Editor's Note:  Marjolaine is an attorney admitted to the Geneva bar (Switzerland) who specialises in sports and life sciences.   She currently participates as a scientific collaborator at the University of Neuchâtel on a research project to produce the first article-by-article legal commentary of the 2015 World Anti-Doping Code. Her latest book Evidence in Anti-Doping at the Intersection of Science & Law was published in 2016 in the International Sports Law Book Series of T.M.C. ASSER Press.

INTRODUCTION

On 30 September 2016, a panel of the Court of Arbitration for Sport (“CAS”) rendered its award in the matter opposing high-profile tennis player Maria Sharapova to the International Tennis Federation (“ITF”). Maria Sharapova was appealing the two-year ban imposed on her by the ITF Tribunal in June 2016 for her use of Meldonium, a substance newly added to the WADA Prohibited List 2016[1]. Since neither the ITF nor WADA had chosen to challenge the Tribunal’s decision, the stakes of the case were rather simple: would the player convince the CAS panel that she should benefit from a finding of “No Significant Fault or Negligence”[2], thereby allowing for a reduction of the sanction down to a minimum of one year, or should the decision of the Tribunal be upheld? In its award, the CAS panel decided to grant such finding and reduced the sanction to 15 months.

This blog does not purport to be a ‘comment’ on the CAS award. Rather, it seeks to place the Sharapova matter into a broader context with respect to a specific issue: the expectations on Athletes when it comes to their awareness of the prohibited character of a substance, specifically when taking a medication[3]. In July 2016, I presented at the T.M.C Asser Institute in The Hague various current challenges of anti-doping that the Meldonium cases exposed (see the video here). One of these challenges concerned the modalities for including new substances onto the Prohibited List. This blog represents a follow-up on my presentation, in the light of the findings contained in the CAS award.

More concretely, the blog takes as a starting point one finding in the award, made by the CAS panel when evaluating whether the player acted reasonably in entrusting her sport agent – who lacked any medical or other scientific qualification – with ensuring that her medication scheme stayed compliant with the World Anti-Doping Program[4]:

“checking a substance against the Prohibited List is not an action for which specific anti-doping training is required. It is expected to be made, as a rule and under Article 3.1.2 of the TADP, by the player personally, and a player does not need to have scientific or medical expertise for such purpose. No standard in the WADC or otherwise raises such a high bar”[5].

This statement may have raised some eyebrows among readers familiar with anti-doping, after years of repeated warnings that Athletes should not only consult a doctor before taking a medication, but preferably a doctor versed in sports medicine, and that they have to take responsibility for failing to do so if the medication turns out to be prohibited.

CAS JURISPRUDENCE: BETTER SEE TWO DOCTORS THAN ONE

Since many – if not most – substances on the Prohibited List are originally therapeutic products, there is a rich body of CAS case law revolving around the Athlete’s duty to seek specialized advice before taking a medication. As the panel in the Cilic v. ITF matter noted, Athletes have a reinforced duty of care, in particular: “[w]here the product is a medicine designed for a therapeutic purpose. Again, in this scenario, a particular danger arises, that calls for a higher duty of care. This is because medicines are known to have prohibited substances in them”[6].

Though the basic position taken in the Cilic v. ITF appears uncontradicted or even supported in other CAS decisions[7], CAS case law is fluctuating on the level of diligence that can be expected from Athletes when taking a medication. It seems common ground that failure to consult a health professional is a factor pleading against the Athlete when assessing his or her degree of Fault, and, conversely, that seeking professional advice tends to make the Fault lighter[8]. The exact contours of the diligence expected, and the consequences of a failure to exercise such diligence, however, are less uniformly defined. Circumstances taken into account may include: whether the Athlete acted in an emergency or had ample time to do verifications[9]; whether the Athlete did seek some professional advice (although not necessarily fully qualified one) or proactively enquired about risks related to doping[10]; whether the Athlete initially received clearing through a doctor and was simply careless in continuing use of the medication[11], or used the medication without any attempt to seek a prescription altogether[12]; and whether the Athlete subsequently obtained a Therapeutic Use Exemption (“TUE”)[13].

Nevertheless, there seems to be consensus among CAS panels on at least one point: failure to recognize the prohibited character of the active substance in a medication never justifies a finding of No Fault or Negligence, even upon (erroneous) advice from a qualified health professional[14]. This jurisprudence finds explicit support in the Comment to Article 10.4 of the WADC: “Athletes are responsible for their choice of medical personnel and for advising medical personnel that they cannot be given any Prohibited Substance”[15]. The idea behind the jurisprudence is clear: it avoids that Athletes could ‘hide’ behind the advice of a doctor, who would then simply admit to having made an egregious error[16]. The CAS panel’s statement in the Sharapova matter seems to put in question this apparently well-established point of jurisprudence: if, as the panel assumed, the WADC only expects the Athlete to personally check a substance against the Prohibited List, no Fault can be held against the Athlete if it can be shown that the prohibited character of the substance was not recognizable to the Athlete, irrespective of whether such prohibition would have been obvious to a qualified health professional.

