Systematic review of aids for sports promotion in the EU and their legal implications

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Following the European Commission (‘the Commis�sion’) decision to open a formal State aid investigation into several professional European football clubs in 2013, including renowned football clubs, such as FC Barcelona,

1 Real Madrid,

2 Valencia CF

3 and PSV

Systematic review of aids for sports promotion in the EU and their legal implications
Author Anushree Sharma
ASSN 36591
Published on 14/09/2018
Co-Assn 44796
Co-Author Editor
Last Updates 14/09/2018

Eindhoven, there has been a high level of public in�terest in the outcome. Is the Commission really will�ing to order the Spanish State to recuperate the aid. granted to two of themost powerful football clubs in the world, or will it decide that the aidmeasures were justified? Furthermore, what effect could the impo�sition of recovery orders have on professional foot�ball and professional sport in general?

The application of State aid rulesto European pro�fessional football was not welcomed by everyone. The Spanish government clearly supported the in�vestigated football clubs, declaring that it “will battle until the end in defence of the Spanish (football) clubs, who also form part of the Marca España.”Javier Tebas, the president of the Spanish football Organisation of sport in Europe In the Member States sport is traditionally organised in a system of national federations. Only the top federations (usually one per country) are linked together in European and international federations. Basically the structure resembles a pyramid with a hierarchy.

Clubs

The clubs form the foundation of this pyramid. They offer everyone the possibility of engaging in sport locally, thereby promoting the idea of «sport for all». They also foster the development of new generations of sportsmen/women. At this level unpaid participation is particularly important and beneficial to the development of European sport. In Portugal, for example, there are about 70 000 unpaid coaches and 40 000 unpaid board and committee members.

One feature of European Sport that is closely linked to this level is amateur sport. As stressed by Marcelino Oreja, Member of the European Commission responsible for sport, addressing the 7th European Sports Forum in 1997, amateur sport reflects that. genuine, disinterested love of taking part in a sport. In this field, sport has a strong. social function by bringing people together. In Austria, for example, about 39% of the population are members of a sport club or a federation.

The Regional Federations

Regional federations form the next level; the clubs are usually members of these organisations. Their area of interest is limited to a region in which they are responsible for organising regional championships or coordinating sport on a regional level. In some. countries, Germany for example, there are regional-level umbrella organisations, which comprise all the clubs in one region.

The National Federations

National federations, one for each discipline, represent the next level. Usually all the regional federations are members of the respective national federation. These federations regulate all general matters within their discipline and at the same time represent their branch in the European or International federations. They also organis. national championships and act as regulatory bodies. As there is only one national federation for each discipline, they have a monopolistic position. In each country there is, for example, only one football federation. Only this federation can organise. recognised championships. In some countries the role of the federation is regulated by national legislation.

The European Federations

The top of the pyramid is formed by the European Federations, which are organised along the same lines as the national federations. Every European federation allows only one national federation from each country to be a member. By means of rules, usually involving sanctions for those taking part in championships which have not been recognised or authorised by the international federation, these organisations try to maintain their position.

The Organisation of Sport in Europe

The Pyramid Model System of Promotion and Relegation The pyramid structure implies interdependence between the levels, not only on the organisational side but also on the competitive side, because competitions are organised on all levels. Thus, a football club playing at a regional level can qualify for championships on a national or even international level (e.g. the UEFA Cup) by winningpromotion. On the other hand a club will be relegated if it fails to qualify. Relegationand promotion are standard features of every national championship. Because of thearrival of new competitors the championships are more interesting than closed competitions.

This system of promotion and relegation can also be found on a European level. In all disciplines the national federations (i.e. the top of the pyramid) are members of both European and international federations which in their turn organise European and international championships. Qualification for most of these tournaments, however, is usually decided at a national level.

This system of promotion and relegation is one of the key features of the European model of sport. The US has developed the model of closed championships and multiple sport federations. The same teams, once in this championship, keep on playing in this league. In Europe, there is a new tendency to try and combine both systems. In a recent proposal by UEFA, clubs would qualify not only by a system of promotion and relegation, but also by fulfilling economic and technical criteria.

History

Major changes in the 80s The IOC decided to abolish the distinction between amateur and professional sport, thus opening the Olympic games to everyone. It also allowed the games to be commercially sponsored, which led to a general commercialisation of sport. Sponsorship has now become one of the major sources of funding for sport.

In the mid-80s in most Western European countries, the state television monopoly was broken. As in the US, fierce competition ensued to win the broadcasting rights for major events. The sale of television rights and sponsorship account for 65-85% of the funding of sports events and have become the primary source of financing professional sport in Europe. What should also be taken into account is the rapid and far-reaching technological change affecting television.

The East bloc disappeared and with it the restrictions for those engaging in sport. This resulted in an increase in the number of eastern Europeans practising spor professionally.

