The application of the State aid rules in the context of sport has involved a number of high-profile cases and measures including the recent Fútbol Club Barcelona (FCB) and Athletic Club (Bilbao) cases decided by the General Court in February.

The application of the State aid rules has had a particularly important effect in Ireland e.g. the recapitalisation of Irish banks following the global financial crash and a number of important recent tax State aid cases (including one appealed to the General Court and one currently before the Irish High Court).

What is State aid?

Under Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), State aid is an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities in any Member State. Subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute State aid (e.g. general taxation measures or employment legislation).

To be State aid, a measure needs to have the following features:

  • an intervention by the State (or through State resources) which can take a variety of forms (e.g. grants, interest and tax reliefs, guarantees etc.);
  • the intervention gives the recipient a selective advantage (e.g. to specific companies or to companies located in specific regions);
  • competition has been or may be distorted; and
  • the intervention is likely to affect trade between Member States.

In some circumstances, government intervention is necessary. Therefore, the TFEU leaves room for certain policy objectives for which State aid can be considered compatible with the internal market. The European Commission (Commission) decides whether a State aid is compatible with the State aid rules under the TFEU (e.g. when a support measure benefits the general interest). The Commission's methodology to determine the compatibility of such a measure includes a balancing test based on analysing negative effects of the measure and weighing them against its positive effects.

State aid, sport and the General Block Exemption Regulation

In 2014, the Commission’s General Block Exemption Regulation clarified what sports infrastructure investments can be regarded as exempt from the prohibition of State aid. The Commission has not yet articulated sector-specific rules regarding support measures granted to individual professional sports clubs. However, prompted by complaints, the case law on the Commission’s discretion in handling complaints, and the impact of the European Ombudsman’s recommendations, the Commission has increased the number of investigations into various public support measures favouring certain professional football clubs in the last few years.

State aid and football clubs - the recent FCB and Bilbao decisions of the General Court

All Spanish professional football clubs were required to convert to sports public limited companies (SPLCs) by a 1990 law to encourage more responsible management of their activities. An exception was made: professional sports clubs which had achieved a positive result for the tax years preceding the adoption of the law were permitted to continue to operate as sports clubs. Four Spanish professional football clubs (i.e FCB, Bilbao, the Club Atlético Osasuna (Pamplona) and the Real Madrid Club de Fútbol (Madrid)) — chose that option. As non-profit organisations (and in contrast to SPLCs), their income was taxed at a specific rate that was, until 2016, lower than the rate applicable to SPLCs. A Commission decision in 2016 found that Spain had unlawfully implemented State aid in the form of a corporation tax privilege in favour of the four professional football clubs. According to the Commission, that regime was incompatible with the internal market. It ordered Spain to discontinue the scheme and to recover the aid granted from the recipients. FCB and Bilbao appealed the Commission’s decision to the General Court. The Commission had to demonstrate that the tax regime of non-profit organisations, taken as a whole, was such as to put its recipients in a more advantageous position than if they had been required to operate as an SPLC.

On 26 February 2019, the General Court upheld the FCB appeal but rejected the Bilbao appeal.

In the FCB case, the General Court found that the Commission had not proven, to the requisite standard, that the Spanish legislation conferred an advantage on selective beneficiaries. This was because the Commission had evidence before it that showed that the non-profit status was not financially advantageous (for at least one of the football clubs). In addition, the General Court found that the Commission erred in its assessment of the facts by reference to a study which it relied on as part of its case. The Commission asserted on the basis of the study that, for most of the tax years, the effective taxation of professional football clubs as non-profit organisations was lower than that of comparable entities under the general Spanish tax regime. However, the figures in the study related to only four tax years, whereas the period concerned by the regime at issue ran from 1990 to 2015.

The Court also found that certain data provided by Spain that the Commission relied on to show an advantage (i.e. one of the State aid criteria) should have been examined in the light of the other factual evidence submitted to the Commission (e.g. statements submitted by Madrid concerning tax deductions for professional football clubs and player transfers). The Commission was, when it adopted its decision, in possession of evidence which should have led to it having doubts about its findings as to the taxation of these non-profit entities and those in the general Spanish tax system. As a result, the Commission had not shown to the requisite legal standard that the measure at issue conferred an advantage on its beneficiaries.

However, the General Court dismissed Athletic Club's appeal. In that case, the Commission had set out to the requisite legal standard its reasons relating to the need to assess the benefits as a whole deriving from the aid scheme and made no error in concluding that the aid scheme was liable to affect trade between Member States as well as distorting competition.

Concluding comments

The FCB and Bilbao decisions show at least two things. First, the Commission's on-going assessment of the compatibility of tax measures with State aid will continue to be a highly complex issue irrespective of the sector invovled. Secondly, sport continues to present a number of challenges in the context of State aid. The General Court's push-back on the Commission's approach in FCB does not remove the necessity for any subsidies or other advantages (including tax measures) to sporting organisations to be carefully assessed to determine their compatibility under the State aid rules.

Judgments in Cases T-865/16 Fútbol Club Barcelona v Commission and T-679/16 Athletic Club v Commission