There has been a lot of Commission interest in potential state aid to professional football clubs in various Member States.  The huge sums of money involved are arguably an important factor in this interest and conversely, is perhaps the reason why state aid in rugby union is not such a concern. But whilst the sums of money may pale into comparison to those of professional football, the implications for the sport are potentially no less serious.

At the end of the 2012/2013 season, Biarritz Olympique (Biarritz) were relegated from the elite of French Rugby Union, the Top 14 to the Pro D2.  By the skin of their teeth, and as a result of an injection of cash from the local council (which amounted to 400,000€), they were spared administrative relegation to the amateur league below, the Fédérale 1, which would have occurred as a result of the financial state of the club. Article 8 of the Statuts et Règlements Générqaux (the rules that govern professional rugby) states that if it is determined by the DNACG (Direction Nationale d’Aide et de Contrôl de Gestion; the organisation charged with overseeing the administrative, financial and legal aspects of rugby in France) that a professional team is unable to satisfy its projected financial commitments, it will be relegated to the amateur leagues. Biarritz have been one of the great Top 14 clubs, having won the league in 2005 and 2006, having reached the Heineken Cup final in 2010 and won the smaller of the European competitions, the Challenge Cup in 2012 and they look set to make their return to the Top 14 next year, something that would not have been possible had the local council not intervened, an intervention that was permitted by the DNACG.

Article 107 TFEU provides for a very inclusive definition of state aid, declaring as incompatible with the internal market any aid whatsoever, granted by the State or funded with state resources, which distorts or threatens to distort competition by favouring certain undertakings in so far as it affects trade between Member States. There is a four part test for determining whether or not state aid has been granted; (i) did the money come from state resources; (ii) was it given to an undertaking; (iii) did that money confer selective advantage; and (iv)did it have the potential to distort competition. 

The definition of state resources in this context is fairly wide, and covers money provided by local government and so is easily satisfied in this case. The European jurisprudence is clear that a sporting club or association can be considered to be an undertaking within the meaning of the Treaty provisions in so far as its economic activity is concerned; again, this is easily satisfied in this instance. Given the lack of information available as to the nature of Biarritz’s financial concerns or the terms of the grant, it is difficult to determine whether selective advantage has been conferred by the grant. Selective advantage, of this particular type, is conferred when the undertaking could not have obtained that economic advantage under normal market conditions (market economy operator principle), so had Biarritz been unable to obtain a grant on similar terms to that which was provided by the Council, selective advantage will have been obtained. Finally, the aid has to have the potential to distort competition, and idea that is explored below alongside its affect upon trade between Member States.  

The Pro D2 is an entirely domestic league, it has no international fixtures whatsoever, so potentially is a purely domestic matter. In Stevenage Borough Football Club v The Football League (1996) Times Law Review, 6 July, it was deemed too remote that Stevenage would be able to compete for a place in European competitions and so there was no effect on trade between Member States in that case. However, the Commission have been clear that trade between Member States may be affected by aid given to an undertaking that is not itself, trading across borders (Case C-102/87 France v Commission [1988] ECR 4067, para.19) and indeed, have recently opened an investigation into a second division football team in the Netherlands. The Stevenage case can be contrasted with Biarritz where, despite a rocky start to the season, they have now climbed the table and sit second place. They have a serious chance of being promoted back into the Top 14, or at the very least, occupying one of the coveted promotion playoffs spots, thereby altering who could potentially win promotion (in France two teams go up and two teams come down).  Every team in the Top 14 competes in one of two European competitions: the European Championship Cup or the European Challenge Cup.  The potential effect on trade between Member States starts therefore, to become more evident. The concept of ‘trade between Member States’ has traditionally been given a wide interpretation and can be said to include situations which affect the competitive structure of the market, within its scope. The Top 14 has fixtures with other European countries, including England, Ireland and Italy.  Who enters (and who leaves) therefore will affect the competitive structure of those international fixtures. Article 107 however, states that aid is only prohibited ‘in so far as it’ has an effect on trade between Member States, rather than in Article 101 or 102 which rely on ‘may’ as a limiting concept. The jurisprudence is clear that it is the effect of the aid, rather than the intent or form of the aid which is determinative.  A full market analysis of the effect on trade, as occurs under Article 101 and 12, is not required under Article 107, although justification for the finding of a distortion of competition, or threatened distortion, would be necessary (Case 730/79 Philip Morris Holland BV v Commission, [1980] ECR 2671). In the case of Biarritz, the provision of the 400,000€ saved the team from relegation to the Fédéral 1 and therefore put them in a position in which they could immediately fight for promotion back into the Top 14 (which they look likely to achieve). It does not appear therefore, that an investigation would stumble at this stage of its inquiry.   

Due to the inclusive nature of the Article 107 prohibition, many investigations turn on whether they satisfy the exemption criteria of 107(3). The one most typically utilised in the case of investigations of professional football clubs in 107(3)(c) which states that aid used to facilitate the development of certain economic areas or activities may not be incompatible with the internal market, or the ‘failing firm’  defence. The local mayor hinted at the economic implications for the town itself of the teams fall from professionalism, as the primary motive for providing the aid. There is however, no (public) suggestion that the club would have folded without the injection of cash, merely that it would have had to compete in the amateur Fédérale 1. The definition of a failing firm is necessarily flexible. Nevertheless, it is a requirement when considering rescue aid (as opposed to restructuring aid as appears to be the case here) that the difficulties faced by the firm be short/medium term difficulties that are dependent upon short term government help for their resolution. As Biarritz have performed so well this season, it seems that there is an argument to be made that their difficulties were indeed short-term in nature, and have been resolved by the injection of cash provided by the local council. The aid itself would also have to be a ‘one time, last time’ injection of financial help, something that is not entirely clear from the local media reports. Further, the question of whether demotion to an amateur league is comparable to the outright failure of a firm would have to be addressed. Fellow former Top 14 great and rival, Union Sportive Montalbanaise (Montauban) faced administrative relegation in 2010. The local council there did not provide the club with the money required to prevent their fall. The club filed for bankruptcy after being unable to prove to the DNACG that they would be able to address the rumoured 1.7 million Euro shortfall in their budget for that season. After 4 years in the amateur league they succeeded in winning promotion back into the Pro D 2 for the 2014/2015 season, where they currently sit mid-table. Using this as an example, and provided that the criteria laid out in 3.1.1. of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty are satisfied, it seems there is at least a basis for defending the council loan. 

However, as there is very little by the way of detailed information available as to the nature of the financial difficulties of the club or the terms of the financial assistance provided by the Council, it is impossible to be determinative as to its standing under Article 107. On the face of it though, the case of Biarritz looks at least worthy of some Commission interest and could well be an example of unlawful state aid, aid that looks likely to have enabled Biarritz re-admittance to the Top 14, the ‘richest league in the world’. 400,000€ may seem like peanuts when compared with the figures the Commission is looking at in respect of professional football, but in this case it seems, paying peanuts gets you a lot more than monkeys.