HOW CAN AN ATHLETE VERIFY WHETHER A MEDICATION IS PROHIBITED?

Putting aside for a moment the consistency of the Sharapova award with past CAS jurisprudence and its impact on the WADC system as a whole, the finding of the CAS panel raises a more practical question: is it realistic to consider that there is no duty on the Athlete to call on scientific or medical expertise to determine whether a substance is prohibited?

In order to assess this question, let us imagine the situation of an Athlete who plans to take – or is already taking – a medication, and wants to make sure that the substance does not raise any doping issues:

1. The Athlete would need to know that the substance will (as a rule) not be listed by its brand or trade name, but by the name of the active substance. More precisely, WADA announced in 2014 that it seeks to enhance the clarity of the Prohibited List by using the nomenclature of the WHO International Non-Proprietary Name (“INN”). The rationale for always listing active substances rather than trade names is rooted in a reality of international sports that one and the same active substance may be marketed under different names in different countries. For example, ‘Meldonium’ is a WHO recommended INN, which is marketed, among others, under the name ‘Mildronate’. While the distinction should be obvious to a health professional, it is much less certain that determining the active substance will always lie within the abilities of an Athlete. In the Sharapova matter, the player did in fact argue that both her manager and she “mistakenly, but honestly, believed Mildronate to be the name of the substance and did not realize that it was a brand name”[17].
2. The Athlete would need to know that the exact chemical name and spelling of a substance may vary depending on usage, language and country[18]. Thus, an automatic search through the Prohibited List is not sufficient. The Athlete would either need to do a search for all potential spellings and/or read through a few hundred substances on the List, since it is hardly imaginable that the Athlete would be able to determine on his or her own within which class of substances the medication falls. In addition, some substances may have synonyms that do not appear on the Prohibited List, but only in accompanying documents such as a WADA Explanatory Note[19]. Searching a drug database established by the Athlete’s National Anti-Doping Organization (“NADO”) is not necessarily a fool proof method either, since NADOs typically only include in their database therapeutic products that are registered or otherwise approved for sale in the relevant country[20]. Thus, a negative search result may simply mean that the medication has not (yet) obtained approval in the country.
3. An additional factor to take into account is the ‘open’ nature of the Prohibited List. The List is non-exhaustive, in the sense that it does not list each Prohibited Substance by its name. Instead, most classes include a list of examples followed by a catch-all clause. For these non-named, ‘similar’ or ‘related’, substances, the Athlete would thus need to assess whether the medication has a chemical structure and/or effect similar to other substances named on the Prohibited List[21].
4. Finally, it would be difficult to advise the Athlete as to what entity – prior to the CAS panel in a doping dispute – would have the authority to preventively ‘clear’ a substance upon enquiry. A negative search result on the WADA Prohibited List search engine appears with the following response: “No results: If a Substance or a Method you have searched for is not found, please verify with your Anti-Doping Organization to ensure that this Substance or Method is not prohibited as a related Substance or Method that falls under an existing category”.

However, it is not clear at all under the current system that an International Federation or NADO have the authority to issue a binding clarification in this respect, and WADA does not appear prepared to take on this ‘clearing’ function. In fact, the WADA Q&A on the Prohibited List openly acknowledges that the status of some substances may not be clear-cut and that “it is in the best interest of the athlete to refrain from taking any substance or use any method if its status is unknown or unclear”[22].

Considering the elements above, one may legitimately question the idea expressed in the CAS award that checking a substance against the Prohibited List is an act that is to be performed by the Athlete personally and that there is no expectation in the WADC that the assessment should be done by a qualified professional.

AN ISSUE OF FAULT OR AN ISSUE OF PREDICTABILITY?

There is some truth to the statement in the Sharapova award in the context of the WADC, but not in the sense one would expect: when it comes to finding that a violation has been committed, the WADC does not care whether one could reasonably expect the Athlete to be aware of the prohibited character of the substance. Article 3.2.1 of the ITF Tennis Anti-Doping Programme (“TADP”) referenced in the award addresses the dynamic character of the prohibition under the WADA Prohibited List and reads, in fine[23]: “It is the responsibility of each Player and each Player Support Personnel to be familiar with the most current version of the Prohibited List”. The expression “responsibility of each Player” – which reflects the duty expressed in Article 2.1 of the WADC – has never been understood as meaning that Athletes are only expected to check the Prohibited List personally. It means that Athletes will need to carry the consequences if they are not aware of its current content.

