The last years has seen the European Commission being put under increasing pressure to enforce EU State aid law in sport. For example, numerous Parliamentary questions have been asked by Members of the European Parliament[1] regarding alleged State aid to sporting clubs.  In reply to this pressure, on 21 March 2012, the European Commission, together with UEFA, issued a statement. In this statement, the Commission held that the objectives of the UEFA’s Financial Fair Play (FFP) Regulations are consistent with the aims and objectives of European Union policy in the field of State aid. Moreover, the Commission highlighted that it is willing to cooperate with UEFA when enforcing the rules on EU State aid onto professional football. According to the Commission, when football clubs experience financial difficulties, there is a particular risk that public authorities may be tempted to grant State aid. Thus, enforcing EU rules on State aid will ensure prudent economic management by football clubs that will serve to protect both the interests of individual clubs and players as well as the football sector in Europe as a whole.

Now that UEFA is in the process of enforcing its FFP regulations on football clubs, the question remains whether the European Commission has kept its word about its part of “the deal”. In other words, is there a visible change regarding the enforcement of the EU State aid rules by the European Commission?

Article 107 of the treaty on the Functioning of the European Union (TFEU) foresees that a Member State may not aid or subsidize private parties in distortion of free competition. The State aid rules constitute one of the four policy areas forming EU competition law. The others being the rules on cartels, abuse of dominance and mergers. The European Court of Justice established long ago that EU competition Law was also applicable to sporting entities[2], but very little has ever been done or said about State aid in sport. In fact, one could easily get the impression that the Commission deliberately avoided to get its hands dirty with such problems. One famous example concerns a terrain qualification change in Madrid in the late 90’s that proved hugely advantageous for Spanish football club Real Madrid[3]. In this case, the Commission, even though agreeing that an advantage was conferred to the club, simply stated that the new qualification of the terrain in question does not appear to involve any transfer of resources by the State and could therefore not be regarded as State aid within the meaning of article 107 TFEU.

So has anything changed since then, or more specifically, since 21 March 2012? The Commission has never been famous for its celerity, meaning that it could take another few years before true change can be witnessed. The continuous delays in coming to decisions has also been one of the main points of criticism by the European Ombudsman on the way the Commission is dealing with State aid in sport. However, on a close look, one can distinguish the beginning of a shift towards active enforcement of EU State aid law in sports.

On the day of the joint statement, the Commission published a decision indicating that it would initiate a formal investigation into alleged State aid granted by Sweden for the construction of a sporting arena for ice hockey and other indoor sports in the town of Uppsala. The Swedish State notified the Commission that it had planned to grant EUR 16.5 million directly plus EUR 1.7 million for 25 years for the construction because the arena would fulfil an objective of common interest. Moreover, due to its multifunctional character, the arena would also be used for other sports and events, such as concerts. Nonetheless, the Commission had doubts as regards the necessity to use public funding for this projects and the reasons advanced by Sweden to justify the need of a completely new arena instead of renovating an old one.

The Commission’s scrutiny of State aid in the field of sport did not end there. Since March 2012 the Commission has dealt with 12 cases in which it had to decide whether to launch an official investigation or not. The cases included possible State aid to over 30 beneficiaries in six different Member States, the latest one published 9 April of this year (see table). The aid measures varied from grants for renovating old stadiums or constructing new ones, debt waivers and reduced tax-rates for certain clubs, to acquisition of a stadium by the municipality, guarantees on bank loans by the club and suspected advantageous property transfers between a club and the municipality. In five out of the 12 cases, the Commission has decided to launch an official investigation in accordance with article 108(2) TFEU.

TableStateAidInSport.pdf (95.1KB)

Launching an official investigation does not mean that the Member State in question will get sanctioned for granting unauthorized State aid. Article 108(2) TFEU allows the Member States and concerned parties, such as the beneficiaries, to submit comments and to respond to any doubts the Commission might have regarding the legality of the aid. Indeed, on 2 May 2013, in its final decision regarding the construction of a sporting arena in the town of Uppsala, the Commission concluded that the granted aid is compatible with the internal market in accordance with article 107(3)(c) TFEU[4] and is therefore authorized. Nonetheless, four cases, which will be analyzed in future blog posts, are still pending a final decision by the Commission. For now, it is fair to say that the Commission has shifted towards an active enforcement of EU State aid law in sports. However, whether the Commission is prepared to “show its teeth” and sanction the Member States who granted unlawful aid to sporting clubs remains unclear.

