In July 2016, the European Commission published its decision in state aid cases concerning several Spanish and Dutch Professional Football Clubs. It held that tax payers money granted to seven professional football clubs, in Spain, were to be paid back as the funds gave those clubs an unfair advantage over other competing EU football clubs. On the other hand, in the case of five Dutch professional football clubs, the EU Commission concluded that the case would be closed with no further action as it found no evidence to support that the state aid received was illegal.

But what is state aid? Are their exemptions to the rules and what cases have we seen thus far, not just in football but across all sports?

This blog post will attempt to answer those questions and review sport-related state aid cases and examples, both past and present.

What is state aid defined as? 

The European Commission applies a blanket ban on state aid which is defined as an advantage (in any form whether that be tax rebate, loans at preferential rates, direct grant of money etc) granted by public authorities (such as national government, local councils etc) through state resources on a selective basis to any organisations that could potentially distort competition and trade in the European Union. In determining whether there has been an advantage, the Commission will consider whether the economic advantage could have been obtained under normal market conditions.

The rules governing state aid are enforced by the European Commission and national courts and can be found under Article 107 of the Treaty on the Functioning of the European Union which state:

"... any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, shall in so far as it affects trade between Member States, be incompatible with the internal market."

Under the rules, the European Commission must give approval for the aid to be received and Member States must not transfer aid, until that permission has been granted. Failure to do so, runs the risk of the Commission finding the aid to be illegal and ordering the receiver to pay it back.

There is a ten year window, for any party who feels disadvantaged, to launch a challenge about the state aid granted and complain to the European Commission.

There are no special rules when applying state aid provisions to sporting circumstances. Football clubs, in particular, are considered businesses and the sport's commercial position has grown significantly, through the years. It is only fair and just that the EU Commission applies the rules equally across the board, in order to protect other clubs on the market. UEFA and the EU Commission have formed a working relationship to ensure that Financial Fair Play, in football, is not undermined by casual state aid compliance.

State Aid Exemptions

Certain circumstances and issues allow for aid to be provided without the requirement of prior notification to the Commission and covers areas such as research & development, environmental aid etc. An extension to block exemption rules was introduced on 21 May 2014 which widened the categories for aid exemptions and now includes regional urban development and sport infrastructure, amongst others. However, it is still wise to notify the Commission prior to any state aid grant, for a belt and braces approach.

Article 107 (2) and (3) TFEU list a number of circumstances where aid will be (or may be) considered compatible with the internal market:

2. The following shall be compatible with the internal market:
(a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;
(b) aid to make good the damage caused by natural disasters or exceptional occurrences;
(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.
3. The following may be considered to be compatible with the internal market:
(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;
(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;
(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;
(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;
(e) such other categories of aid as may be specified by decision of the Council on a proposal from the Commission.

The Cases

Real Madrid - Las Tablas

The Real Madrid case concerned the exchange of land owned by Real Madrid as "Las Tablas"in return for public land owned by the City of Madrid around the Bernabeu stadium. The settlement was first arranged in 1998 for 595,000 euros but eventually did not go ahead. As a result, in 2011, the City of Madrid compensated the club for the failed transaction. They carried out their own valuation of the land which equated to 22.7m euros, at the time of the transaction.

A number of complaints were made as a result and the Commission stepped in to investigate. They found that the local authority had failed to instruct an independent valuation of the deal and there was a concern that the current market value (and recent increases in the market) could not account for the transaction sum alone. The Commission was advised, as part of the complaints, that the stated value of property in the Las Tablas area had increased by 250% but this still could not account for the sum received by Real Madrid, which equated to a 3700% increase.

The Commission, therefore, instructed their own independent valuation report of the land transaction in order to ascertain the market value of the site, at the time of the transaction. The report confirmed that the land had indeed increased in value but was only worth 4.3m Euros. As noted above, Real Madrid received 22.7m Euros. This, thus, gave Real Madrid an advantage of 18.4m euros.

The Commission, in July 2016, concluded that the land had been overvalued by the local authority and thus ordered Real Madrid to pay the sums back to the City of Madrid.

This case should serve as a warning to local authorities and professional football clubs that state aid will not be compliant if no independent valuation has been sought before the transaction is concluded. There must be a fair process in place and any actions taken must be supported by an independent agent.

