This is the second part of a blog series on
the Real Madrid State aid case. In
the previous blog on this case, an outline of all the relevant facts was provided
and I analysed the first criterion of Article 107(1) TFEU, namely the criterion
that an advantage must be conferred upon the recipient for the measure to be
considered State aid. Having determined that Real Madrid has indeed benefited
from the land transactions, the alleged aid measure has to be scrutinized under
the other criteria of Article 107(1): the measure must be granted by a Member State
or through State resources; the aid granted must be selective; and it must
distorts or threatens to distort competition. In continuation, this blog will
also analyze whether the alleged aid measure could be justified and declared
compatible with EU law under Article 107(3) TFEU.
The aid is granted by the
State or through State resources
In its decision to launch a formal investigation, the Commission concluded that Real Madrid “enjoyed an advantage
which derives from State resources, as the State forgoes possible revenues”.[1]
Given that the Commission argued in 2002 that a
requalification of a terrain does not entail State aid because there was no
transfer of State resources and given that the facts regarding the
requalification show some striking similarities with the current case, it is
surprising that the Commission provided such a limited analysis. This might leave
open the possibility for Real Madrid or the Council to argue that they could
have legitimately expected that the land transactions concerned were free of a
transfer of State resources. Therefore, it would have been more prudent for the
Commission to further highlight the differences between the case in question
and its decision not to start an investigation in 2002.
As regards land sale transactions, the land that is sold under market
value by the public authorities is to be considered a State resource. The
agreements to (1) compensate Real Madrid for the terrain in “Las Tablas” by
providing the club other terrains and (2) to provide Real Madrid the land
between the stadium and the “Paseo de la Castellana” are both imputable to the
Council of Madrid and imply a loss of State resources. As regards the ad hoc
modification of the PGOU, even though the modification provides a selective
advantage to Real Madrid, this measure is unlikely to qualify as State aid,
because no State resource has been transferred.
The selectivity of the aid granted
With
regard to whether the agreements favoured Real Madrid over its competitors, the
Council could hold that both agreements could only be made with Real Madrid and
not with any other football club. The first agreement involved a compensation
for the impossibility to transfer a land from the Council to Real Madrid and
the second agreement concerned further land transactions between Real Madrid
and the council that, due to the location of several of the terrains in
question, could not be offered to another football club.
Nonetheless,
both measures at hand can most definitely be considered selective, thereby
favouring Real Madrid over its competitors. The
agreement of 29 July 2011 is selective because it only involves Real Madrid.
Not only does the compensation include an economic advantage for the club, Real
Madrid will also have the acquired terrains at full disposal, allowing it to
sell, rent, swap or construct in any way it pleases.
Moreover,
despite that the Council stated that
Real Madrid had to bear all the costs for the construction of the hotel, the
parking space and the shopping centre, it is also true that all the benefits of
the exploitation will go directly to the football club and not to any of its
competitors. The competitors, in this sense, should be interpreted wider than
just being other football clubs. The Council has not given any reasons why a
hotel and shopping centre in one of the main streets of Madrid has to be
exploited by the undertaking Real Madrid. The “Bernabéu-Opañel” plan is
therefore also selective in that it favours Real Madrid over competitors that
exploit hotels and shopping centres.
The aid has an effect on inter-State trade and
distorts competition
In order for the measures to fall within
the prohibition of Article 107(1), there must be an effect on competition and
inter-State trade. For this condition to be fulfilled, it is sufficient that
the Commission can establish a link between the measures in question and a potential
effect on competition and trade. The recipient, Real Madrid, is an undertaking
that operates in the European football sector. The 29 July 2011 Agreement could
have allowed Real Madrid to receive a higher compensation than what it should
have gotten, had the Council used the market values of the terrains in
question. The economic advantage obtained by Real Madrid could be used to
strengthen its position in the football sector. The same can be said for the
operation “Bernabéu-Opañel”. A possible economic advantage deriving from this
measure enables the football club to generate profits from the exploitation of
a hotel and a shopping centre. This extra income could enable them to
strengthen their team by buying new players. A strengthened Real Madrid would
distort competition since other football clubs have not enjoyed the same
support.
Secondly, the fact that the measure
facilitates Real Madrid to run and exploit a hotel in one of the most important
streets of Madrid, distorts competition in the hotel sector as well. Other
hotels might generate less money because Real Madrid is exploiting an
indirectly publicly subsidized hotel.
All the
four criteria of Article 107(1) TFEU are fulfilled. The land transactions have
created an advantage to the recipient, Real Madrid. Furthermore, the lands
provided by the Council are to be regarded as State resources and, given that
the measures were selective, competition has been distorted.
Can the aid be justified?