The European Court of Justice recognised in the Bosman case that there is no reason why professional sports people should not enjoy the benefits of the single market and in particular the free movement of workers. This has resulted in national competitions being open to players throughout Europe and has revitalised major European Leagues Recent developments in the 90s In order to contend with the creation of European super-leagues, many important clubs had to think about new ways of financing. Since November 1997 English football clubs (Manchester United, Tottenham Hotspur and many others) have been listed on the stock exchange. This allows them to acquire the financial means necessary to maintain their leading position in European sport. On the other hand, some investment companies gained influence by acquiring majority shareholdings in several football clubs, for instance the English National Investment Company (ENIC) already controls 4 clubs, namely Glasgow Rangers, Slavia Prague, Vicenza (Italy) and AEK Athens The proposal for a closed league outside UEFA is new and has attracted the interest of many of Europe’s top clubs. Within this league there is no system of promotion and relegation. It is a new form of competition, which has no link with the existingpyramidal structure.

The top clubs are interested in this Super League mainly because they are dissatisfied with UEFA’s distribution of Champions League revenues. They see the initiative as a possibility of more money going direct to the participants and less to the administration of the competition. If things develop as in the US, where the system of closed competitions has existed for many years, the top clubs could increase their profits enormously. The new approach will see the big teams playing one another regularly,something the US has known for a long time with its major sports.

UEFA has been forced to react by proposing a new initiative which seeks to combinethe traditional system of promotion and relegation and the closed championship system.What UEFA is offering clubs is a bigger share of the revenues generated by the sale ofbroadcasting rights.

The Objectives of State Aid Control

The rules on State aid form one of the four competi�tion law areas and have existed since the founda�tion of the European Economic Community in 1958.Article 107(1) TFEU formulates the general prohibi�tion of granting State aid.In order for a measure to constitute State aid, it has to grant a selective eco�nomic advantage to one or more undertakings.

Through State resources, distorting orthreaten to dis�tort competition and affecting cross-border trade.

The thresholds for these requirements are low,mean�ing that it isrelatively simple for ameasure to be con�sidered as State aid under Article 107(1) TFEU.

The main purpose of introducing State aid rules was to ensure that national economic rivalry did not undermine the internalmarket. More than half a cen�tury later, and after the introduction of the Lisbon Treaty,ensuring the functioningofthe internalmar�ket remains a primary objective of the Commission in particular,and the European Union in general.

However, due to greater economic integration with�in the EU, in addition to the protection of the inter�nal market, increased emphasis is placed on policies focused on efficient government intervention in the economy. The Commission, in its Communication under pinned this refocus of priorities in enforcementand attempted to offer better assessmenttools.It held that “public spending should become more efficient, effective and targeted at growth-promoting policiesthat fulfil common European objectives.” Further�more, “by putting an emphasis on the quality .

In the context of State aid controlin the sport sec�tor, it could serve to avoid using taxpayers’ money inefficiently, for example by building a dispropor�tionately large stadium for a particular club and/or municipality which would be imprudent spending. In the current economic climate, citizens are acutelyaware of the costs of hosting mega sporting events, such as the football World Cup17 or the Olympic Games,and State aid control could serve as a use�ful tool to ensure that taxpayers’ money is not wast�ed. Similarly, State aid control can be used to prevent public authoritiesfromfinancially aiding a bankrupt professional football club, without drafting a viable restructuring plan for the future. In 2012, the Commission and the European foot�ball federation (UEFA) jointly stated that the objec�tives of UEFA’s Financial Fair Play (FFP) rules are “consistent with the aims and objectives of European Union policy in the field of State Aid.” The objec�tives of FFP include improving the economic and fi�nancial capability of clubs, encouraging clubs to op�erate on the basis of their own revenues,introducing more discipline and rationality in club finances and encouraging responsible spending for the long term benefit of football.

These objectives are very simi�larto the objectivesstipulated by the Commission in,for example, ‘SAM’. It is therefore remarkable that football governing bodies, such as the Spanish League, disagree with an active State aid control in the sports sector, but are at the same time in favour of the FFP rules.There appearsto be a fundamentalmisconception of State aid rules among critics of the Commission decision permitting investigations into aid given to football clubs. While granting selective economic ad�vantages through State resources to undertakings is prima facie State aid, it does not mean that all forms of State measures are prohibited by the rules. Nor does it mean that national authorities cannot invest in their cultural heritage, including football. The Treaty has always provided different possibilities to justify measures that breach EU provisions provid�ed the measures pursue a common objective or the general interest. In fact, Article 107(3) TFEU names certain conditions under which theCommission may consider the State aid acceptable.

