“Brand Spain” under threat?

BY STEVEN BELL

The recent news from Spain regarding the European Commission’s (EC) investigation of a select few Spanish football clubs is something not to be taken lightly. What could this ultimately mean for both the clubs involved and the overall glittering image of the game in Spain?

First of all; the allegations. Barcelona, Real Madrid, Athletic Bilbao and Osasuna will all be investigated to determine if they have received a 5% corporate tax advantage.

A commission statement read: “The commission will firstly investigate possible tax privileges for Real Madrid, Barcelona, Athletic Bilbao, and Osasuna”.

“These four clubs are exempted from the general obligation for professional football clubs to convert into sport limited companies. The effect of this exemption is that these clubs enjoy a preferential corporate tax rate of 25% instead of 30% applicable to sport limited companies.”

At this stage it is important to remember that football clubs are businesses; a detail which is easily overlooked these days. Also, bear in mind the condition of Spain’s economy now and over the past few years. Entering recession in 2009 after company collapses, rising unemployment, GDP decline and the property market collapse, Spain continues to cause concern in Europe. These economic factors are worth noting when evaluating the football probe currently hanging over the game. Allowing tax breaks could seem decadent to the extreme considering the country required a €100billion rescue package from international lenders to aid its declining banking sector.

A tax advantage of this level gives the receiving company a distinct advantage in any marketplace. When the receiving companies include two of the richest clubs in the world by revenue, then the advantage over a number of years only increases. If investigators find evidence of this illegal benefit, then these clubs will be forced to pay it back to the Spanish government. Perhaps not ideal for Barcelona and Madrid, but could prove more problematic for Osasuna and Bilbao.

The probe does not end there for Real however. It will delve deeper into their dealings concerning the sale of training ground land for €22.7million.

“In another inquiry it will assess whether a widely reported land transfer between the City of Madrid and the club Real Madrid involved any state aid in favour of the club,” the statement continued.

“Real Madrid appears to have benefited from a very advantageous real property swap with the City of Madrid. This swap was based on a re-evaluation of a plot of land at a value of 22.7million euros, instead of its earlier supposed value in 1998 of 595,000 euros.”

UEFA regulations state that football clubs must comply with their financial fair play rules going forward; a rule which intends to create a more even playing field for clubs, This ruling works near enough hand in hand with EU policy on state aid, hence the reason Real Madrid, and others, will be required to pay the Spanish government back any money not in line with these policies.

The other clubs involved are Valencia based sides Hercules, Elche, and Valencia.

The statement continued: “Finally, it will examine the compliance with EU state aid rules of guarantees given by the state-owned Valencia Institute of Finance for loans that were used to finance the three Valencia clubs – Valencia, Hercules and Elche – while those clubs were seemingly undergoing financial difficulties.”

These allegations direct attention to the loans given to all three clubs- €14m to Elche, €18m to Hercules and €75m to Valencia. In these cases, the state guarantees have been vital to the clubs’ survival as, like many Spanish businesses, they all have struggled to operate successfully.

One thing which stands out in this whole economic matter is the “fair play” aspect. What about the sides not receiving reassuring government aid? What of the teams paying the full 30% tax rate? How about the “regular” Spanish businesses struggling through a choppy economic climate?

Spain is a country in the doldrums, still, and since the mid-2000s, the football produced has been a particular highlight for Spaniards. World Cup and European Championship successes have elevated the national side to new heights, and La Liga continues to be one of, if not the best, European league around. Spanish sides continue to attract the finest players from around the globe and the style of football is widely-admired. The EC’s investigation is not likely to change very much in terms of this, but a lengthy case against the accused clubs could be a disastrous PR episode for both the country and La Liga.

The Spanish government, however, have denied skewing the equality in the league. “The government will fight to defend the Spanish clubs because they are also part of “Brand Spain,” said Jose Manuel Garcia Margello, the foreign minister. “Brand Spain” may be solid at the moment, but its durability will be tested over the coming months as the investigation continues.

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