Saturday 2nd September
Lewis Whiteoak – Student on the Mishcon De Reya Sports Law Academy
Recent developments in European sports law have demonstrated the increased importance of the case-by-case interpretation of EU competition laws surrounding State aid provisions. Cases regarding European football clubs have seen the European Commission appear to cater – to varying degrees – for sport’s specific role in society (TFEU Art. 165). Mishcon de Reya’s sport clients considering relocation or facing financial problems, such as Tottenham Hotspur and Leyton Orient, are advised to review recent cases, see the likelihood of a favourable decision, and see how to be proactive in informing authorities of any State assistance.
Background – the London Stadium
The London Olympic Stadium has been leased to West Ham United for 99 years on grounds that it needed a long-term tenant to sustain regular usage at a higher seating capacity. The stadium cost £700 million to develop, yet West Ham will pay only £2.5 million per season in rent, plus a £15 million contribution to the £272-325 million conversion into a football stadium. The remaining £257 million is being debited to a joint venture between the developers and Newham Council. This has sparked concerns of investigation by the European Commission into the existence of and lawfulness of State aid. Should it be decided that West Ham stand to gain a competitive advantage through these resources; this would be seen to distort the market and therefore violate Articles 107 and 108 of the TFEU. The case is yet to be formally brought to The Commission, but can be compared to the following recent decisions.
Spanish state aid (2016) (reference case)
An ongoing investigation assessed the lawfulness under Article. 108 of the TFEU, of State aid in the form of reduced corporate tax granted to Spanish football clubs. In 1999, Real Madrid, Barcelona, Osasuna, Atlético Bilbao were exempt from converting to sport limited companies (which are taxed at 30%), and remained non-profit organisations (taxed at a reduced rate of 25%). The clubs qualified as undertakings under EU law, meaning organisations that exert an economic effect, and were therefore ruled to benefit from a “selective advantage” through State aid in 2016. They had potential to distort competition and trade since revenues in football are linked to competitive performance for clubs, and these clubs were key international and domestic players. Therefore, the Spanish State had acted unlawfully and was ordered to end the privilege scheme to the clubs and recover the differences in taxes for the previous 16 years.
Dutch state aid (2016) (reference case)
The same day, The Commission posted a decision on a case concerning State aid received by Dutch side PSV, also questioning its potential to distort market conditions under Article 108. The aid was granted following liquidity issues for PSV, through a financial transaction whereby the municipality of Eindhoven purchased the land under PSV’s stadium and leased it back to the club over a 40-year period. The preliminary decision found this as another example of selective advantage, yet was overturned since Eindhoven acted in a way that a market investor in a comparable position would have reasonably done to make a profit, known as the market economy investor principle. Eindhoven paid €48.38 million; €7.22 million above the independent valuation of the land, which would suggest an unjustified financial aid. However, they were deemed to have purchased a long-term fully-leased asset with a steady income. This is because the club agreed to pay Eindhoven rent that accounted for future inflation, alterative use of the land (such as apartment buildings), and a risk premium of 1.5%; making this a commercially logical move for the municipality and therefore not State aid. It should be noted that four other Dutch clubs were found to have benefitted from State aid, yet it was considered a lawful part of a restructuring plan to save them from financial difficulty.
Implications for West Ham United and clients
Given the financial figures, State aid seems to give a clear and unfair advantage to West Ham over its Premier League competitors. This is particularly true when compared with news that rival London clubs such as client Tottenham Hotspur and Chelsea FC are planning £750 million stadiums in the capital, who were bidding contenders for the Olympic Stadium. However, claims brought forward by Charlton Athletic Supporter’s Trust have initially been dismissed by the European Commission who have suggest that financial assistance did not constitute uncompetitive State aid as the stadium is technically a multipurpose arena fit for athletics, rugby and concerts, despite disproportionately benefitting West Ham United.
Overall, The Commission has positively ruled 15 from 21 cases as complying with the internal market and therefore lawful, notably those involving sporting infrastructure. This seems to grant the State and football club clients room to manoeuvre, with The Commission seemingly more in favour of State aid that has a tangible benefit to the local community, since it is labelled ‘State responsibility’ to develop local infrastructure. Despite the likelihood of a positive ruling, clients are advised to notify The Commission of any proposed grants or financial aid for sporting infrastructure to avoid unwelcomed and costly investigation.
This article was written by a student of the Mishcon Sports Law Academy and as such does not necessarily represent the view of Mishcon de Reya or its partners/employees. The Mishcon Sports Law Academy is part of the firm’s graduate recruitment process. It is open to aspiring lawyers who are able to attend a series of evening seminars in London.
Please see www.mishcongraduates.com for more information or to apply.