This regulatory situation is implicit in all awards in which CAS panels are asked to deal with an argument that the Athlete was not aware of the prohibited character of the substance: as soon as a substance is determined to be prohibited and was present in the Sample, there is no question that an anti-doping rule violation was committed under Article 2.1 of the WADC[24]. Rather, the predictability is examined, if at all, under the angle of the degree of Fault, to determine the severity of the applicable sanction under Article 10[25].

By contrast, if the statement by the CAS panel in the Sharapova matter were to be taken literally, the debate would no longer be limited to the degree of Fault, but would directly affect the predictability of the prohibition for the Athlete. If the WADC truly only expected Athletes to personally check a substance against the Prohibited List, the predictability of the prohibited character would have to be defined according to an Athlete’s capabilities. There are arguments to support such a position: anti-doping rules of an International Federation – including the Prohibited List incorporated therein – are made binding on Athletes through contractual (or otherwise consensual) means. As early as 1994, the panel in Quigley v. UIT noted that: “any legal regime should seek to enable its subjects to assess the consequences of their actions”[26]. An analogy with the fiction nemo censeture ignorare legem, developed with respect to state law, is difficult to sustain. In a contractual context, the contents of the parties’ agreement needs to be interpreted based on what the other party could reasonably understand[27]. Even if elite Athletes undertake to keep themselves informed about the evolution of the rules, this implies that there may be certain limits on this undertaking.

Thus, if one were to follow the CAS panel’s findings in Sharapova that Athletes are expected to check the Prohibited List personally, one would need to deny the predictability of the prohibition in each case in which the prohibited character of the substance could not reasonably be recognized by the Athlete him- or herself, and thus find that an element of the anti-doping rule violation is missing. While a literal reading of the statement may evoke such an extreme outcome, it is unlikely that the CAS panel had in mind such implication for its statement. There is no other indication in the award that the CAS panel meant to question the ‘fiction’ of awareness of the prohibition that has been generally accepted in CAS jurisprudence, or its corollary of strict liability. In fact, the arbitrators were not asked to do so, since Maria Sharapova did not challenge the anti-doping rule violation itself.

MORE COMMUNICATION IS NOT ALWAYS BETTER COMMUNICATION

The reason why CAS panels refrain from analyzing the issue under the angle of legal predictability – apart from the fact that the parties generally do not raise this defence – is probably because, unlike the degree of Fault, predictability of the scope of the prohibition allows for no graduation: either the finding of an anti-doping rule violation can be supported, or it cannot.

Accordingly, CAS panels prefer to attenuate the harshness of the regime by evoking a framework of ‘reciprocal’ duties between Anti-Doping Organizations and Athletes. This is also perceivable in the Sharapova award, in which the CAS panel expressed its view that: “anti-doping organizations should have to take reasonable steps to provide notice to athletes of significant changes to the Prohibited List, such as the addition of a substance, including its brand names”.

The extent of the “reasonable steps” expected from the Anti-Doping Organizations, and the repercussions in case of a failure to take appropriate steps in a particular matter, however, is not clear[28]. In particular, the Sharapova award does not clarify whether the communication has to be such that the Athlete can genuinely be expected to verify the prohibited character of a substance personally, without specialized assistance. Though the sections in the Sharapova award addressing this issue could convey such an impression, it is unlikely that this was the CAS panel’s intent. Other paragraphs regarding the ‘delegation test’, on the contrary, clearly point at an inevitable need for medical support. As part of their assessment of the player’s Fault, the panel noted a default to instruct and supervise her agent, in particular: “to put him in contact with Dr Skalny [the physician who had prescribed the medication to Maria Sharapova] to understand the nature of the Skalny products”. According to the panel, if an Athlete could simply delegate their obligations to a non-trained third party without properly instructing them, “such a finding would render meaningless the obligation of an athlete to avoid doping”. Between the lines, the CAS panel thus acknowledges that it is part of an Athlete’s duty of diligence to involve a physician when circumstances so warrant.

In our view, the level of communication expected from Anti-Doping Organization must take into account the nature of the substance, as well as the channels through which an Athlete is supposed to come into contact with this substance. As far as medications are concerned, communication that makes the prohibited character of a substance easily identifiable for a health professional (e.g. a doctor or a pharmacist), would appear an adequate and sufficient level of communication. There is no doubt that the Prohibited List has evolved to a degree of complexity that imposes heightened duties on Anti-Doping Organizations to do their share to prevent inadvertent violations. However, while appropriate communication is essential, caution must be applied with respect to communication of information of a very technical nature. The information related to the Prohibited List is at the intersection of two technical domains: it is both a legal and a scientific-medical document. In this constellation, one should also factor in the risk that more communication would merely increase the potential for misunderstanding. It might be preferable for Anti-Doping Organizations to refer to one unique document with accurate and precise language that can be interpreted reliably by the relevant professional, than to draft multiple ‘information notices’, ‘warnings’ etc. attempting to adapt the information to lay-persons also, but in which each minor change of wording may create new ambiguities. Of note, this also supposes an appropriate training and awareness on part of the health professions, in particular those practitioners who know they are regularly dealing with sportspeople.

