By Tony Attwood
I do love it when Untold manages to latch onto a story while most (not all but most) of our national media are ignoring it.
So it has been with my piece on councils and local authorities illegally supporting football clubs around Europe. That story ran on Untold on 27 March.
Now the pace hots up because episode two is circulating with the news that Real Madrid are also under investigation by the European Commission for illegal state aid. At the same time new tax regulations are confirmed as being applicable to football clubs in France.
I’ll deal with the issues in turn.
Joaquin Almunia at the EC competition office has been reviewing a deal involving land owned by Real Madrid. This story goes back to 1996 but what is so important here is that Real Madrid have factored the success of the project into their future earnings, against which they have been borrowing money from a state run bank.
The situation is in essence simple: a piece of land bought by the club from the council, and valued by the council at €421,000 has now been sold back to the council for €22.7m. In a further twist Real didn’t get the money, but in fact sold the land back to the council for the self-same €22.7m and instead received another plot of land – this time around their stadium with permission to build a hotel and shopping complex.
As a result Real Mad have got themselves land by their stadium which is phenomenally valuable to them – and it is on this land that mortgages are being arranged to help their eternal spending spree.
The EC case alleges that Madrid Council deliberately overestimated the value of the land when buying it back and then under-estimated the value of the land near the Real Mad stadium and “sold” to Real Mad at a price equating to the newly inflated value of the land Real Mad passed back to the council.
All that looks very dodgy. But, and this is the extra twist, if Real Madrid can’t go ahead and develop the new land, then the mortgages raised on the land become toxic because the value of the land suddenly collapses and will be less than the money raised against the subsequent development.
All in all this is just the sort of confusion that people who like to pull the wool tend to engage in. But here’s a key fact. The valuations were given by the Madrid City Council on the land Real Madrid sold and bought back at such a profit suggests that the deal has not been done at arms’ length – which is what EU law requires. In effect the council has been caught giving aid to the club.
As I mentioned before, this is not the first state-aid case in Spain. Valencia has already been found to have received state aid, and five clubs in the Netherlands are also being investigated.
The same law has raised its head in the UK, as the reason that the original arrangement for West Ham Utd to get the Olympic Stadium in Stratford was cancelled was for exactly the same issues – the London Borough of Newham was seen to be giving money to West Ham, and that money was therefore the illegal “state aid”.
Meanwhile, the European Ombudsman is also investigating a Spanish law from 1992 which stated that all football clubs must become plcs. All clubs that is, except Real Madrid, Barcelona, Osasuna and Athletic Bilbao.
This exclusion of four clubs given the four great tax benefits, and protection in the courts if they get into financial difficulty is clearly anti-competitive and so an obvious one for the EU to look at.
Interesting times.
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Indeed very interesting times and a very interesting article.
The Real Madrid case is good example on how our economy has been ran lately. On thin air. The collapse of that system has brought many countries in to troubles. Now the football clubs?
Madrid have been financed by the government for the last 50 years they have built a world wide brand on it
Great article, thanks. Most of all for the “big words” form of writing, i.e. not intended for Sun readers !!
Being even more cynical, I don`t think we should hold our breath though in the expectation that UEFA or FIFA will join in, too many clubs are in dire straits financially
The European Union do have the “balls” though to carry things through and enforce the law. Here`s hoping they do !
We could see Arsenal and Bayern Munich playing each other every week, as very few other clubs are financially sound.
At least we would always be in the top two !!
Now there`s a thought
“The Commission is indeed examining the situation of Real Madrid …… Investigations are at a preliminary stage and have been ongoing since December 2011.”
So after 15 months the investigation is still at a preliminary stage! Governmental collusion/obfuscation anyone?
ClockEndRider,
in my country this is almost light speed for an investigation. 😉 If they catch you with the smoking gun in your hands and the victim speaking his last words it can take you some 3-4 years before you come in front of the judge.
Yes interesting times. Times when Champions League qualification is a necessity for any team wanting to buy the best players, more than ever. Terry don’t get too carried away. Man U benefit most from FFFP with the highest revenue of any sports team in the world and Arsenal are in big trouble if they miss out on 30m in CL revenue every year. Those who think that FFFP will start a golden era for Arsenal are kidding themselves, it may but it probably won’t.
