State Aid for City?

Etihad

An interesting conversation on Twitter this afternoon with Andrew Ward (@ARWardMadrid) prompted me to think about whether Manchester City FC might be considered to have received State Aid.

Our conversation was prompted by media reports that a number of European football clubs are being investigated by the EU Commission under the State Aid rules. Andrew’s interest was no doubt spurred by the inclusion of Real Madrid among those being investigated in relation to a parcel of land sold to them by local government.  Could City’s relationship with Manchester City Council also lead to similar concerns?

The particular deal which raises questions is one in which MCFC paid Manchester City Council £2m for the naming rights to Eastlands Stadium. MCFC then used that facility to secure a controversial  deal with their primary sponsors worth an estimated £35m a year for 10 years. Not all of that money is associated with the naming rights, but it must be a significant component. Is the £2m recompense to the Council sufficient reward, or are the Council ‘giving away’ an asset and in effect offering financial support to the club?

The relevant test under EU State Aid rules is whether the Council acted as a ‘Market Investor’ in relation to the deal. The Market Investor Principle does not mean that then council has to secure the maximum return possible, but they must take a position which will bring them a decent return in the medium term. Of course I don’t know any of the detail of the deal but it does seem questionable that the Council only secured a one-off payment of £2m where MCFC were in a position to negotiate so much more. I agree with Andrew that this situation looks as questionable as that involving Real Madrid.

The naming rights of the stadium are only valuable because Manchester City play there, but the Council must have been aware of that value by the time they signed off on the deal to relinquish the rights to MCFC.

I haven’t had enough time to fully digest the issues in these cases, but it again illustrates the important relationship between competition law and the business side of professional sport.

Update (17 June 2013)

If you are interested in this topic there is an excellent blog post ‘Public Funding of Stadiums and Arenas‘ with loads of technical detail, by Phedon Nicolaides, over on the Lexxion State Aid Blog.

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8 responses to “State Aid for City?”

  1. Anon Poster says :

    I am a lawyer who advises upon EC state aid law.

    In terms of Manchester City, I think they are safe because they have complied with state aid law by paying market rate. Indeed they increased their rent last year to take account of changes.

    However I believe at least one Premiership club has breached this area of competition law and is under formal investigation (see below).

    It is my opinion that state aid law will be one of the major news stories in the UK football press during Summer 2013.

    There are 3 reasons for this:

    a) this morning I have been made aware of some information that strongly suggests that Swansea City AFC is being investigated by the European Commission for receiving illegal state aid from Swansea Council. The information I find is convincing is the inclusion in a request for information from Swansea Council of a specific EC investigation code (in this case “SA.36570″). I have worked on investigations and this is consistent with the codes that the Commission use.

    The second is that the Commission has relaxed the rules on how to complain about breaches of state aid law. In the past only complaints from businesses rivals (interested parties) were processed. In the five Dutch cases (http://europa.eu/rapid/press-release_IP-13-192_en.htm?locale=en) the Commission has explained that the complainants are fans. This is a relaxation of the process, which makes it more likely cases will be brought.

    Finally, there is the wider context. In light of FIFA’s commitment to the financial fair play rules, I cannot see any other conclusion than a points deduction for teams found to have obtained illegal state aid.

    This would be in addition to the financial penalty (which is repayment with interest backdated to the date of the award). For a Premier League club having free use of a stadium for ten years, this could easily amount to £30m.

    Professional football is exceptionally competitive, I believe that clubs will be exploring ways to ensure they are best placed in the league. That is why I think we will see lots of investigations into football state aid. It’s impact on next season’s games are the reason why we can expect the football press to start taking a keen interest in this area of competition law.

    • gary platt says :

      what are your thoughts on celtic buying land at massively reduced rates from the council then remortgaging the land with the co-op bank on the same day for far more than they bought it for would this be considered as state aid ? See fottballtaxhavens website for more detailed information

      • Angus MacCulloch says :

        That sounds like exactly the sort of thing that would be of interest to the authorities!

        I can see a lot more those coming out into the open once the first investigations get more publicity.

  2. Jens says :

    A football team that fields an unregistered player in a match gets thrown out of a cup competition or a 3 point penalty if it is a league.

    A football team that goes insolvent and wipes off its debts gets a 10 point penalty.

    A football team that has unlawfully obtained large sums of funding to buy lots of players it could not afford, for many seasons gets…. what penalty?

    • Wing says :

      Rangers owed £134m when they were wound up in 2012.

      In cases of state aid the EC is compelled to:

      A. Investigate and reach conclusions quickly (Ryanair Case);

      B. Act as a private investor in recovering sums; and

      C. Apply interest at the reference rate from the date the aid was provided.

      It is important that the EC applies the law equally to businesses as well as football clubs. In 2011 Cuidad de Luz Studio had to repay €265m in aid. Why should a club like Real Madrid be treated differently.

      In terms of FFP, when Rangers owed £134m to private investors, they were relegated to the third tier. Their championships for that time were taken away.

      A ban from Europe is insincere. Some clubs only get to Europe once in a 100 years. It should be a domestic points deduction for each year of aid. It should apply retrospectively and prospectively. If a club is relegated by a retrospective points deduction, so be it… they had an unlawful advantage and wouldn’t have stayed in the league without it. This will be a shake up, but football needs to address financial doping.

  3. Parnasos says :

    Interesting comment at the end of the Lexxion blog on stadiums; a list of the reference numbers for the Real Madrid investigations.

    I assume that now means these are formal investigations by the EC. This is a game changer in terms of top flight football in Europe.

  4. Anon Poster says :

    I am the EC lawyer, who posted above.

    There’s a really interesting detail in the Lexxion blog on stadiums; a comment at the end lists the reference numbers for the Real Madrid investigations.

    When this story broke in April, there were no reference numbers revealed. Therefore I assume this detail means these are formal investigations by the EC. We can expect the EC to announce something soon.

  5. Anon Poster says :

    What a strange situation.

    I posted the first message but not the one above. Why would… it’s a strange world…

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