THE NEXT MISSION OF ANTI-DOPING: SAFER ELITE SPORT?

The finding in the Sharapova v. ITF award that no anti-doping training is needed to ascertain the status of a substance, and that the check is to be conducted, as a rule, by the Athlete personally, without scientific or medical qualifications being required, should not be taken in isolation from its context. It would be dangerous to assign too strong a precedential value to this element in the CAS panel’s analysis. In other sections of the award, the CAS panel acknowledged - at least between the lines - that checking a medication against the Prohibited List without appropriate specialized advice is not commendable and would hardly be sufficient to consider that the Athlete discharged his or her duties of diligence under the WADC.

More generally, CAS panels have so far refrained from assessing the predictability of the prohibited character of a medication as a requirement for establishing an anti-doping rule violation. However, they do seem to recognize that there are certain duties on Anti-Doping Organizations to assist Athletes in properly performing their own duties under the WADC. Communication deemed insufficient will not invalidate an anti-doping rule violation, but may be taken into account in reducing the Athlete’s degree of Fault. This can be viewed as an incentive towards intensified communication efforts on part of the anti-doping movement, but without jeopardizing the prohibition itself in individual cases.

Ultimately, the lesson to retain from the Sharapova award – and the Meldonium cases in general – goes beyond the duty for Athletes to be aware of the prohibited character of a substance. The underlying question that these cases raise is the health risk involved in elite sport, and the Athlete’s willingness to go to great lengths to practise at the highest level. There is widespread abuse of medications – sold over-the-counter or reused after an initial prescription – in the population in general[29]. Athletes are not an exception, but the problem seems to be exacerbated by competitive sport, where Athlete often feel they depend on a ‘quick fix’ to a health condition to meet their goals[30].

As pointed out in a previous comment to the ITF Tribunal Decision in Sharapova, it is not for adjudicatory bodies to deliver a ‘moral’ judgement on the manner in which elite sport should be practised. The CAS panel was asked to consider whether Maria Sharapova was at Fault with respect to her anti-doping duties, not whether she was conveying a ‘respectable’ or ‘responsible’ image of elite sport, or whether she was acting reasonably in terms of healthcare.

Nevertheless, given the WADC’s stated goal of protecting the Athlete’s health, the anti-doping movement cannot entirely disregard the messages that are sent out to Athletes when it comes to the use of medication. CAS awards indirectly reflect the panels’ perceptions on the subject, and the diverging attitudes that also coexist in health systems in general. In the eyes of some CAS panels, including in the matter of Maria Sharapova, taking a medication without medical supervision or outside the purposes for which the medication was prescribed does not seem to constitute Significant Fault[31]. When Athletes are at times held to extremely high standards of care for taking nutritional supplements[32], or even for being sabotaged at a social drink[33], CAS panels should be mindful not to encourage Athletes to view self-medication as part of their training routine.

[1] The decision was commented on http://wadc-commentary.com/sharapova/

[2] The capitalized words in the text are terms defined in the World Anti-Doping Code (« WADC »).

[3] Defining what is to be considered a ‘medication’ for purposes of anti-doping is a delicate topic in itself and will be the object of a separate analysis in a future blog. Within the context of the Sharapova decision, typical ‘medications’ envisaged here are those in the core domain of prescription drugs, without regard to borderline cases (health supplements, herbal remedies, functional food etc.).

[4] The CAS panel chose a tripartite test known in the liability of the employer in Swiss tort law, based on the ‘three culpa’ : culpa in eligendo (lack of diligence in choosing the person), culpa in instruendo (lack of diligence in instructing the person), or culpa in custodiendo (lack of diligence in supervising the person) (see Sharapova award, para. 85). The details of this test and its appropriateness for the context of anti-doping will be analyzed on the WADC Commentary Anti-Doping Blog http://wadc-commentary.com/antidopingblog/ .

[5] Sharapova award, para. 88 iii.

[6] CAS 2013/A/3335, Cilic v. ITF, para. 75 b.

[7] CAS 2016/A/4371, Lea v. USADA, para. 91, limiting, however, this duty of diligence to the situation « of an athlete taking prescribed medication fo the first time »; in the Sharapova award, para. 84, the panel also insisted that Athlete cannot be expected in each case to meet all factors proposed in the Cilic guidance.

