West Ham’s State Aid own goal?
Concerns raised after critics complain (yet again) that West Ham’s stadium move to the 2012 Olympic stadium breaches European Union state aid rules.
After five years of tender bids, complaints, reviews, inquiries and legal challenges, West Ham have finally concluded a deal which will see them move into the 2012 Olympic Stadium from August 2016. However, as details of the deal emerge, critics claim that the move may potentially contravene European Union State Aid rules. Both London Mayor Boris Johnson and the London Legacy Development Corporation (LLDC), the organisation responsible for the deal, have come under heavy criticism for not notifying the European Commission of the deal, as is required under EU law. In response, both assert that the Commission initiated proceedings in 2011 but decided not to pursue the matter further.
It should be emphasised, however, that this second deal is entirely separate to that which was given the green light by the Commission back in 2011, and followed a public inquiry into the deal. Perhaps more of a worry for the premier league club is that since 2011 the Commission has embarked on a crusade against football clubs’ financial dealings, initiating a plethora of investigations into agreements between football clubs and public authorities in Spain, the Netherlands and France. In particular, property and stadium dealings concerning Real Madrid and Atletico Bilbao are liable to have conferred significant financial advantages upon these respective clubs, and the Commission’s findings are expected to be released before the end of 2015.
Article 107 (1) TFEU prohibits any measure taken by the State which can affect the market and restrict competition by unduly granting an advantage to a particular company in relation to its competitors. This prohibition was created to ensure a level playing field. In turn, for the state to show that an advantage has not been granted, it must demonstrate that its actions would have been taken by a private operator, and that the market price has been paid.
Whilst the details of the deal between LLDC and West Ham are sketchy, from those that have been released it would seem difficult to argue that West Ham is not gaining a significant financial advantage from the deal. In the first case, West Ham will pay just £15 million of the staggering £270 million it will cost to convert the Olympic Stadium into a football stadium. Of even more concern are the incredibly low rental costs, with the BBC reporting that West Ham will pay an annual fee of just £2,5 million, but additional costs related to utilities, security, and maintenance will be covered by the LLDC. It would be very difficult for the London club to argue that these are in line with market rates, given that premier league rival club Manchester City pays over £4 million a year in rental for its stadium (which incidentally was also converted from an athletics stadium after the 2002 Commonwealth Games) and over £2 million more on top of that for associated match-day costs. To put this in context, Steve Lawrence, the 2012 Olympics architect that lodged the initial complaint to the European Commission in 2011, cites Dutch club Ajax which pays around €9 million a year in stadium rental, plus associated match day costs.
Whilst the above should be of serious concern to West Ham FC, they may find solace in the 2014 State Aid General Block Exemption Regulation, which takes into account the delicate issue of sports infrastructure. Under the Regulation, national authorities can finance sport infrastructure projects up to 2 million euros per year (or 15 million euros in total) without risking an investigation by the Commission.
However, if as would seem likely the deal is found to amount to state aid falling outside the scope of the GEBR, the UK government may be required to recover millions from the club in order to ensure that the market price for the stadium has been paid and that competition is restored. Moreover, any legitimate expectation defence invoked by West Ham relying on the Commission’s actions in 2011 is very much likely to fail, given that the Court of Justice applies a restrictive ‘diligent businessman’ test, and assumes that the company in question should have known whether the State Aid notification requirements have been followed. In particular, ‘stand-still obligation’ requires all new State aid measures to be approved by the Commission before their implementation, and if this is found to have been breached, there will be no way back for the London football club! As it stands, the Commission has up to 10 years to initiate proceedings against the club, leaving West Ham stuck in a waiting game to see if their new stadium will become a theatre of ‘dreams’, or ‘nightmares’.
Image: West Ham United/Press Association