across all sectors of the economy. Businesses faced with unfair competition from a rival who benefits from public support have the legal right to blow the whistle and ensure that such support is shown a red card.

How will State aid rules apply in the UK post-Brexit?

From a UK perspective following the Brexit vote, EU State aid rules continue to apply in full until the UK formally leaves the EU, which will be at least two years from the date on which the Article 50 exit process is triggered. Once the UK is formally outside the EU, it remains very likely that compliance with State aid rules will be a condition of any extensive trading arrangement between the UK and the EU.