Op-Ed: “General Court judgments in Valencia C.F. v Commission and Elche C.F. v Commission: Another yellow card to the Commission in State aid cases” by Juan Jorge Piernas López
On 12 March 2020, the General Court (Fourth Chamber) delivered two judgments concerning the appeals lodged by two Spanish football clubs of the region of Valencia, namely Valencia C.F. (T-732/16) and Elche C.F., (T-901/16) against a Commission decision ordering the recovery of State aid implemented by Spain in their favour. In its judgments yesterday, the General Court annulled the contested Commission decision in the parts affecting the abovementioned football clubs. The same Chamber of the General Court, in a previous judgment, Hércules CF, had already annulled another part of the same decision related to Hércules C.F., the third football club of the Valencia region concerned by the decision at stake.
The Commission initiated the investigation that led to the contested decision in 2013, after becoming aware of allegations that State aid in the form of loan guarantees had been implemented by the regional government of Valencia in favour of the three football clubs referred to. In this regard, while the application of EU Law to sports activities, and more particularly to football, was established by the Court of Justice of the European Union in the 70s (see for example, Gaetano Donà) and subsequently confirmed several times (see Bosman and Piau), the European Commission started to investigate State aid cases concerning football clubs only in recent years. Several factors may explain this development, including the EU’s acquisition of a specific competence in the field of sport with the Lisbon Treaty (Articles 6(e) and 165 TFEU), the 2012 joint statement of UEFA and the European Commission on financial fair play and State aid, and former Competition Commissioner Almunia’s determination to investigate State aid granted to football clubs ‘at the expense of the taxpayer’, particularly in the aftermath of a severe crisis. In this context, the Commission concluded, in the decision of 4 July 2016 referred to above, that Spain had unlawfully granted aid to Valencia C.F., a well-established professional football club that plays in the Spanish premier league (‘La Liga’), and Elche C.F., a more modest professional football club which plays in the Spanish second league (‘Segunda División’).
In particular, the Commission concluded that the regional government of Valencia (Generalitat Valenciana) had implemented State aid in the form of a State guarantee granted in 2009 by the Instituto Valenciano de Finanzas (‘IVF’), the financial institution of the Generalitat Valenciana, for the purchase of shares in Valencia C.F., and through a 2010 increase of the State guarantee granted by IVF to cover an increase of the existing loan for the purchase of shares in Valencia C.F. The Commission also found that State aid had been awarded in the form of a State guarantee granted in 2011 by IVF for the purchase of shares in Elche C.F. The Commission decision ordered the recovery of EUR 20,381 million from Valencia CF, and EUR 3,688 million from Elche C.F. Both football clubs applied for interim measures seeking, in essence, the suspension of the recovery. In the case of Valencia C.F., the interim measures were rejected by order of the President of the General Court of 22 March 2018, confirmed subsequently by order of the Court of Justice of 22 November 2018. Conversely, in the case of Elche C.F, the interim relief was granted by order of the President of the General Court of 15 May 2018.
Regarding in particular the judgment concerning Valencia C.F., the General Court addressed, first, the issue of the specificity of sport, and particularly of football, in relation to the application of the State aid rules. Rightly in my view, the General Court observed that the requirements of Article 165(1) TFEU regarding the promotion of sport, may be taken into account by the Commission in the framework of the compatibility analysis, not in relation to the definition of a measure as State aid under Article 107(1) TFEU, as this article does not establish a distinction according to the causes or objectives of State interventions, but rather defines them in relation to their effects (T-732/16, paragraphs 74-76).
Secondly, the General Court found that the Commission made a manifest error of assessment by assuming, contrary to the requirements of the Commission notice on State aid in the form of guarantees, which requires a search for an eventual market price, either with respect to the guarantee or with respect to the underlying loan, with which to compare the terms of the transaction at stake, that no financial institution would grant a guarantee to a company in difficulty, such as the football club at stake, and therefore, that there was no market price for a similar non-guaranteed loan. The General Court also underlined, with reference to the Frucona II judgment of the Court of Justice of the EU, that the Commission failed to comply with its obligation to carry out a global assessment taking into account any relevant data in the specific case that would enable it to determine whether it was apparent that Valencia C.F. would not have obtained comparable facilities from a private operator (T-732/16, paragraph 134).