Nothing will be done about this though. Madrid will be investigated and then their legal team will find a loophole or “buy” someone from the team that is investigating them to get them off any charges raised.
@Charlie –
Very true!
Please pardon my ignorance but could someone kindly explain to me the difference in the present WestHam/Olympic stadium arrangement and the other that was ruled unlawful. Thank you.
Nothing significant will happen, EU is here for the big companies. PSV and Eindhoven council are appealing the verdict
They might get a fine, setting examples people will say, but
clubs like madrid psg chelsea or likewise will never be convicted.
And for that matter why is ok to squander tax money on moving
the parliament from brussels to strasbourg but not on football
clubs?
well, if govt pays to keep Real afloat, then technically people should be given free entrance to watch them play.
The Germans must be happy, helping bail out a country with that sort of thing going on, Think Uli Hoeness hada few words to say on that very matter
The biggest (your super league) clubs are supported by any means necessary because they are in fact deemed (because of interlocking political and financial interests) too big to fail. World football is the proverbial Golden Dalf, so that it must (try to) persist by any means necessary (whoever’s hand gets caught in the cookie jar!). There may be a sacrificial lamb here and there as a nod toward legality, but the show will go on until it can’t (because of a larger systemic problem that slows ye old turnstiles, yes even at the Ems, to a slow crawl). Barfa and Madrid, state support notwithstanding, are too big to fail. And players, at some stage, will be glad to play for lunch, rather than go hungry. And ticket prices will be commensurately slashed, placing many a club in the most dire of straits.
p.s. Golden Calf. And the any means necessary is the Golden Fleece. (Too sleepy still to do it right, sorry)
It seems unlikely that the authorities would take serious action against clubs like Madrid. But it’s also risky to assume that nothing will change. Ultimately, if the economic situation worsens, people loyalties to football clubs will be put into opposition with their own benefit.
But even if nothing as drastic happens, there wll be some change. Madrid will continue to play, and be one of the rich boys. But in the future, their business model might not be able to get such external help. It makes a difference. Every little bit.
Gee..What do you know.. Some time away has made me more optimistic (or naive) again. 🙂
Madrid will be fine, I would put money on that!
They are all corrupt and it is also bout out doing each other (Madrid n Barca) by any means neccasiary, unfortunatly…
I think the key phrase is anti-competitive or unfair to the competition. What I would like to see is clubs are rewarded for good management and good play. But the way things are now, clubs like Everton are punished. As are some of the middle table clubs in spain. The football system with help from the government or sugar daddies puts these clubs in situations where they can be competitive and ensures that favored clubs will be in the top spots. In Spain this is R Madrid or Barc. The competition is manipulated in Portugal by the use of third party ownership. I think in the EPL there is manipulation with the officiating system to ensure the Man U is always winning or potentially winning the league. The MLS has taken competition seriously and has a salary cap to ensure that all teams in the league compete on more or less equal footing. This model can’t be used in Europe but the need for leagues to function well and ensure that clubs are able to compete is important. When there are unfair conditions in the systems then it is bad for the over all league. So when Rangers implode because of bad financial management it does not just affect them, is affects the whole Scottish league. Celtic have an easy road to the league title but they lose revenue because Rangers are not competing. The FA in Scotland should have done more to prevent the financial mis-management. the problems with Coventry and Portsmith and Leads where not big enough to affect the EPL significantly but they still had an effect. For the EPL to maintain its status as the most watched league in the world can only be maintained when there is good fair competition. In Thailand where I live there is more and more of a feeling that the EPL is manipulated and thus less interest in watching the games.
Mark: how sure are you that ppl are losing interest? I used to love watching all EPL games back in the day but now I hate it. I only watch arsenal games now as it just annoys me when you see these dodgy decisions given to the ‘flagship’ teams…
I remember that I read about these grounds back in days Florentino Perez tried to assemble Zidanes y Pavones at Real Madrid starting with Luis Figo. Real were in financial problems in the end of nineties that they apparently considered selling Raul in order to cover part of their debts.
Still, it is highly unlikely that either Barcelona or Real Madrid will be forced to make balance in their books by selling players given that Spanish government will give them protection from number of reasons.