Spanish giants Barcelona and Real Madrid face state aid charge

The Spanish giants' advantages amount to several billion euros, according to the European ombudsman

Real Madrid and Barcelona are among the seven Spanish clubs the European Commission will charge with alleged state aid today, after a damning indictment of the EC's handling of the case by its independent regulator.

The EC's decision finally to push ahead with the investigation, first revealed in April by The Independent, came less than a day after the European ombudsman, an independent adjudicator with some power over European institutions, gave notice that it would go public on its frustration at the snail's-pace inquiry.

The ombudsman day made the announcement nonetheless, attacking the EC for having "failed to act" for more than four years of "bad administration" over the complaint of alleged illegal state aid to Spanish clubs. The Independent revealed in April that Real Madrid was under investigation for alleged state aid over a land deal with Madrid city council.

In August, this newspaper also revealed that the EC was looking at the tax status of Real Madrid, Barcelona, Athletic Bilbao and Osasuna, who were exempted in 1990 from Spanish government legislation that required not-for-profit sports clubs to become public limited companies.

Emily O'Reilly, the ombudsman, launched a veiled attack on the European competitions commissioner, Joaquin Almunia, an avowed Bilbao fan. In a statement, the office of the ombudsman, based in Strasbourg, said that "to the European public it can look like a conflict of interest given the commissioner's strong links to one of the football clubs in question".

She added: "According to the complainant, these advantages [gained through illegal state aid] amount to several billion euros. He also noted that Spain is granting these tax advantages even as it requests hundreds of billions of euros from Eurozone taxpayers."

Almunia is expected to outline today the three cases against the seven clubs, who also include Valencia and Elche, in Spain's top division, and Hercules, in the second division, at a press conference in Brussels. There is also an investigation into the financing of Bilbao's San Mames Barria Stadium. The clubs will have three months to respond before the EC will be expected to uphold a decision.

The prospect of being found guilty would have far-reaching implications. Under the terms of the land deal with Madrid city council, Real Madrid could well be forced to pay back money on a land deal related to their efforts to redevelop the area around the Bernabeu Stadium into a shopping mall and hotel complex.

Should the four clubs favoured with not-for-profit, non-plc status be found to have contravened state aid rules, they, including Real Madrid and Barcelona, will be forced to give up their status as member-owned clubs. While that is celebrated around Europe as a utopian model, the fact it is conferred on just four clubs in Spain is a gross inequality.

During the three-month response period, the EC will accept observations on the issue from other interested parties, including English and German football clubs who have often found their best players poached by the two biggest clubs in Spain.

It did not go unnoticed by key figures around the issue that the day the EC was finally pricked into action to investigate alleged advantages conferred on Real Madrid and Barcelona by the national and regional government in Spain coincided with Tottenham's sacking of Andre Villas-Boas. The former manager lost his best player, Gareth Bale, to Madrid for a world-record fee of £85m this summer.

From the Spanish government there was no prospect of backing down in the dispute. The foreign minister, Jose Manuel Garcia-Margallo, said his government was "going to battle until the end to defend Spanish clubs". It has been noted that the EC competitions' office is heavily populated by Spanish nationals, including Almunia.

The commissioner's term in charge runs out at the end of October next year and it is unlikely he will be returned again. It is expected that the case will go all the way to the European Court of Justice. A spokesman for Barcelona said that the club had "never received any type of public aid".

In the dock: Alleged state aid cases

Real Madrid land deal

Dates back to a 1996 land transfer with Madrid city council in which the council overestimated its debt to the club in order that it could give them, in compensation, prime land near the Bernabeu. Real plan to develop the area into a lucrative shopping mall and hotel complex.

Privileged tax status

Real Madrid, Barcelona, Athletic Bilbao and Osasuna were granted exemption from 1990 legislation that all Spanish football clubs must become public limited companies. This granted them advantages under corporation and property tax as well as preserving their not-for-profit status. EC intervention could mean Real and Barça lose their famous membership-owned status.

Regional government aid

Valencia are effectively owned by the Spanish bank Bankia, which owns the debt of the Valencia foundation which nominally controls the troubled club. But that debt is guaranteed by the regional government. Hercules and Elche both took out sizeable bank loans guaranteed by regional government. As a consequence, regional government now effectively has shareholdings in both clubs.

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