[8] “Did the athlete consult appropriate experts” is a factor to assess the Athlete’s objective Fault in the guidance issued in CAS 2013/A/3335, Cilic v. ITF, para. 74; CAS 2015/A/3876, Stewart v. FIM, paras 77/78; CAS 2011/A/2645, UCI v. Kolobnev & RCF, para. 92, with further references; CAS 2006/A/1133, WADA v. Stauber, para. 39.

[9] CAS 2006/A/1133, WADA v. Stauber, para. 36.

[10] CAS 2008/A/1565, WADA v. CISM & Turrini, para. 66.

[11] CAS 2011/A/2645, UCI v. Kolobnev & RCF, paras 87 & 93.

[12] CAS 2010/A/2229, WADA v. FIVB & Berrios, para. 100 ; CAS 2011/A/2585, WADA v. Marino & UCRA, para. 112.

[13] CAS 2015/A/3876, Stewart v. FIM, paras 77 & 84.

[14] CAS 2008/A/1565, WADA v. CISM & Turrini, para. 63 ; CAS 2006/A/1133, WADA v. Stauber, para. 35 ; CAS 2005/A/828, Koubek v. ITF, para. 60; even applied to an Athlete who was administered the substance as part of an emergency treatment in hospital but failed to subsequently enquire about the substance that had been administered (CAS 2006/A/1041 Vassilev v/ FIBT & BBTF); even applied if the tournament organization delivered the wrong medication after prescription by the official tournament doctor (CAS 2005/A/951, Cañas v. ATP).

[15] See also Article 21.1.4 of the WADC, whereby Athletes are “to take responsibility to make sure that any medical treatment received does not violate anti-doping policies and rules adopted pursuant to the Code”.

[16] CAS 2006/A/1133, WADA v. Stauber, para. 35.

[17] Sharapova award, para. 43 v.

[18] See e.g. the stimulant spelt “metamfetamine” in the WADA Prohibited List, is spelt “methamphetamine” in FDA-approved drugs.

[19] CAS 2013/A/3075, WADA v. Szabolcz, para. 9.8.

[20] See e.g. the drug enquiry database of Swiss Anti-Doping: “This database contains drugs authorized in Switzerland, only.”

[21] For a critical analysis, see Viret Marjolaine (2016), Evidence in Anti-Doping at the Intersection of Science & Law, T.M.C Asser Press / Springer, The Hague, pp 465-479.

[22] For more details, see Viret Marjolaine (2016), Evidence in Anti-Doping at the Intersection of Science & Law, T.M.C Asser Press / Springer, The Hague, pp 472-477.

[23] This provision concretizes Article 4.1 of the WADC.

[24] In CAS OG 12/07, ICF & Sterba v. COC & IOC, which involved a non-listed stimulant, the CAS panel noted that the use of the substance by the Athlete “could have been avoided if indeed the substance had been expressly included on the Prohibited List or in any other data base that can be easily accessed with modern technology and the internet”, but added that “This, of course, does not change the fact that the Anti-Doping violation occurred”, but was “important and relevant in respect to assessing and examining the level of fault of the Respondent and the consequential sanction” (para. 6.6.18).

[25] See e.g. CAS 2016/A/4371, Lea v. USADA, para. 92, citing the CAS jurisprudence that “athletes should have clear notice of conduct that constitutes an anti-doping rule violation”, but only to determine the degree of fault involved in failing to anticipate the excretion time needed for a substance prohibited In-Competition only.

[26] CAS 94/129, quoted in CAS 2016/A/4371, Lea v. USADA, para. 92.

[27] This was explicitly recognized, though with respect to a violation of failure to submit to Sample collection, in CAS 2008/A/1557, FIGC, Mannini & Possanzini v. WADA, paras 6.15 et seq.

[28] For a more extensive analysis, see the upcoming contribution on the WADC Commentary Anti-Doping Blog,

[29] E.g. the WHO warnings about antibiotics resistance acquired through inadequate use of antibiotics without specialized advice (e.g. prescribed for viral infections, or patients using the rest of their tablets when they experience similar symptoms).

[30] See e.g. the current debate surrounding the use of glucocorticoids among elite Athletes, and the use of TUEs for common health conditions after the data leaks revealed by hackers.

[31] CAS 2016/A/4371, Lea v. USADA, para. 91, in which the Athlete had taken a medication prescribed for pain relief as a sleep aid, as he had witnessed his teammates do.

[32] CAS 2009/A/1870 WADA v. Hardy & USADA, para. 120.

[33] CAS 2008/A/1515, WADA v. Daubney & Swiss Olympic, para. 125.