[1] See for example: E-005417/2011, E-004360/2011 and P-4699/09

[2] Case 36/74 Walrave and Koch, (1974)

[3] The qualification change allowed Real Madrid to sell its old training grounds. Though the exact price for the grounds remains unknown, Real Madrid was suddenly capable of buying players like Figo and Zidane for record fees.

[4] Article 107(3)(c) TFEU: “The following shall be compatible with the internal market: 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”.

Last week, UEFA, presented its annual Club Licensing Benchmark Report, which analyses socio-economic trends in European club football. The report is relevant in regard to the FFP rules, as it has been hailed by UEFA as a vindication of the early (positive) impact of FFP. This blog post is a report on the report. We go back in time, analysing the last 5 UEFA Benchmarking Reports, to provide a dynamic account of the reports findings. Indeed, the 2012 Benchmarking Report, can be better grasped in this context and longer-lasting trends be identified.

For the footballing season 2013/14 seven clubs from five different countries had been excluded from European competition due to FFP (including Malaga, Rayo Vallecano and CSKA Sofia). Since 2004, 42 sanctions were handed out to 40 clubs (FC Irtysh from Kazakhstan and Bulgarian club CSKA Sofia have been sanctioned twice) spread over 21 different countries. Clubs from Kazakhstan have received most sanctions: seven in total.    

Over the last five years, €10.9 billion were spent on transfers by the European clubs. €8.4 billion were spend by clubs in the English, Italian, Spanish, German and Russian leagues.

The summer of 2013 saw a record of €3 billion being spend by European clubs on the transfers of players, 12% more than the previous record which was set in the summer of 2011.

In the last five years 166 players were transferred for €15 million or more, 63 were transferred to English clubs. Number two, Italy, bought 26, less than half.

The revenue for top division clubs was €14.1 billion in 2012, which is an increase of €800 million compared to 2011.

Total revenue has gone up for all six top divisions over the last five years. England had a total revenue of €2.44 billion in 2008 and a total revenue of €2.78 billion in 2012, an increase of 12.23%.

The biggest change is witnessed in Russia where revenue increased from €350 million in 2008 to €890 million in 2012. An increase of about 150%!

Compared to 2011, the domestic broadcasting revenue increased by 8% and the commercial & sponsor revenues increased by a combined 7% and is expected to continue. Nonetheless, gate receipts fell by 2%.

Player wages amounted to €9.2 billion in in 2012, an increase of €600 million compared to 2011, and €2.1 billion compared to 2008.

The last five years have seen a significant increase of wages namely 59% over the whole of Europe. In the top divisions a wage increase of 49% can be witnessed. The wage to revenue ratio is stabilised at 65%, the same percentage as in previous years, but differs from country to country

Out of the 50 clubs with the highest wage bills 15 were English, 8 German, 8 Italian, 6 Spanish, 6 Russian and 5 French.

Interestingly, in 56% of the time, the club with the highest wage bill in that particular division won the league. (In the 20 wealthiest leagues this percentage is 60%). The main exception is AC Milan, who has the highest wage bill in Italy, but has only won the league once in the last decade (2010/11). In 21% of the time, the club with the second highest wage bill in that particular division won the league.

The total top division club losses was found to be €1.1 billion in 2012, which is equivalent to an 8% loss margin. Even though the clubs still made losses, the final number is €600 million less compared to the €1.7 billion in 2011. 57% of all clubs reported losses, however, 58% of the clubs produced better numbers (higher profits or lower losses) than in 2011.

Do note that the net profit/loss after tax is not the same as the break-even result assessed for FFP purposes. For example, youth costs may be excluded for the break-even assessment but not for the net profit/loss assessment.

Only six of the 20 highest income leagues reported profits in 2012, namely the German, Dutch, Belgian, Austrian, Norwegian and Kazakh leagues. In total 38 out of 53 European leagues reported losses.