Thirdly, the General Court emphasised that the burden of proof concerning the requirements for the application of the private operator criterion rests with the Commission, which is responsible for requesting all relevant information during the administrative procedure. The General Court further stated that the Commission could not justify its decision by invoking the fragmentary nature of the information received during the administrative procedure, insofar as it had not exercised all the powers available to it in order to obtain the necessary information (T-732/16, paragraph 136).
Finally, the General Court also analysed the Commission’s findings regarding the 2010 increase in the guarantee, and found, on the one hand, that some of the information on which the Commission based its analysis was partly inaccurate, and, on the other, that the Commission made a manifest error of assessment by not taking into account a number of relevant factors for the analysis, such as the club’s significant own equity.
In relation to the appeal lodged by Elche C.F., the General Court concluded that the Commission made a manifest error of assessment by not taking into account the economic and financial situation of Fundaciόn Elche Club de Fútbol (‘Fundación Elche’), the non-profit organisation linked to Elche C.F. to which the contested guarantee was actually granted, in order to assess the existence of an advantage. The General Court, citing the Frucona II judgment again, noted in this regard that the European Union courts are obliged to verify that the Commission has carried out a global assessment taking into consideration any relevant data in the specific case that would enable it to determine whether the measure at issue constituted an advantage. In its own words, the General Court must verify whether the data allegedly disregarded in the administrative procedure was relevant in the specific case and, if so, whether the Commission took it into account (T‑901/16, paragraphs 87-88).
The General Court also found that the Commission had made further manifest errors of assessment by not taking into account the effect of the club’s capital increase when determining the value of the shares at the time of granting the contested guarantee, and the existence of a mortgage on a plot of land that the Fundación Elche also gave IVF as a counter-guarantee.
Finally, the General Court noted, as in the case of the appeal lodged by Valencia C.F., that the Commission made further manifest errors of assessment by presuming that no financial institution would guarantee a company in difficulty and, therefore, that there was no corresponding reference guarantee premium in the market, and by not substantiating adequately its conclusion regarding the insufficient number of comparable operations to determine the market price of a similar non-guaranteed loan.
Yesterday’s judgments are coherent with an observable trend in the recent case law of the EU Courts towards a more demanding approach vis-à-vis the Commission’s duty to investigate State aid cases and the burden of proof that the European institution bears. Indeed, both judgments cite the Frucona II decision of the Court of Justice, where it held that ‘the information “available” to the Commission includes that which seemed relevant to the assessment to be carried out […] and which could have been obtained, upon request by the Commission, during the administrative procedure’.
Similarly, in another State aid case related to football, the FC Barcelona judgment, resolved in 26 February 2019, the General Court noted, again with reference to the Frucona II decision, that ‘The Commission, which had the burden of proving that an advantage arose from the tax regime for non-profit entities was, within the limits of its investigative obligations in the administrative procedure, entitled to request the information which seemed relevant to the assessment to be carried out’. The Commission decision in this case was annulled. A few weeks later, the General Court also annulled the Commission decision in the Hércules CFjudgment, and the Frucona II judgment was likewise cited by the General Court.
Finally, and even more recently, the General Court underlined in the Starbucks judgment, which also annulled the Commission’s decision at stake, that ‘the Commission is required to conduct a diligent and impartial examination of the measures at issue, so that it has at its disposal, when adopting a final decision establishing the existence and, as the case may be, the incompatibility or unlawfulness of the aid, the most complete and reliable information possible…’.
To conclude, the judgments under review confirm that the specificity of sport, and particularly of football, does not affect the definition of a measure as State aid but rather the assessment of its compatibility with the Internal Market. The judgments also confirm that the EU Courts have adopted a stricter approach towards State aid investigations in recent years, a line that has the potential to become a real game changer in this area of EU Law.
Juan Jorge Piernas López is Assistant Professor of International Law and International Relations at the University of Murcia (Spain) and consultant to the World Bank and other public institutions in competition and State aid law and policy. He is the author of The Concept of State Aid under EU Law: From internal market to competition and beyond, published by Oxford University Press in 2015.