The tax benefit scheme in the Hungarian sport sector decision of 9 November 2011 marked a turning point as regards the Commission’s decisional practice in the field of State aid and sport. Between this date and early 2014, the Commission reached a total of ten decisions on State aid to sport infrastructure and opened four formal investigations into alleged State aid to professional football clubs like Real Madrid and Valencia CF.[1] As a result of the experience gained from the decision making, it was decided to include a Section on State aid to sport infrastructure in the 2014 General Block Exemption Regulation. Moreover, many people, including myself, held that Commission scrutiny in this sector would serve to achieve better accountability and transparency in sport governance.[2]

Yet, a recent report by Transparency International (TI), published in October 2015, raises questions about the efficiency of State aid enforcement in the sport sector. The report analyzes the results and effects of the Hungarian tax benefit scheme and concludes that:

“(T)he sports financing system suffers from transparency issues and corruption risks. (…) The lack of transparency poses a serious risk of collusion between politics and business which leads to opaque lobbying. This might be a reason for the disproportionateness found in the distribution of the subsidies, which is most apparent in the case of (football) and (the football club) Felcsút.”[3]

In other words, according to TI, selective economic advantages from public resources are being granted to professional football clubs, irrespective of the tax benefit scheme greenlighted by the Commission or, in fact, because of the tax benefit scheme.

One would expect TI’s report to be a wake-up call for the Commission, triggering it, as “Guardian of the Treaties”, to re-investigate Hungary’s tax benefit scheme without delay. Further incentives to scrutinize the matter is provided by the Hungarian MEP Péter Niedermüller, who in November 2015 officially asked the Commission whether it intended to review its earlier decision to authorize the tax benefit scheme. The Commission’s answer, seen here below, indicates that immediate action is not to be expected.

Not satisfied with this answer, Niedermüller replied that even though the Commission had authorized the tax scheme in 2011, it does not absolve it “from the obligation to proceed with the appropriate care thereafter and to monitor whether the system is operating in accordance with the objectives originally set”.

The overall aim of this two-part blog is to analyze the rules and procedures surrounding the monitoring of previously authorized aid schemes in the sports sector by the Commission. It will use the tax benefit scheme in the Hungarian sport sector decision as a starting point, describing the objective and the functioning of the aid scheme, as well as the conditions and obligations for Hungary and the Commission attached to it. In continuation, basing myself on the findings and conclusions drawn in the report, I will try to determine whether the current practice in Hungary deviates from the original objectives and conditions of the aid scheme, and what the consequences of such a deviation could be. Do the State aid rules impose an obligation upon the Commission to act and, if so, in what way? Furthermore, could the Hungarian case make one reconsider the usefulness of State aid rules to achieve better accountability and transparency in sport in general? 

The tax benefit scheme in the Hungarian sport sector decision

A description of the scheme

In April 2011, the Hungarian authorities notified the Commission of their plans to introduce a tax benefit scheme with the aim of developing the country’s sport sector.[4] More specifically, via the scheme, they hoped to “increase the participation of the general public in sport activities, by inter alia, promoting mass sport events, training of the young generations as well ensuring adequate sport infrastructure and equipment for the general public”. Due to the existence of a market failure (i.e. a situation where individual market investors do not invest even though this would be efficient from a wider economic perspective), Hungary saw itself obligated to provide public money to the sport sector in order to achieve the aforementioned objectives.[5]

Under the scheme, which will run until 30 June 2017, corporations (operating in any sector that is subject to corporate tax) can choose to donate money to sport organizations, both amateur and professional. Sport organizations may use these resources to train the young generation, cover personnel expenses and to construct/renovate sport infrastructure. The donations would be deducted from the corporation’s taxable income and from their tax liability.[6] Hungary decided to focus the aid scheme on the five most popular team sports in the country, i.e. football, basketball, ice hockey, water polo and handball. The reasoning behind this choice is that the scheme would not only benefit the sport organizations themselves, but also the sportsmen and sportswomen using the facilities, as well as the general public interested in attending the sporting events.[7] Sport organizations wishing to receive donations have to elaborate a development programme (DP), in which they outline the planned use of the donations. The DPs are evaluated by the respective national sport governing bodies (SGBs), who decide whether the sport organization is eligible for the donations. Once the SGBs approve a DP, the sport organizations may approach corporations willing to donate money to them.[8]

In the specific case of donations used for the construction, renovation or maintenance of sport infrastructures, Hungary notified the Commission that it had introduced a monitoring system that serves to avoid any misuse of the donations or cross-subsidizations of other activities of sport organizations. The so-called Controlling Authority (a public entity falling directly under the Ministry of National Resources) monitors compliance of donators and beneficiaries with the central price benchmarking mechanism regarding rental and operation fees of the infrastructure, introduced to limit the distortion of competition arising from the tax benefit scheme.[9]  

The Commission’s decision

As stated above, the donations should be used to fund the development of sport infrastructure, train the youth teams and cover personnel expenses. The Commission agreed with Hungary that the training of youth teams falls outside the scope of EU State aid rules, in line with the 2001 Commission Decision Subventions publiques aux clubs sportifs professionels. Donations used to cover personnel costs could be falling under the General Block Exemption Regulation[10] or the de minimis aid Regulation.[11] Compliance with the two Regulations is a task for the Hungarian authorities.[12] Consequently, and taking into account that amateur sport clubs are generally not considered to be undertakings within the meaning of Article 107(1) TFEU, the tax benefit scheme in the Hungarian sport sector decision only covers aid for the infrastructures used by the professional sport organizations.

