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Leasing out of local football stadium due for renovation can constitute state aid

Leasing out of local football stadium due for renovation can constitute state aid

In a decision dated 2 October 2013, the European Commission concluded that the proposed leasing out of the football stadium due for renovation in the German municipality of Chemnitz to the local professional football club Chemnitzer FC (CFC) constitutes state aid. According to the Commission, however, the proposed measure is compatible with the internal market and is therefore permitted.

The measure
The municipality of Chemnitz plans to renovate the local football stadium, dating from 1934, and then lease it to CFC. The renovation will cost 25 million euros. After renovation, the stadium will be leased to CFC for rent equal to 2.5% of CFC’s turnover, with a minimum of 180,000 euros per year. At the moment, CFC leases the stadium for a sum of 25,000 euros. In addition to the rent, after the renovation CFC will also be responsible for the operating and maintenance costs of the stadium. This will involve approximately 612,000 euros.

Germany had carried out a benchmark together with the German Football Association which indicated that the rent for similar stadiums to football clubs similar to CFC is between 45,000 and 450,000 euros per year. Germany says that the large differences in rents are due to the fact that maintenance and energy costs are sometimes included in the rent. Since CFC will itself have to pay the maintenance and energy costs, Germany believes that a rent of 180,000 euros is in line with the market.

Assessment by the Commission
The Commission does not agree with Germany that the rent is in line with the market and concluded that there was a situation of state aid.

The renovation of the stadium is being fully financed with state resources. After renovation, CFC will operate the stadium. This is relevant because on grounds of the Leipzig-Halle decision, for infrastructure projects the ultimate use of the project must be looked at in order to determine whether there is a case of state aid. As user of the stadium, CFC will perform economic activities, such as the sale of broadcasting rights and tickets, participation in tournaments, transfers of players, merchandising and sponsoring. If the rent that CFC will have to pay is not in line with the market, CFC could enjoy an advantage compared to competing football clubs. Based on the benchmark carried out by Germany, the Commission could not assess whether the rent is in fact in line with the market. That is why the Commission could not rule out that CFC would enjoy an advantage.

CFC does not participate in international tournaments and the spectators come mainly from the region. The sponsoring and merchandising is also a local affair. Nonetheless the Commission believed that the measure could impact trade between the member states. After all, CFC is active on the international transfer market, albeit to a very limited degree. Because of the measure, CFC could compete with foreign football clubs when attracting international players. However, even if no transfer payments take place, the measure could mean that CFC would be able to attract better players. This in turn has consequences for the competition between football clubs.

The sport and music events that will be organised in the stadium will mainly target the local population. Still the Commission cannot rule out that the trade between member states would be affected also with regard to these events. The market for commercial sport and music events is, after all, international.

Permissibility
The leasing out of the stadium can be compatible with the internal market if this action is in the public interest and the financing is necessary and proportional. The distortion of competition may also not be excessive.

The construction of sport infrastructure and the organisation of sport and music events can serve the public interest, according to the Commission, since sport has major relevance for integration among the European citizens. That is why it is so important that the stadium can also be used to a great extent by amateurs. Along with facilitating cultural events, providing sport infrastructure for recreational sports is a typical municipal task.

The financing of the renovation is necessary, according to the Commission. After all, the stadium is outdated and no longer satisfies the requirements of the German Football Association. The Commission also finds the financing to be proportional. In view of the benchmark, the rent is average. CFC will also contribute significantly to the refinancing of the stadium.

Finally, the distortion of trade and competition between the member states will not be excessive. Primarily local activities will be involved which will have hardly any international appeal.

Comments
This case shows that the renovation and leasing out of local sport infrastructure must take the state aid rules into account. What is striking is that Germany tried to use a benchmark to demonstrate that the rent was in line with the market. Unfortunately for Germany, the benchmark did not provide an unequivocal picture. In the Omniworld Almere case from 2005, a simple comparison of rents was enough to justify the conclusion that the rent was in line with the market. The bar seems to be higher now.

If a situation of state aid cannot be ruled out, the measure must be notified, according to the regulations in effect at the moment. That will change for particular state aid measures soon, however. A second block exemption regulation (GBER II) is being worked on. According to the draft GBER II, aid for sport infrastructure no longer needs to be notified if the conditions of the GBER II are satisfied.

Eric Janssen, lawyer specialising in state aid law

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