Exclusive: Real Madrid and Barcelona face removal of privileges

European Commission is examining special status currently enjoyed by Spanish giants

Sam Wallace@SamWallaceIndy
Wednesday 07 August 2013 18:50
Real Madrid's Cristiano Ronaldo and Barcelona's Gerard Pique during a Copa del Rey tie earlier this year
Real Madrid's Cristiano Ronaldo and Barcelona's Gerard Pique during a Copa del Rey tie earlier this year

Real Madrid and Barcelona could soon be forced by the European Commission to relinquish their privileged status as member-owned clubs and are likely to become plcs, losing one of the key advantages behind their dominance of Spanish football and success in European competition.

In a development that could affect the landscape of European football, The Independent can reveal that the European Commission competition office's four-year investigation into allegations of illegal state aid against both Madrid and Barcelona, linked to their status as membership clubs, is at tipping point.

It is the second EC investigation into Madrid, who are also under scrutiny for a land deal with Madrid city council dating back to 1996 which critics believe constitutes illegal state aid. Both investigations are coming to a head against the backdrop of a summer in which Madrid prepare to break the transfer world record again, with an £80m-plus bid for Gareth Bale.

While Madrid and Barcelona occupy the first two places respectively of the most recent "football money league" of European clubs, published by Deloitte in January, they have been operating under rules which give them significant tax advantages – and are denied to all but two of their rivals.

The membership culture of Spanish football's two biggest clubs is projected as an attractive feature of their constitutions and is often cited by disillusioned fans of Premier League clubs which are in the control of absentee owners. But the ownership structure of Madrid and Barcelona – who have more than 250,000 members between them – masks a gross inequality in the way Spanish football is run.

In 1990, the Spanish Government ruled that all clubs apart from Madrid, Barcelona, Athletic Bilbao and Osasuna were obliged to become limited companies, "Sociedades Anonimas Deportivas" [SAD], and could not be member-owned. The exemption gave the four clubs in question significant advantages in terms of corporation and property tax. It also granted the four a not-for-profit status under Spanish law.

Real Madrid could be about to sign Tottenham ace Gareth Bale for a dela worth in excess of £85m

This latest case comes with the first monitoring period for Uefa's financial fair play [FFP] rules completed at the end of last season with potential sanctions for non-compliance to be announced in April.

On Sunday, the Arsenal manager, Arsène Wenger, described Madrid's bid for Bale, which could exceed the record fee paid for Cristiano Ronaldo four years ago, as making a "joke" of FFP. As Madrid prepare to sign the Tottenham Hotspur player, the Spanish club's finances are under scrutiny by European authorities like never before.

The issue of Madrid and Barcelona's privileged status has proved a major problem for the EC competition office, which has a number of Spanish nationals in prominent positions. Having received the initial complaint in November 2009, it has delayed reaching a decision on the issue despite a regulation one-year deadline.

Now the European Ombudsman has intervened in the matter. The Ombudsman, based in Strasbourg, is an independent adjudicator with power over decisions taken by European institutions. In a letter sent by the Ombudsman's office to the EC president, Jose Manuel Barroso, on 30 May, the former urged that a decision should be made on the case but the commission failed to respond.

In the letter the competition office is criticised for having "failed to comply" with its own deadlines over the Madrid and Barcelona complaint. The Ombudsman says it "is not convinced by any of the commission's explanations for justifying its delay in reaching a decision".

Under its own code of best practice, the EC competition office should reach a decision on "priority cases" – as this Spanish football case was classed – within a year. The EC, when contacted by The Independent, said "the duration of an investigation depends on the complexity of the case and the cooperation with the national authorities in question".

The Ombudsman, in the letter sent to Barroso, also raised concerns by the complainant about EC competition officials with loyalties to Spanish football clubs giving the impression of a potential conflict of interest.

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The Ombudsman wrote that the commission "does not provide any explanation capable of dispelling any suspicion of a conflict of interest on behalf of DG COMP [the competition office]". While the Ombudsman did not find evidence that any individual had been caught in a conflict of interest it "strongly emphasises" the need for the office to be seen to be above suspicion.

The head of the EC competition office, Joaquin Almunia, has made no secret of the fact that he is a fan of Bilbao, one of the four exempted clubs. When the competition office was contacted about his allegiance it said that Almunia was committed to fighting illegal state aid and cited a joint statement with Uefa president Michel Platini last year claiming their aims were the same on the issue.

A record 80,000 Real Madrid fans turned out for the unveiling of £80m signing Cristiano Ronaldo

A spokeswoman for the EC competition office also said that it was "in contact with the Ombudsman" over the issue of Madrid and Barcelona's member-owned status and expected "to take a position as regards state aid to professional sport in the near future". She added "the commission is looking at the situation of this [sic] clubs at a preliminary stage", although under EC rules this has apparently passed any preliminary status.

The enforced conversion to plcs of any club that is promoted into the Spanish second-tier Segunda Division continues to wreak havoc on the fortunes of small clubs in Spain. Guadalajara, a club from the Castile-La Mancha region, have been relegated back to the third tier, Segunda B, as a sanction for irregularities linked to their plc conversion, which requires €2m (£1.7m) of capital .

The Madrid club Alcorcon also face problems over their plc/SAD conversion and will learn this week whether they are to be relegated to the third tier despite finishing fifth in the Segunda Division last season.

Mirandes, another Segunda Division team, went through the same process. Their supporters wrote to Uefa to protest about the "insecurity, doubt and social distrust" caused by losing control of their club.

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