Bloomberg News

Spanish Soccer Tax Deals Probed as Madrid Teams Prosper

April 24, 2012

The European Commission is examining whether Spain’s top-division soccer clubs are improperly receiving state aid under agreements that delay tax payments.

The commission is analyzing information it requested from the Spanish government about the tax pacts, commission spokeswoman Marisa Gonzalez said in an e-mail. Atletico Madrid, which signed top scorer Radamel Falcao for a club record outlay of 40 million euros ($53 million) in August, is paying 15 million euros a year of a 115 million-euro tax debt, according to Chief Executive Officer Miguel Angel Gil.

The commission’s pressure could end up forcing Spanish teams to pay down debt faster and spend less on signing players to boost performance, according to Sandalio Gomez, a professor at IESE business school in Madrid who teaches soccer executives. Spain has five of the eight semifinalists in Europe’s premier soccer club competitions.

“The commission has to tidy up clubs’ financial accounts,” Gomez said. “It’s clear that could affect the performance of Spanish clubs.”

Clubs in Spain’s top two divisions have a total tax debt of 673 million euros, the national league said March 15. Much of the debt dates back to before the first of Spain’s most recent two recessions began in 2008 and is linked to disputes the clubs lost against tax authorities, according to Jose Maria Gay, an Barcelona University accountancy professor who writes an annual report on teams’ finances.

Confrontations

The government has avoided strong-arm tactics over repaying the tax to risk shutting down clubs and sparking a political backlash from fans, Gay said.

Miguel Cardenal, Spain’s secretary of state for sport, denied soccer clubs receive favoritism because all companies in the country can restructure tax repayments, he said.

“It’s not special treatment,” Cardenal said in an interview in Madrid. Other teams competing in Europe also have substantial debts, Cardenal added, citing English Premier League defending champion Manchester United.

Cardenal, who said he has had no direct contact with the European Commission, said he will announce a plan tomorrow for clubs to repay their tax debts by 2020.

If no action is taken, soccer team debts “could bring imbalances in competitions and affect” Spanish soccer’s reputation, Cardenal said in an April 21 speech to a group of sports executives including Atletico’s Gil.

Atletico is paying an annual interest rate of 4.5 percent on its tax debt, Gil said.

Tax Debts

“This arrangement has been going on for years,” Gil said. “Other teams have bank debt, we have tax debt.”

About 46 million euros of Atletico’s debt stems from when it was relegated to the second division in 2000 and stopped paying taxes for two years, Gil said. Another 50 million euros is due following tax reviews, he said

“It can’t be seen as an advantage to pay 5 percent interest and meet all payment deadlines,” Gil said in an e-mail response to questions. “It would only be an advantage if they gave us a discount or we didn’t pay any interest.”

Atletico paid 52.5 million euros to tax authorities last year, when it paid the first 20 million euros of Falcao’s fee to Porto, Gil said.

Atletico Madrid’s accord with the tax authority wouldn’t be permitted in other parts of Europe, IESE professor Gomez said. In Scotland, Rangers are in financial administration over a claim by U.K. tax authorities for as much as 75 million pounds ($121 million). The club owes 93 million pounds in tax, its administrators Duff & Phelps said April 5.

Rangers Woes

Rangers owner Craig Whyte was banned for life from involvement in Scottish soccer and the 54-time league champion was given a yearlong embargo on signing players, the Scottish Football Association said in a statement last night, adding they had brought the game into disrepute.

Atletico, the 2010 champion, leads Valencia 4-2 heading into the deciding game of their Europa League semifinal on April 26. In the other semifinal of the second-tier competition, Athletic Bilbao trails Sporting Lisbon 2-1.

In the elite Champions League, defending champion Barcelona trails Chelsea 1-0 ahead of the second part of their semifinal today. Ahead of tomorrow’s semifinal, Real Madrid is 2-1 down to Bayern.

European soccer’s ruling body UEFA, whose president is Michel Platini, is introducing so-called financial fair play rules that don’t allow clubs a deficit of more than 45 million euros over three seasons. The regulations don’t directly address the issue of deferring tax.

Real Madrid had deferred tax payments of 20 million euros in June 2011, while Barcelona and Valencia both owed 1 million euros, according to Gay’s research. Real Madrid said in a March 14 statement it has zero tax debt.

“We have a top-notch credit rating,” Real Madrid said.

To contact the reporters on this story: Alex Duff in Madrid at aduff4@bloomberg.net.

To contact the editor responsible for this story: Christopher Elser at at celser@bloomberg.net


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