Spanish Tax Arrangements enjoyed by Real Madrid, Barcelona, Athletico Bilbao & Osasuna

In 1990, a Spanish corporate tax law was introduced requiring sport clubs to incorporate themselves as sports limited companies with the exception of clubs who had a positive balance in the previous 4-5 years - the clubs who fell into the exception were Barcelona, Real Madrid, Atletico Bilbao and Osasuna.

The effect of this was that those four clubs were considered as not-for-profit sport clubs whilst the other remaining clubs required to incorporate themselves as limited companies. Notwithstanding that, the tax provisions for the two groups of clubs were different. Sport limited companies were required to pay 30% incorporation tax whilst the four sport clubs enjoyed partial tax exemption, only requiring to pay 25% tax, due to their 'not-for-profit' status. There was no provision in the new rules for review of the status of sporting limited companies or sport clubs therefore re-conversion was not possible, leaving clubs effectively stuck with their legal and applicable tax status. As a result, the aforementioned four sports clubs have been taxed at a lower rate to other Spanish football clubs ... since 1990!!

Following complaints, the Commission launched an investigation with the main goal to ascertain whether the four clubs received an unfair selective advantage over competitors. State aid rules provide that where there is an objective justification for the differentiation in treatment then the tax advantage provided to some undertakings over others, in similar legal and factual circumstances, could amount to a selective advantage which would therefore be non-compliant and thus illegal.

In forming a conclusion the Commission:

(1) Identifed whether there was a general or reference taxation system;
(2) Assessed whether the measures adopted by the Spanish Government favoured certain clubs over         others who were in a similar legal and factual position and;
(3) Determined whether there was any logic in the measures and processes, in question.

The Commission concluded that although the four clubs, in question, were by law 'not-for-profit', in reality, they were anything but. Activities conducted by all four clubs were with a view to make a profit and the big two, in particular, had enjoyed 995m Euros, in profits between them, the previous season. As such, it was clear that the four clubs were in an equivalent position to those that were incorporated as limited companies but that they had been treated differently under the Spanish tax regime ... and without any justification.

In reaching their decision, the Commission also compared football clubs across Europe to see how they were incorporated and what tax provisions applied accordingly. It found that the usual position was that clubs have a choice as to how they wish to be incorporated (ie. club or limited company). In the event that there was not a choice, incorporation as a limited company was compulsory for all, without exception. In Spain, no other Spanish clubs other than the aforementioned were able to choose their preferred form of incorporation. The Commission also held that an "aggravating" factor in the case was that Spanish law did not allow for the scope of the 1990 provisions and exemptions to be reviewed and as such, clubs were trapped.

As such, the Commission held that the four clubs had benefitted from the lower tax rate over twenty years and there was no justification for that. Consequently, the four clubs have now been ordered to pay back the shortfall in unpaid taxes.

Spain has since amended its legislation on corporation tax.

This decision leaves no doubt that football clubs must be treated equally in relation to fiscal matters or afforded the opportunity to choose their preferred tax status.

Bank Guarantees - Valencia FC, Elche & Hercules

The EC Commission investigated Spanish clubs, Valencia FC, Elche and Hercules following complaints that they had received favourable terms as a result of guarantees given by the state-owned, Valencia Institute of Finance (IVF) for loans. At the time, the clubs were in financial difficulty but they did not pay adequate remuneration for the guarantees and this, thus, gave them an economic advantage over other clubs who had to raise money without state backing.

Under EU rules, clubs in financial difficulty can only receive state aid within the framework of a restructuring plan to restore the company's long term viability. This is to ensure that public spending is kept to a minimum and not wasted on keeping non-viable companies artificially present in the market.

The state financing provided by the Spanish authorities was not linked to any restructuring plan to make the clubs viable and none of them implemented compensatory measures to offset the distortion of competition created by the subsidy.

As such, the Commission held that the clubs must pay back the advantage they had received to restore the level playing field. This amounts to 20.4m euros for Valencia, 6.1m euros for Hercules and 3.7m for Elche.

State Aid & Dutch Football Clubs

The European Commission launched an investigation into five Dutch professional football clubs (Nijmegen Eendrach Combinatie, Willem II Tilburg, Maatschappelijke Voetbal Vereniging Maastricht, PSV Eindhoven and FC Den Bosch) and their relevant local authorities.

