Football investors question EU official's links to Spanish football clubs under State aid investigation

Out-Law News | 17 Dec 2013 | 5:01 pm | 2 min. read

The European Commission will investigate whether the Spanish Government has provided illegal State aid to seven football clubs in the country, including Barcelona and Real Madrid, according to media reports.

Spain's Foreign Minister, Jose Manuel Garcia Margallo, said the Commission would officially launch its investigation into the matter on Wednesday, according to reports by the BBC and the EU Observer. He said that Spain would refute any wrongdoing and would seek to "defend Spanish clubs because they are also part of the Spanish brand".

Investors in some European football clubs have complained to the European Commission about whether financial help allegedly provided to some Spanish clubs by Spanish authorities was in line with EU rules on State aid, according to the European Ombudsman, which is responsible for monitoring against maladministration by EU institutions.

According to the EU Observer's report, Barcelona, Real Madrid, Osasuna and Athletic Bilbao are under scrutiny due to alleged special tax breaks the clubs enjoyed in the country. Aid allegedly provided to Real Madrid and Athletic Bilbao in relation to infrastructure projects they engaged in have also drawn complaint, it said.

Deals allegedly struck between Valencia, Elche and Hercules and local authorities in Spain with respect to loans and bank guarantees are also subject to scrutiny.

The Ombudsman Emily O'Reilly criticised the Commission earlier this week for delaying its decision on whether to "open infringement proceedings against Spain" in relation to the claims. A complaint was first lodged with the Commission in 2009 and the rival investors claim that aid given to the Spanish clubs amounts to "several billion Euro".

Investors have complained about the Commission's inaction in this case, and have alleged that it could be linked to the fact that EU Competition Commissioner Joaquin Almunia supports Athletic Bilbao and "was a Minister in the Spanish government that decided on the tax advantages at the time", according to the Ombudsman's statement.

"The Commission has failed to act on this complaint for more than four years," O'Reilly said. "Not only is this bad administration, but to the European public it can look like a conflict of interest given the Commissioner's strong links to one of the football clubs in question. In my inquiry, I have not looked into the merits of the allegations concerning the breach of State aid rules. I trust, however, that the Commission will decide to open an investigation [on Wednesday] in order to investigate the facts and dispel any suspicions."

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.

Member states must apply to the Commission for clearance on a case by case basis before they can offer funding or incentives which amount to State aid, although some types of aid may fall within the General Block Exemption Regulation and there is a de minimis threshold under which aid is automatically exempted from the rules. Member states can be required to recover illegal aid from companies which have received public support in breach of the State aid rules.

The European Commission is already investigating financial aid given by local authorities in the Netherlands to five professional football clubs in the country.

Sports law specialist Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, previously said that Government bodies should treat professional sports clubs as private creditors would treat them at all times when providing them with financial assistance so as to ensure compliance with the State aid regime.