The
moment an aid measure fulfils all the criteria of Article 107(1), it will be
seen as constituting State aid. However, the measure could still be deemed
justified under certain conditions in accordance with EU Law. There are no EU
Regulations or Commission guidelines on the application of State aid rules to
commercial sporting activities. Therefore, the question whether the aid can be
justified needs to be based on the conditions set in Article 107(3)(c) TFEU.[2]
Article 107(3)c) provides that aid may be compatible if it facilitates 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. The Commission understands that the specific nature of
sport needs to be taken into account when dealing with State aid cases, as
sport fulfils educational, public health, social and recreational functions.
Furthermore, it is established Commission practice that a measure may be
declared compatible if it is necessary and proportionate and if the positive
effects for the common objective outweigh the negative effects on competition
and trade.[3]
In a Hungarian
State aid case dating from 2011, the Commission approved an aid measure for the
Hungarian sport sector, since the general objective of the measure (“increase
the participation of the general public in youth activities”) took into account
Hungary’s commitments that the benefits would be distributed to the widest
possible beneficiaries, and is therefore in line with the common market. [4]
Furthermore, over the last two years the
Commission has reached several final decisions involving State aid granted for
the construction of football stadiums. For example, in a decision dating
from 20 November 2013, the Commission decided not to raise objections regarding
the plan of the Flemish government to subsidize the renovation and the
construction of multifunctional football stadiums as the State aid contained
therein was deemed compatible with Article 107(3)(c) TFEU. Even though all the
criteria of Article 107 (1) were fulfilled, the Commission acknowledged that
the social, cultural and educational return of football stadiums plays a
central role in the decision whether the aid could should be declared
compatible. Since all the stadiums in question would have a clear
multifunctional character and different players could use the stadiums for
different events, the Commission found that the general public would benefit
from the aid and that the positive effects would outweigh the negative effects.[5]
When applying the balancing test to the
possible aid measures involving Real Madrid, firstly, as regards the 29 July
2011 Agreement, there does not appear to be an objective of common interest.
The agreement was made with the sole objective of compensating Real Madrid and
was not beneficial for the general public.
As regards the “Bernabéu-Opañel” on the
other hand, the Council held that the
operation would create additional “green zones” for the city and that the hotel
and shopping centre would provide work to around 600 people. The question
remains, however, whether the positive effects derived from the creation of 600
jobs outweigh the negative effects on competition and trade.
In its decision, the Commission considered
that it did not appear to pursue an objective of common interest, which could
justify an economic advantage to one of the biggest and most successful
operators in a highly competitive economic sector. [6]
Indeed, the only player in the football sector that will benefit from the
operation “Bernabéu-Opañel” is Real Madrid. The fact that Real Madrid could
generate profits from the hotel and shopping centre will not be beneficial to
other football clubs operating in the football sector, nor will it be
beneficial to the football sector in general. Therefore, it seems unlikely that
the positive effects of the operation “Bernabéu-Opañel” outweigh the negative
effects on competition and trade.
The recovery of the aid and
possible consequences of a negative decision
A measure
which constitutes State aid in the meaning of Article 107(1) TFEU and which is
declared incompatible with the internal market, is unlawful. Therefore, should
the Commission find that the agreements between the Council of Madrid and Real
Madrid constitute unlawful aid, it will order Spain to recover the aid provided
to the club.
The Recovery
of the aid
The purpose of recovery is to re-establish
the situation existing before aid was unlawfully granted.[7]
The procedural rules on the recovery of unlawful aid are laid down in in
Council Regulation 659/1999. Article 14(1) of the Regulation provides that “the
Commission shall decide that the Member State concerned shall take all
necessary measures to recover the aid from the beneficiary”. Not only is the
Commission exclusively competent to decide whether or not a measure constitutes
unlawful State aid, it is also exclusively competent to request from a Member
State to recover the unlawful State aid. Importantly, however, the recovery
itself shall be done in accordance with the procedures under the law of the
Member State concerned, provided that they allow the immediate and effective
execution of the Commission’s decision.[8]
As regards the quantification of the aid, there is no provision of Union law
that requires the Commission to quantify the exact amount of aid to be
recovered.[9]
Nonetheless, the Commission may include information in its recovery decision
enabling the addressee of the decision to work out that amount itself without
overmuch difficulty.[10]
To establish the amount of aid to be
recovered, one needs to firstly determine the total advantage obtained by Real
Madrid and the exact moment in which Real Madrid started obtaining the
advantage. At this stage in time it is difficult to determine what the
Commission could consider as possible advantage. It is neither known whether the
Commission takes all land transactions into account, nor is it clear what the
exact value of each parcel is due to the complexity of the case and the lack of
relevant information. However, once a total advantage is established, and with that
the total amount of aid to be recovered, this amount would also probably include
interest at an appropriate rate fixed by the Commission.[11] Interest would be payable from the date the
unlawful aid was put at the disposal of Real Madrid until the date of effective
recovery. The aid can be recovered by means of a cash payment. However,
alternative measures are allowed provided that the Member State ensures that
the measure chosen is transparent and eliminates the distortion of competition
caused by the unlawful aid.