In 2010, the local authority of Nijmegen purchased an alleged right, for 2.2m Euros, held by Nijmegen Eendrach Combinatie (NEC) to buy 'De Endracht' a multi-functional sports block next to the state-owned multi-functional football stadium leased by NEC.

Also in 2010, the local authority of Willem II Tilburg lowered their stadium rent as the club was on the verge of bankruptcy - this was a 2.4m Euros saving for the club. Willem II Tilburg were also investigated following the state's decision to suspend the club's rent payment.

Maatschappelijke were investigated by the EC Commission following the state's decision to waive a debt of 1.7m Euros without adhering to a formal suspension of payments process. This was followed by the State's purchase of the stadium, used by the club, for 1.8m Euros. Those decisions were made in view of the club's severe financial difficulties.

The Commission's investigation also looks at a transaction to purchase and lease-back property between PSV and the local authority of Eindhoven. The state purchased the PSV-owned stadium and training facilities for 48,385,000 Euros and thereafter leased it back to PSV who, at that time, were skating dangerously close to liquidation.

Finally, the Commissions investigations turned to FC Den Bosch and a local authority decision to waive a debt of 1,650,000 Euros and thereafter, purchase youth and training facilities for 140,000,000.

It is clear in the above cases that all clubs, at the time that the aid was granted, were in extreme financial difficulties. This was recognised by the Commission who had to look to see if the guidelines for rescuing and restructuring 'firms in difficulty' had been followed in the cases of the Dutch football clubs. The guidelines are in place to ensure that 'rescue and restructuring' aid only goes to those who have realistic prospects of maintaining itself or recovering its potentialities. There is also a requirement to alleviate any distortions of competition caused by the state support.

In July 2016, the Commission concluded its investigation and confirmed that they were satisfied that all four clubs had a realistic restructuring plan and had all significantly contributed to the cost of their restructuring whilst taking steps to limit any potential risks to competition. This was a key difference between the Dutch cases and the case of the three Valencia football clubs who did not have adequate restructuring plans in place nor had any steps been taken to alleviate any distortions of competition caused by the state aid.

As such, the Dutch state aid was confirmed as being compliant and legal - no sanctions were thus forthcoming.

Euro 2016 & French State Aid

The French Government notified the Commission of its intention to fund the construction and renovation of 9 out of 10 stadiums designated as venues for the 2016 Euro Championships. The Commission did not object to this state aid as it considered that it was an objective of a common interest ie. France's hosting of a major sporting event. The aid would serve multiple functions including the public use of stadiums - it was not for the sole intention to put a football club in a better financial position. There was a public need for the enlargement and modernisation of the stadiums, in question, and it was vital that the work was completed by the commencement of the UEFA competition and for the promotion of sport and culture, in France. Without government intervention, the construction and renovation works would not be able to take place.

Celtic FC & Land Transactions

In 2014, the EC Commission received complaints that Celtic had received illegal state aid following property transactions relating to land around it's stadium, in the East End of Glasgow.

The allegation was that advantageous land transfers had taken place between Glasgow City Council and Celtic (effectively that Celtic had purchased the land "on-the-cheap") and that this had put the Scottish club at a competitive advantage over other clubs.

This was firmly denied by both Glasgow City Council and Celtic. The EC carried out informal inquiries but did not open a full investigation stating that based on the evidence they were unable to identify any issue regarding unlawful state aid.

However, it was thereafter revealed through figures released by the local authority that Celtic, in fact, paid more than three times the true value for the piece of land. Council chiefs were quick to reveal that it was forced to spend £280,000 of taxpayers' money defending itself in the case citing that those fees ate into the huge profit that they had made from the sale, as the land was worth less than a third of what they had managed to negotiate out of Celtic.

West Ham & The Olympic Stadium

A current example of state aid rifts can be seen from West Ham's latest move to the Olympic Stadium, in London which sees them paying £2.5m annual rent (considered to be a very good deal somewhat too good to be true, in some opinions.

Questions have been raised over whether the deal to move to the stadium breaches state aid rules because the local authority and the London Legacy Development Corporation (LLDC) did not notify the Commission before concluding the deal with West Ham.