Although the tax benefit scheme fulfilled the criteria of Article 107(1), and thus constituted State aid, the Commission declared the scheme compatible with EU law under Article 107(3)c) TFEU. Importantly, the Commission held that the scheme was introduced in a sufficiently transparent and proportionate manner, i.e. that the measure was well-designed to fulfil the objective of developing the country’s sport sector.[13] Moreover, the Commission acknowledged the special characteristics of sport and held that the objective of the scheme is in line with the overall objectives of sport as stipulated in Article 165 TFEU, namely that the EU “shall contribute to the promotion of European sporting issues”, because the sport sector “has enormous potential for bringing the citizens of Europe together, reaching out to all, regardless of age or social origin”.[14]

It is worth mentioning that the Commission took a very similar approach in its decisions on the other State aid measures granted for sport infrastructure. It considers a sport infrastructure as embodying a typical State responsibility for which the granting of State aid is a well-defined objective of common interest.[15]

Finally, to ensure that the monitoring and transparency obligations are carried out properly, the Commission requires Hungary to submit an annual report to the Commission, containing inter alia, information on the total aid amount allocated on the basis of this scheme, the sport infrastructure projects funded, their aid intensities, their beneficiaries, the parameters applied for benchmarking prices, the rents effectively paid by the professional sport organizations, as well as a description on the benefits provided to the general public and on the multifunctional usage of the infrastructures.[16] There is no requirement to publish this annual report. Therefore, assessing whether the information provided by Hungary to the Commission is in line with the actual practice in the country is currently extremely difficult. 

Transparency International report, “Corruption Risks in Hungarian Sports Financing”

The tax benefit scheme in the Hungarian sport sector decision looked like a blue print for the way in which public authorities could grant State aid to the sport sector: It was aimed at a wide scope of recipients and the general public would benefit as well, transparency was guaranteed, monitoring and compliance mechanisms were introduced and, last but not least, it was notified in advance to the European Commission. 

Lack of transparency

However, TI’s report shows that, four years after the scheme was launched, little remains of all those good intentions. To start with, TI claims that Hungary’s objective was not to increase the participation of the general public in sport activities, but simply to make Hungarian football clubs “excel at the European and international levels”.[17] TI’s primary finding is that there is a flagrant lack of transparency on every level regarding the scheme. Most of the data collected in the report was obtained by TI through freedom of information requests.[18]

The first flaw in the scheme is that under Hungarian national laws and regulations, there is no obligation to disclose the identity of the donating corporations. Consequently, even though the SGBs keep count of which clubs are entitled to receive donations and how much they actually received, many questions remain on how the money is distributed in practice.

TI also questions the integrity of the clubs’ eligibility process. The Hungarian SGBs, who are in charge of selecting the clubs worthy of receiving donations, are to a large extent run by people with close ties to the Hungarian Government.[19] Moreover, for the selection process, the SBGs do not need to provide a reasoning behind the decision to choose or not to choose a club worthy of donations. As TI states, the tax benefit scheme poses a serious threat to transparency and accountability, and can lead to illicit lobbying and backroom deals between politicians, businessmen and clubs. 

Disproportionate distribution of beneficiaries

The advantage of using a general tax scheme as a State aid measure is that it leads to many different beneficiaries and is therefore considered as one of the least distortive type of state intervention.[20] However, the functioning of this particular tax benefit scheme creates the exact opposite result a few clubs are clearly favored. According to the report, the subsidies from the tax scheme totaled €649 million in four years. An amount of €240 million was specifically designated for football clubs, 37% of the total amount. Of all the money donated to football, 28% (or €68 million) went specifically to 13 football clubs, who, perhaps unsurprisingly, all play in Hungary’s highest football league.[21] Of these 13 football clubs, Puskás Akadémia FC received by far the highest amount, no less than €30 million. Puskás Akadémia FC plays in Hungary’s top division, but also functions as the youth team of Videoton FC, one of Hungary’s biggest and most successful clubs. Interestingly enough, Puskás Akadémia FC was founded in 2007 by the current Hungarian Prime Minister Viktor Orban. 

Unnecessary construction of new sport infrastructure?

