Illegal public aid to Spanish clubs prompts Brussels to open investigation

Brussels is preparing to tear apart the links between soccer, public administrations and construction firms in Spain. Foreign Minister José Manuel García-Margallo announced on Monday that the European Commission was launching an investigation into seven Spanish soccer clubs over allegations that they received illegal public financial aid.

Real Madrid, Barcelona, Osasuna, Athletic Bilbao, Valencia, Elche and Hércules are in the eye of the storm — all for differing reasons but with the same overall effect: the suspicion that they all received favorable treatment that gave them an unfair advantage against domestic and European rivals. The Spanish government has a month to compile a rebuttal to Brussels’ accusation.

If those arguments fail to convince Joaquín Almunia, the European Commissioner for Competition, the clubs in question will be ordered to return all illegal benefits.

However, even Almunia has not escaped the inquisition: EU Ombudsman Emily O’Reilly on Tuesday essentially accused Almunia of dragging his heels over the issue and demanded that he put off the potential multi-million-euro decision no longer. Born in Bilbao, Almunia is a lifelong Athletic fan and a club member.

Margallo has already put forward his argument: that none of the clubs have committed any wrongdoing. “It is obvious that the government will wage battle until the end in defense of Spanish clubs, which also form part of the Spanish brand name,” the minister said.

Brussels’ suspicions are threefold. On the one hand, the commission believes that Real, Barça, Osasuna and Athletic have broken competition rules by not converting into public limited sports companies (SADs): a 1990 law that obliged all the other Liga clubs to do so exempted these four. By not becoming SADs, they enjoy more favorable tax conditions and the status of not-for-profit organizations

But why has the commission waited 20 years to investigate? Because until 2009 nobody had complained. Still, no answers have been forthcoming, prompting O’Reilly to send a letter to EC president José Manuel Barroso. “The commission has made an error in not providing a response to this complaint in over four years,” O’Reilly said this week. “Not only is this bad administration, but to the European public it can look like a conflict of interest given the Commissioner’s strong links to one of the football clubs in question.”

The complaint, which was lodged by investors in other European clubs, also noted that when the 1990 Sports Law was passed, Almunia was Public Administrations Minister in the government of Felipe González. Almunia responded that any insinuation of a conflict of interest was “unacceptable.”

The second line of inquiry affects the three clubs based in the Valencia region. In July 2011, former Popular Party regional premier Francisco Camps, in his last act in office before stepping down over allegations of corruption, advanced loans totaling 118 million euros to Valencia, Elche and Hércules through the publicly funded Valencia Finance Institute.

These loans were not repaid, which led to the regional government absorbing the majority of the clubs’ shares at the expense of taxpayers. Margallo argues that the loans were granted “in market conditions.”

The third probe concerns the exchange of land in the deal to build Real Madrid’s Valdebebas training complex and financial aid received by Athletic to build the new San Mamés stadium. In the case of Real, Brussels is to examine the operation by which 80 percent of the land on which the club’s former training ground stood passed into the hands of the city authorities.

In exchange, Real, whose president Florentino Pérez heads up construction giant ACS, was given permission to build the four skyscrapers that now dominate Madrid’s skyline and received the land in Valdebebas. Again, Margallo insists that “the valuation of the land on both sides was in line with the market.”

However, these are not the only fronts on which Spanish clubs are at the mercy of the European authorities: the huge debts the clubs have with the Tax Agency and the Social Security system are also being examined. “The commission is aware of the substantial amounts Spanish clubs owe the administrations,” Almunia said in response to a question in the European parliament earlier this year.

The Spanish Professional Football League released a statement Tuesday expressing its “complete and unconditional” support for the affected clubs. “This body states its absolute conviction that [the actions of the clubs] are completely in line with European and Spanish legislation.”

The investigation will be officially opened on Wednesday, Margallo said. Spokesmen for the EC declined to comment.

David Lorenzo-Spanish Lawyer UK                                       
Spanish Law| Birchall Blackburn                                                                             

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