As described above, unless circumstances fall into the list of criteria described under article 107(3)(a)-(e), the Commission must be notified of any intentions to grant state aid and those intentions must be approved before deals can be concluded.

Any disgruntled disadvantaged parties have ten years to come forward and lodge a complaint with the Commission, in relation to the deal. If no independent valuation has been carried out and the EC considers that the market value is not a true reflection of the West Ham deal, they could be leaving themselves open to millions in compensation paybacks, somewhere down the line.

UK Golf Clubs

In the UK, sport clubs that qualify as community amateur sport clubs enjoy certain exemptions from corporate tax. A complaint was received by the Commission alleging that certain tax breaks applicable to golf clubs would distort competition and amount to state aid. The complaint concerned exemptions from corporation tax on profits generated by community amateur sport clubs from trading with visitors where the turnover of the trade is less than £20,000.

The Commission investigated and concluded that those clubs are, by their very status as community amateur sport clubs, operations which cater for the local community and therefore have no effect on trade between Member States and the measures do not constitute aid. The tax breaks are capped at low levels which excludes clubs that have any significant revenue from non-member players (from the UK or abroad) and which could therefore compete with golf courses outside of the UK.

Motor Racing

In March 2012, the Commission commenced investigations into a set of state aid measures granted by a local authority to a number of Nurburgring companies, all in financial difficulty, between 2002 and 2012. Germany failed to notify the Commission of the measures for prior-approval, as required under EU state aid rules.

The support related to expenses for the construction and operation of facilities directly related to the Nurburgring race track including a grandstand, construction and operation of tourism facilities (in the form of shopping, dining, gambling and accommodation) and for the organisation of Formula 1 races and events. Measures took the form of capital injections, loans, public guarantees, letters of comfort, subordination of debts, rent below market rate, service fees and grants.

The Commission's investigations concluded that no private player would have invested in the Nurburgring companies under similar terms. As such, the measures constituted state aid within the meaning of the EU rules.

As discussed, the companies operating the Nurburgring complex were all in financial dire straits. You will recall that under EU rules state aid can only be provided within a realistic restructuring plan. The German local authority did not provide a restructuring plan for the companies and thus, the aid was not justified under EU state aid rules. As such,  the Commission confirmed in 2014 that the sums had to be paid back by the three companies.

This was an interesting case as the companies in question were all subject to insolvency procedures at the time of the decision. The tender procedure for their asset sale commenced in May 2013 and concluded in March 2014. The Commission analysed this process and concluded that it was open, transparent and non-discriminatory, confirming that the sale had taken place at market value. As such, the Commission has concluded that the buyer of the assets cannot be liable for the re-imbursement of the aid.

Glenmore Lodge Outdoor Training Centre & Sportscotland

Glenmore Lodge is based in Aviemore, Scotland and is the country's national outdoor training centre. The complex is operated and subsidised by Sportscotland, a public body and the national agency for sport in Scotland.

It's main role is the offering of certification courses for mountain instructors and awarding of qualifications recognised by sport governing bodies in the UK. Additionally, it also provides training in mountain skills and mountain sports for the wider public.

Following a complaint, the Commission found that the support received by Glenmore Lodge from Sportscotland did not have an effect on trade between Member States and therefore does not constitute state aid because the major part of the Lodge's activity is targeted at a regional or at most national customer base. There was no evidence of cross-border investments or establishment for the sort of services offered by the complex.


The EC Commission applies a blanket ban on state aid with some circumstances and situations where no prior notification is required and state aid is likely to be considered as compliant and thus, legal. However, for a belt and braces approach, it is certainly sensible to notify the EC Commission of any intention to provide state aid as in the event that it does disadvantage another party, there is a 10 year period for them to make a complaint to the Commission. Given that, transactions should be as bullet-proof as possible.

What we have learned from cases thus far:
  • Always instruct an independent valuation before conducting any land transactions
  • Always treat those who are in a similar legal and factual position equally in fiscal matters
  • Always ensure that realistic re-structuring plans are in place for clubs in difficulty
  • Always ensure that steps are taken to alleviate any distortion to competition caused by state aid
  • If there is a wider common interest to grant state aid that will usually see you through

IMPORTANT: This post is not intended to be a legal briefing, it is not intended to be a statement of the law and no action should be taken in reliance on it without specific legal advice.

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