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Old 21st March 2013, 21:33   #1
Paul Brooks

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Thumbs up EU prepares to blow final whistle on Spain's debt-ridden football clubs

EU prepares to blow final whistle on Spain's debt-ridden football clubs

Deportivo among teams facing extinction if competition authorities force Spanish officials to collect taxes

Giles Tremlett in Madrid, Thursday 21 March 2013 18.17 GMT

It is the powerhouse of global football, home to its greatest players and a World Cup-winning national team, but Spain's soccer bubble looks set to explode as European authorities prepare to halt public funding of debt-ridden clubs.

In a move that threatens to provoke the partial collapse of a football system built on unsustainable piles of debt, competition authorities in Brussels want Spain's government to explain why it has allowed clubs to build up vast, unpaid tax and social security debts.

With many clubs in the top two divisions already having trouble paying bank debts totalling some €3.5bn (£3bn), the move would likely force some clubs into liquidation. Historic names such as Deportivo de La Coruña or Racing Santander could simply disappear. Other top clubs, such as Valencia, will have to sell players and face years of decline.

Indignant MEPs are already demanding to know why Spain is happy to request €40bn in aid from eurozone taxpayers for its banks while allowing the clubs to build up a tax debt of €692m.

"This is unfair since all other Spanish taxpayers, as well as the other European football clubs, must, of course, be up to date with their tax payments," said Willy Meyer, a Spanish MEP for the United Left coalition, in a recent question to the competition commissioner, Joaquín Almunia. Meyer pointed out that while clubs pay multimillion-euro salaries to star players, the cash-strapped government of Mariano Rajoy has imposed cuts on public services.

"It is incomprehensible that while taxes such as VAT are being increased and hospitals and public companies are being privatised as a means of generating short-term resources, these private, recreational bodies are receiving preferential tax treatment," he said.

Other European soccer clubs are also crying foul. "This beggars belief. We pay hundreds of millions of euros to keep Spain out of the **** and then they let the clubs off their debts," Uli Hoeness, the president of the German side Bayern Munich, complained when debt figures were made public last year.

A spokesman for Almunia said a formal investigation – similar to one looking at public subsidies to Dutch soccer clubs – must wait until the Spanish government has replied to its inquiries.

Analysts warn that action from Almunia to force Spain's tax authorities to recover debts will expose the chronic financing problem in Spanish soccer.

Professor José María Gay de Liébana, of the University of Barcelona, said reckless lending – especially by former savings banks controlled by local politicians – had created a bubble that must eventually burst.

"When people ask me what clubs could be in danger, I reply with the list of the only clubs that are not in any kind of danger. They are Barcelona, Real Madrid and Athletic Bilbao," said Gay de Liébana. "Hoeness is, basically, right. If I don't pay my taxes, then the authorities come after me. But that doesn't happen to the clubs, which are not treated like other companies."

Twenty-two first- and second-division clubs are in insolvency proceedings or have been in recent years. Several are thought to be struggling to survive strict debt-repayment plans imposed by creditors. They include former league title-winners such as Deportivo de la Coruña and a long list of historic clubs such as Zaragoza, Racing Santander, Mallorca, Albacete and Betis.

Deportivo – semi-finalists in he Champions League in 2004 – had been allowed to build up a tax debt of €96m, a report to an insolvency court this week revealed. "The real cause of the insolvency is a complete lack of realism in management, taking on spending and investment that is absolutely beyond the club's economic possibilities," the club's administrators wrote.

Indirect funding of clubs via publicly owned TV stations and loan guarantees from regional governments are expected to come under scrutiny in Brussels.

Valencia, one of Spain's top clubs, passed temporarily into public hands this year after it failed to pay back a loan guaranteed by the regional government. It is now in the hands of the Bankia bank, but this was nationalised after it ran up €19bn in losses last year, meaning the club – which has had to stop work on a vast, half-built stadium in the city – is now in effect owned by Spanish taxpayers.

Two other clubs, Elche and Hercules, are also part-owned by Valencia's regional government, which guaranteed loans that they failed to pay back.

"Is it the European commission's intention, in rescuing Spanish banks, to allow the practice of granting bank loans at subsidised rates to clubs in the Spanish professional football league – which is a form of favouritism – to continue?" the Italian MEP Mario Borghezio asked in a parliamentary question.

Almunia's commission confirmed that it had asked Spain to provide it with figures on clubs' public debts.

"The commission agrees that, under the state aid rules, tax and social security debts of professional football clubs must not be treated differently from similar debts of other economic actors," Almunia said. Rajoy has ordered tax authorities to tighten control of clubs and the sports minister, José Ignacio Wert, says debt has begun to fall.

Several clubs, including Deportivo de La Coruña, have seen television or football pools income embargoed. The debt has been reduced since early last year, but progress is slow.

"This cannot be sorted out overnight," said one source close to the Spanish tax authorities.

"Soccer is a very highly charged affair. If you go after a club too much, then the supporters may rise against you," said Gay de Liébana.

He believes that is why authorities are targeting Deportivo de La Coruña rather than a highly indebted but well-supported club such as Atlético Madrid. "Deportivo fans are not going to block the streets of Madrid," he said.

As clubs tighten their belts, players will be sold and the quality of soccer in Spain will likely fall. "Talent will flee to the Premier League in Britain or elsewhere," said Gay de Liébana.

The Spanish case and the Brussels inquiry into €10m of public aid to several Dutch clubs, including PSV Eindhoven, threatens to spill over in to other countries.

"If you start asking Italian and French clubs whether they are paying market rents for municipally owned stadiums, we will get into a very big tangle," said Gay de Liébana.
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