The Hungarian authorities expressed the need in 2011 for adequate sport infrastructure facilities. Due to a market failure, it was necessary for the State to step in and provide the necessary funds, albeit by means of a tax benefit scheme. The Commission agreed with Hungary that there is a lack of investments in sport infrastructure and that using public money to do so is an objective of common interest.[22] The TI report indicates that especially the Hungarian football stadiums have undergone significant upgrades since 2011, but at the same time questions the necessity to use public funds for these upgrades. Hungarian professional football has not been attracting more people to stadiums since 2011. The country’s highest division averaged only 4,897 spectators per game for the 2014/15 season, 624 less than in the previous year.[23] An example of potential unnecessary construction of sport infrastructure is the “Nagyerdei” stadium, opened in 2014,  in the city of Debrecen. The stadium, that can hold over 20,000 spectators, cost €40 million to construct. However, with a match average of 3,400,[24] one wonders whether the construction of this stadium was an objective of common interest, or whether there was another, hidden, agenda. Referring to the well-reported, including by the European Commission, close relationships between Hungary’s businesses and its political elite, TI points to the realistic possibility that the construction and renovation of (football) stadiums through public procurement procedures, was simply a way to for contractors to “finance the economic orbit of influential politicians in return for all manners of political and financial favours”.[25]  

Interim conclusion

TI’s report clearly shows that there is a huge discrepancy between Hungary’s intention to devise a tax benefit scheme benefitting to the entire sport sector, as notified to the Commission in 2011, and the actual operation of the scheme. The necessity for new and renovated football infrastructure appears superfluous and the tax benefit scheme itself proved to be more beneficial for some clubs, particularly Puskás Akadémia FC. Furthermore, the Commission decision declaring the tax benefit scheme compatible with EU law highlighted the transparency of the scheme and acclaimed its monitoring mechanisms. More than four years on, it can be concluded that the scheme is far from transparent and questions can be raised on the independence and functioning of the monitoring mechanisms. Assuming that the Commission receives annual reports by the Hungarian authorities on the tax benefit scheme, why has it not undertaken any action? Is it simply a matter of unwillingness or could the answer be found in EU State aid law and its procedural rules itself? The next part of this blog will analyze the rules and procedures surrounding the monitoring of previously authorized aid schemes by the Commission, and determine whether Commission action can be expected.

[1] An explanation on why the public financing of sports infrastructure and professional sports clubs only started to attract State aid scrutiny in recent years can be read in: Ben Van Rompuy and Oskar van Maren, “EU Control of State Aid to Professional Sport: Why Now?” Forthcoming in: “The Legacy of Bosman. Revisiting the relationship between EU law and sport”, T.M.C. Asser Press, 2016.

[2] See for example Oskar van Maren, “EU State Aid Law and Professional Football: A threat or a Blessing?”, European State Aid Law Quarterly, Volume 15 1/2016, pages 31-46.

[3] Transparency International, “Corruption Risks in Hungarian Sports Financing”, page 41.

[4] Commission Decision of 9 November 2011, SA.31722 – Hungary - Supporting the Hungarian sport sector via tax benefit scheme, paras 2-3.

[5] Ibid., paras 88-90.

[6] Ibid., paras 15-16.

[7] Ibid., paras 28-34.

[8] Transparency International report of 22 October 2015, “Corruption Risks in Hungarian Sports Financing”, page 31.

[9] Commission Decision SA.31722, paras 37-39.

[10] The GBER applicable at the time the decision was taken was Commission Regulation No800/2008 of 6 August 2008.

[11] Commission Decision SA.31722, para 10.

[12] Ibid., para 64.

[13] Ibid., paras 95-98.

[14] Ibid., paras 86-87.

[15] See for example Commission Decision of 20 March 2013, SA.35135 Multifunktionsarena der Stadt Erfurt, para 14.

[16] Commission Decision SA.31722, para 57.

[17] Transparency International report, page 29.

[18] Ibid., page 31.

[19] Ibid., page 32. TI points out that the chairman of the Hungarian FA is CEO of the country’s biggest commercial bank and close to the Government.

[20] Commission Decision SA.31722, para 20.

[21] The TI report actually mentions the clubs as well as their youth academia. The 13 clubs are: Puskás Akadémia FC (aka Felcsút FC, the youth team of Videoton FC); Ferencváros; Újpest FC; Vasas SC; Szolnoki MÁV FC; Debreceni VSC; Diósgyőri VTK; Zalaegerszegi TE; OVI-FOCI; Illés Sport Alapítvány; Budapest Honvéd FC; Balmazújvárosi FC and; Békéscsaba 1912 Előre.

[22] Commission Decision SA.31722, paras 91-93.

[23] Transparency International report, page 38.

[24] Ibid.

[25] Ibid., page 42.