50+1 And Socios: A Look At German & Spanish Football

The issue of illegal state aid has cause a mild ruckus with The Independent’s recent revelation that Spanish giants Real Madrid CF and FC Barcelona face having their status as fan owned clubs revoked.  The article centers around a letter sent from the European Ombudsman to the EC President regarding the EC competition office’s prolonged investigation of the Barcelona and Madrid clubs.

As a clarification the two complaints appear to be in reference to Real Madrid’s controversial land deal with city government and Spanish government comments about making debts “disappear” in coming years.  The state aid complaint for FC Barcelona is never explicitly stated and it mentions a second investigation against Madrid with the first being the land deal yet the on going state aid investigation from the EC is about the land deal, so it’s possible there’s a little confusion at The Independent.  

Confusions aside, only the Madrid case seems to have a degree of ground to stand on.  IF the Barcelona complaint is in regards to a Spanish government official discussing tax debt, then saying it will “disappear” in a few years time is hardly a clear cut confession of debt restructuring.  Madrid on the other will have to argue pretty well in their defense.  They face investigation over a land deal that saw a strip of land purchased for just over $560,000 in 1998 and when the land was taken back over by the city in 2011, it was reportedly worth almost $30 million.  In place of direct compensation, the city gave land of equal proportion to the club adjacent to the Santiago Bernabeu Stadium where plans to put in a Hotel and Shopping mall are planned.  The issue is found in the valuation of the land traded, though equal in size, they’re aren’t believed to be equal in worth.

How exactly these investigations will lead to Real Madrid and Barcelona renouncing their fan-owned status is to say the least, unclear.  They are two of the four fan-owned clubs which also include Athletic Bilbao and CA Osasuna.  They retained their ownership by their “Socios” in 1992 after the Spanish government forced all clubs to become PLCs by virtue of the fact that in review of the the 5 years previous, those four clubs showed positive balance sheets.  This resulted in the four maintaining a non-profit status.  Every other club became a member of SAD (Sociedad Anonima Deportivo) and any club rising to La Liga were required to become PLCs as well if they weren’t already.

The issue of State Aid in football may appear new, but the two have been intertwined for years, and not necessarily to the detriment of the game.  According to UEFA’s 2011 licensing report, municipal, regional, and federal governments own 50% of the training facilities and 53% of the stadiums of Europe’s top 235 clubs.    Though they are possibly the most simultaneously hated and loved clubs world wide, Barcelona’s and Madrid’s socios and their structures are referred to often by people seeking their clubs to be run by the people most invested, the fans.  There are issues to this type of ownership especially with a lack of fiscal transparency due to a potential lack of shareholder scrutiny.

Fan ownership is actually a requirement in the German Bundesliga and Germany is where some of the biggest cases of state aid for the sport occurs.  For those who aren’t aware, in 2001 the Bundesliga and the second tier below, a total of 36 teams, broke away from the DFB (German Football Association) in part to better leverage commercial deals and arrangements.  At the same time they introduced the 50+1 rule which dictates that a club must maintain at least  51% controlling interest by the supporters.  This means that even though there are Presidents of clubs, they are still responsible to and can be voted out by the members of the club.  This concept exists in Spain as well with the elections for Real Madrid and Barcelona highly publicized.  The Bundesliga argues that this keeps the clubs rooted to their origins and the people who value the club the most.

Proponents of the Bundesliga continually cite the lack of debt and the fact that no club has ever become insolvent as indicators of the success of the system and also to stick it to Premier League fans whose league has become a poster child for financial irresponsibility.

Walter Samuel of the daily Mail though pokes a few holes in this argument and also illustrates how state aid can actually play quite a large factor in the sport.  If you expand the German comparison to include the further divisions below the second tier so there’s parity in the comparison (there are 92 clubs in England which are used to draw many insolvency figures) then it becomes apparent that since 2012 there were 19 clubs that became specifically insolvent in Germnay and the number rises if you choose to include the number of clubs who did not receive licensing approval.

Samuel’s article goes on to cite examples of fairly substantial state-aid like Hansa Rostock and Alemmania Aachen who between them had close to $87 million in debt.  Arguably, Aachen held most of it due to the financing on their stadium but both club’s received loans from their city government’s. Hertha Berlin, 1FC Koln, and Eintracht Frankfurt  all paid nothing for their stadium renovations as they were subsidized by their respective city governments while a subsidiary managed by the city council owns Stuttgart’s stadium.

In addition to to debt and stadium related points, apparently Munich clubs receive around $260 million to upgrade infrastructure around the Allianz Arena where Bayern calls home which includes a railway station and a widened road, no to mention that game tickets also double as train passes as well.

This focus is not meant to bring down member-run clubs like Madrid, Barcelona or any of the Bundesliga clubs nor is it a blanket statement of support for all state related funding for soccer.  The fact is that many times singular examples of shady business dealings (lets be honest the land grab in Madrid cannot be the shadiest, simply the worst hidden) tend to create a singular point of view and bring out the-sky-is-falling criers who want it all to go back to cotton uniforms and black leather boots.

This will never happen, and more than likely, both Madrid and Barcelona will retain their statuses. The Madrid case though, and the many examples re-iterated here should provide evidence of how interwoven and nuanced finance, government, society and the beautiful game can be at times and how solutions to issues related to debt, management and morality are never as straight forward or direct as people wish them to be no matter who’s in charge.

Reporting on the business side of the world's game.