The consequences of a negative decision
The direct consequence of a negative
decision for Real Madrid is that the situation existing before the aid was
unlawfully granted would have to be re-established. Whether this situation
concerns the time before the agreement of 1998, the Agreement of 29 July 2011
or before the operation “Bernabéu-Opañel” was conducted will depend on the
Commission’s decision. An analysis of other Commission decisions involving land
transactions in which the Commission ordered recovery of the aid indicates that
the Commission does not simply undo the land transaction itself. The
Commission decision that led to the Konsum
Nord case included the order directed to the Swedish authorities to recover
an amount equal to the difference between the amount offered for a land by the
supermarket “Lidl” and the amount paid by the supermarket “Konsum”.[12]
With regard to a Dutch
case on an alleged sale of land below market price, the
Commission established that the amount to be recovered consisted of the
difference of the price paid by the undertaking “SJB” and the price initially
agreed between the “SJB” and the local authorities. A third very recent example
concerned unlawful forest swap transactions in Bulgaria. The Commission ordered Bulgaria
to either recover the incompatible State aid granted or undo the swaps
concerned. In other words, undoing the land transaction is merely an option and
never an obligation.
Keeping the Commission practice in mind,
in case of a negative Commission decision, the most likely scenario is that the
Commission will oblige Spain to recover the advantage Real Madrid obtained from
the transactions, but that the transactions themselves will not be undone.
Therefore, the obvious direct consequences for the football club will
constitute in paying a lump sum to the Spanish authorities equal to the difference
between the valuation of the parcels as established by the Commission and as valued
by the Council of Madrid.
A more far-reaching consequence, such as an
unlimited suspension of the operation “Bernabéu-Opañel”, are rather unlikely. The
recovery will be done under national law[13],
thus further recovery actions mainly depend on Spanish national law. The ad hoc
modification of the Plan
General de Ordenación Urbana de Madrid de 1997 (PGOU) that opened up the
possibility of constructing on the terrain between the stadium and the “Paseo
de la Castellana” can, therefore, only be challenged under national law.
If the
consequences of a negative decision are only limited to paying a lump sum and,
given the fact that Real Madrid is possibly financially the most powerful
football club in the world, one could legitimately ask the question what the
fuss is all about. Indeed, why would Real Madrid worry about paying a lump sum
of, say, €20 million when its
turnover exceeds €600 million per year, and when
it is capable of spending more than €100 million in
summer transfer fees? In my opinion, the aspects that make the Real Madrid case
unlike any other State aid case are not to be found in the amount that
constitutes the total financial advantage for the club nor, consequentially,
the amount that would have to be recovered. What makes this case special is the
very specific role played by citizens and the position Real Madrid has in the football
sector. A negative State aid decision involving one of the richest and most
successful football clubs in the world would serve as a warning to the entire
European football sector that the Commission is serious regarding unlawful
State aid granted to football clubs.
To be
continued….
[1] SA.33754
(2013/C) (ex 2013/NN) – Spain Real Madrid CF, §36
[2] Article 107(2) and Articles
107(3)a), b) and d) are also justifications, but are not relevant to the case
at hand
[3] Community framework
for State aid for research and development and innovation, OJ C 323,
30.12.2006, p. 1, point 1.3.
[4] SA.31722 Supporting
the Hungarian sport sector via tax benefit scheme, §85-90
[5] SA.37109
(2013/N) – Belgium Football stadiums in Flanders, §28-34
[6] SA.33754
(2013/C) (ex 2013/NN) – Spain Real Madrid CF, §38-40
[7] Commission Regulation (EC) No
794/2004 implementing Council Regulation (EC) No 659/1999 laying down detailed
rules for the application of Article 93 of the EC Treaty, Recital 10
[8] Council Regulation (EC) No
659/1999 laying down detailed rules for the application of Article 93 of the EC
Treaty, Article 14(3)
[9] Case C-480/98 Spain v Commission [2000] ECR I-8717, §25
[10] Commission Decision SA.24123
Alleged sale of land below market price by the Municipality of
Leidschendam-Voorburg, §107
[11] Council Regulation (EC) No
659/1999 laying down detailed rules for the application of Article 93 of the EC
Treaty, Article 14(2)
[12] Commission Decision
No C 35/2006 – implemented by Sweden for Konsum Jämtland Ekonomisk Förening, §74-77
[13] Council Regulation (EC) No
659/1999, Article 14(3)