Spain's EU state aid case explained as La Liga clubs face sanctions

The European Commission ruled on Monday that seven La Liga clubs have received illegal state aid in recent years -- and that the money must now be repaid to the government coffers. We take a look at what the ruling actually means and how things might play out.

Q: What happened on Monday?

A: The European Commission ruled that various parts of the Spanish government had broken EU state-aid rules by providing illegal assistance to seven different La Liga clubs.

The headline finding was that Real Madrid had benefitted from an illegal state subsidy in the form of land right by its Santiago Bernabeu stadium, which was received from the council in a complicated deal done in 2011.

Real Madrid were ordered to pay €18.4 million, as the EC found that the La Liga club in effect received a subsidy from Spanish taxpayers equal to that amount.

Q: Why was the European Commission getting involved in football?

A: The EC views football as a business -- and believes that governments giving state aid to one company [or club], and not to others in the same market [or league], counts as unfair competition.

"Using taxpayers' money to finance professional football clubs can create unfair competition," commissioner Margrethe Vestager explained in the judgement. "Professional football is a commercial activity with significant money involved and public money must comply with fair competition rules. The subsidies we investigated in these cases did not."

Vestager has become well known in business and politics circles for taking big cases against other huge multinational companies, including Fiat, Starbucks, Gazprom, Apple and Google.

Q: What is the land deal in question?

Back in 1998, at the start of the complicated negotiations which led to Madrid selling their old training ground to the city council and clearing the club of around £300m at the time, they were promised a 70,000 metre squared parcel of land in the suburban district of Las Tablas, which was valued at the time at €595,000.

Madrid never took control of the site at Las Tablas, but retained a nominal right of ownership. In 2011, president Florentino Perez asked the town hall for a patch of land beside its Santiago Bernabeu as space was needed for an extension to include a new hotel and retail complex.

A complex land deal was done so that Madrid could have the extra space they needed by the Bernabeu, if they relinquished the claim on the site at Las Tablas.

Q: How could a suburban site meant for sporting use be worth the same as a prime piece of development-ready real estate in an ideal city-centre location?

A: Madrid mayor at the time Alberto Ruiz Gallardon pushed the deal through the city council, but local reporters immediately raised doubts about the 4551 percent increase in the value of the Las Tablas site. The European Commission began an investigation in 2013, when it also started looking at various types of state aid to clubs in other European countries.

The Commission investigation has found that Real Madrid was entitled to compensation of only €4.3m for the Las Tablas site, and the club must now repay the difference (€22.7m - €4.3m = €18.4 million.)

Q: How have Madrid reacted to the EC ruling?

A: Madrid's reaction has been pretty similar to other legal rulings which have gone against the club -- for example the FIFA transfer ban for breaking rules on signing young international players. They have issued a strongly worded legal statement denying they did anything wrong and rejecting absolutely the reasoning behind the EC judgement.

Madrid say the only way to value either of the pieces of land involved is by taking their catastral value -- a public survey record used to determine ownership of land and property tax owed.

Los Blancos claimed that their own valuation had showed that it was the city council who had got the better of the complicated land deal and the club "had even been under-compensated by more than €7.5m."

Finally Madrid's statement claimed the club were surprised that the EC had used a Barcelona-based architect firm with "little experience" to make their valuation -- opening up the idea of some sort of Catalan-inspired conspiracy involved in the case. That idea has unsurprisingly been taken and run with by media outlets in both Madrid and Barcelona.

Q: What happens next?

A: Madrid's relationship with city hall has been affected by the election in June 2015 of left-leaning Manuel Carmena as mayor. The new regime is much less friendly to big businessmen [such as construction magnate Perez] than the previous conservative administration.

The current city council are keen to get the €18.4m into its coffers -- with a spokesperson telling AS last weekend that "we want to get the money back as soon as possible for all Madrilenos (citizens of the city - not just supporters of Real.)

However the central government could help Madrid [and the other La Liga clubs] fight their case -- with Partido Popular MEP Santiago Fisas immediately criticising how news of the sanctions leaked out.

Q: Will this affect the plans to renovate the Bernabeu?

A: The land involved in the 2011 "swap" with the Madrid city council includes a strip by the current Bernabeu which is required to expand the stadium towards the leafy La Castellana avenue. This €400m rebuild project was first announced by Perez in October 2012, with a futuristic new design chosen in January 2014, and an announcement in October 2014 that IPIC (International Petroleum Investment Company), were to help pay the costs of the rebuild.

The new look stadium was initially due to be completed in 2017, however no work has yet started due to various issues -- including but not limited to this European Commission investigation. Monday's ruling has no direct impact on the project, but it means Madrid will have less money around in general.

Q: What about the other clubs affected by the EC judgement?

A: La Liga's four "member owned" clubs -- Madrid, Barcelona, Athletic Bilbao and Osasuna -- have been categorised as "non-profit organisations" and charged a tax rate of 25 percent since 1990, while their peers which are run as private businesses must pay 30 percent.

The EC says that gives them an unfair competitive advantage, and each of the clubs has been ordered to pay a sum of around €5m extra to make up for the difference.

Barca board spokesperson Josep Vives says his club are studying the judgement while La Liga president Javier Tebas has called it "nonsense" as any advantage gained from paying less tax was balanced out by members-owned clubs having extra obligations which hold them back in different areas.

A third part of the EC ruling found that loan guarantees given to Valencia-based clubs by publicly owned banks between 2009 and 2013 -- €81m to Valencia, €18m to Hercules and €14m to Elche -- also counted as unfair state support. Valencia said in a statement on Monday they had not received any notice of the judgement, and reserved the right to appeal to the European Court of Justice.

It remains to be seen whether Valencia's current owner Peter Lim included any guarantees of his own regarding this issue when he bought the then-bankrupt club from publicly-bailed out Bankia after nine months of negotiations in 2014.