State Aid Control in the Football

Sector: Where Are We Now? Application of EU Law to the Sport Sector In 1974, the CJEU held that sports, and therefore al�so football, is subject to EU law.

landmark case

in the sports sector followed in 1995. The case con�cerned a Belgian professional football player, Bosman, who challenged football’s transfer system for breaching EU law,most notably the fact that out�of-contract professional football players could not change club without the new club having to pay a transfer fee. In its judgment, the CJEU ruled that the transfer system was contrary to EU free movement law and that all EU football players were to be given the right to a free transfer at the end of their con�tracts.

In the aftermath of Bosman,it appeared that the EU institutions would play an active role in the field of sports and due to the application of EU law, including EU competition law. In fact, FIFA’s Regu�lations on the Status and Transfers of Players of 2001 was the result of an agreement signed between the Commission and FIFA/UEFA.

Additionally, the regulations ofrace driving’s governing body, Fédéra�tion Internationale de l'Automobile (FIA), under�went considerable amendments after the Commis�sion determined that FIA had abused its power by, inter alia, putting unnecessary restrictions on pro�moters, circuit owners, vehicle manufacturers and drivers. A further important case regarding the applica�tion of EU law to sport was the Meca-Medina case of 2006. Two professional swimmers who had failed doping tests, Meca-Medina and Majcen, had chal�lenged the International Olympic Committee’s anti�doping rulesfor being incompatible with EU compe�tition law. The Court acknowledged that the mere fact that a rule is purely sporting in nature does not remove it from the scope of EU competition law. The judgment meant that the regulatory aspects of sportmust comply with the requirements of Articles 101 and 102 TFEU. However, even though the Court’s judgment in this case was high profile in the field of antitrust law, the amount of sports and an�titrust law cases since Meca-Medina has been limited.

Application of EU State Aid Law to the Sport Sector

In the case of sports and the application of EU State aid law even fewer examples exist and less than a handful are worthmentioning. The lack of examples is interesting as there are no compelling reasons to exclude professional football clubsfromthe scope of Article 107 (1) TFEU. Football clubsshould be consid�ered as undertakingsto the extent that they carry outeconomic activitiessuch asthe sale of tickets and the transfer of players. It isfurthersettled case law that the concept of an undertaking encompasses every en�tity engaged in economic activity, regardless of the legal status of the entity or how the entity finances itself. The Commission carried out a survey in 1997 on aid granted to sports clubsin the Member States. The survey showed that aid granted to sports clubs was marginal and did not seem to affect trade between Member States. However, the Commission did add in the survey that it was prepared to look at any spe�cific complaint submitted to it. The many instances of the Commission's reluc�tance to intervene in the football sector include par�liamentary questions posed to the Commission about alleged aid granted to Real Madrid in the late 90’s and about an agreement signed in 2001 by the municipality of Alkmaar and the Dutch football club AZ regarding a new location for the stadium that was alleged to be beneficial for the club. In both cases, the Commission did not impose a recovery or�der.

The Commission's approach from the 90’s ap�pearsto have changed and in particular,in the recent five years the Commission’s activity in this field has notably increased. The joint statement on the UEFA Financial Fair Play Regulations (FFP) was published in 2012, and was followed by a Commission request for information addressed to the Member States re�garding public financing of infrastructure used by professional football clubs at the end of the same year.

The primary reason forthe increased Commission interest in the footballsectorin the lastfew years was that it had received numerous complaints from citi�zens across the EU, alleging that different State aid measures had been granted to several professional football clubs. However, due to the lack of such aid notifications by the Member States, the Commission had not had the possibility to develop a fully-fledged case practice in the area of State aid to professional sports and consequently, the Commission requires as much information as possible, in order to define a policy in this market sector.

This evolution shows both similarities and differ�ences when compared to other economic sectors. For example the broadcasting sector, and the film and other audiovisualworkssectorfollowed a similar pat�tern when the Commission received a wave of com�plaints. In the broadcasting sector, private broad�casters complained that public broadcasters had a fi�nancial advantage because they received publicmon�ey. State Aid Rules as a Means of Achieving Accountability and Transparency in Sports Governance

There is a widespread fear that the effect of strict en�forcement of the State aid rules will have negative consequences for the professional football sector.

Public authorities and football stakeholders believe that the enforcement of State aid rules could force professional football clubs into deeper financial problems or even bankruptcy. It is claimed that the Commission is only focused on protecting the inter�nal market and does not take into account the speci�ficity of sports and/or football. This fear is to a certain degree understandable. If the Commission decides that a State aid measure is incompatible with EU law,it will orderthe concerned Member State to recover the aid from the beneficia�ry.

A negative decision could therefore have im�portant consequencesfor those professional football clubs that are in financial difficulties, since they might have to return funding exceeding their means resulting in a more precarious financial situation than before. It is publicly known that clubs like Va�lencia CF, Elche or Osasuna are under suspicion of having received unlawful aid, facing serious finan�cial difficulties. A negative decision could be dis�astrousfortheirfuture assporting entities.

Reference

EU State Aid Law and Professional Football: A Threat or a Blessing?

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