EU Work Plan for Sport

20112014

Expert Group "Sustainable Financing of Sport Report from the 2nd meeting (22 May 2012)

June 2012 Report drafted by the European Commission

XG FIN Report 2nd meeting 2 PARTICIPANTS: Experts from the following Member States: AT, BE, CY, DE, EE, ES, FI, FR, HU, IR, LU, MT, PL, PT, RO, SE, UK (chair) European Commission: DG EAC, DG COMP, DG MARKT, DG TAXUD Other participants: Council Secretariat Observers: EOC EU Office, ENGSO, CEMR 1. INTRODUCTION The chairman (UK) welcomed the members of the Expert Group "Sustainable Financing of Sport" (XG FIN) and noted that experts from several DirectoratesGeneral of the Commission would attend to report on specific topics relating to the groups work, namely EU developments in the fields of VAT, State aid and gambling/betting. The chairman (UK) recalled that there had been agreement in the XG that the final Work Schedule included only one deliverable, i.e. "Recommendations to strengthen solidarity mechanisms within sport". A draft working document including annexes (recommendations and best practice examples) had been sent out ahead of the 2nd meeting inviting Member States to submit their comments together with a short questionnaire to be filled in. The chairman thanked those Member States which had filled in the questionnaire and invited others to submit their contribution in the forthcoming weeks. The XG adopted the draft agenda without comments. 2. REVIEW OF THE CONCEPT OF THE GROUP'S DELIVERABLE The chairman introduced the working document, in particular the elements relating to the function of the group and the structure of the document. According to that document, which highlighted the autonomy of sport, the XG FIN believed that solidarity mechanisms should be encouraged and best practices replicated, while the implementation of solidarity mechanisms should be driven by the sport sector. In order for these solidarity mechanisms to be effective, it was up to European and national policy makers to ensure that legislative frameworks were in place allowing the sport movement to implement such mechanisms. Therefore financing streams into sport had been reviewed as set out in the "Study on the funding of grassroots sport in the EU" (published in 2011), examining what recommendations could be made in policy areas affecting such streams so as to ensure that the financing of grassroots sport was sustainable and recommending best practice solidarity mechanisms within these areas. According to the study there were five key streams which provided funding for grassroots sport: household expenditure and volunteering; public sector subsidies coming from the national, regional and local levels; sponsorship, patronage and donations; revenue from levies and charges on state lotteries, betting and gambling operators; and revenue from media rights to sport event organisers. These funding streams were analysed in more detail in the different sections of the document with respect to their policy drivers and associated solidarity mechanisms. The EOC EU Office noted that one point which seemed to be missing was a description of the different EU funding streams for sport, including the Structural

XG FIN Report 2nd meeting 3 Funds and EU programmes. 3. LATEST EU LEVEL DEVELOPMENTS WITH A POSSIBLE IMPACT ON THE FINANCING OF SPORT COM (DG TAXUD) presented recent developments to review the VAT system, in particular referring to the Communication on the future of VAT "Towards a simpler, more robust and efficient VAT system tailored to the single market" which had been published in December 2011. COM noted the three main preparatory steps: the Green Paper on the future of VAT, adopted in Dec. 2010, and the subsequent public consultation (1726 replies); a conference related to the Green Paper in May 2011 bringing together policy makers, experts, businesses and other stakeholders and the general public; and an external study on a retrospective evaluation, in economic terms, of the functioning of the most significant elements of the current EU VAT system, as identified in the Green Paper. The Communication had a dual purpose. First, it set out the fundamental features (i.e. destination principle, a simpler, more efficient and robust VAT system) of a future VAT system, which defined the long-term objectives guiding future work on VAT. Second, it listed priority areas for action in the coming 2-3 years with a view to moving in the direction of those objectives. COM recalled that according to Article 132 of the VAT Directive, certain activities which were in the public interest were VAT exempt, and that the Directive provided for the application of reduced rates to the supply of goods or services in its Annex III, which included among other things the use of sporting facilities and the admission to sporting events. The review of the rate structure as proposed in the Communication could be very relevant for the work in the XG FIN. The document made clear that the application of the standard rate should remain the basic principle and that the use of reduced rates was an option for the MS. There were currently 24 goods and services where reduced rates could be applied. The review should be based on a thorough impact assessment covering all aspects and on the following three guiding principles: a) proper functioning of the single market, b) coherence with other EU policies, notably regarding goods and services harmful to e.g. the environment, c) similar goods and services to be subjected to the same VAT rate here the challenge of online and offline products would be addressed. The review should then lead to a proposal by the end of 2013 following a public consultation in the second half of 2012. However, at this initial stage of the work, it would appear that the reduced rates applicable in the field of sport were in the light of the 3 criteria set out above, not likely to be affected. Besides, it was stressed that EU decision-making on VAT required unanimity in the Council of Ministers and that the review process therefore could be expected to be relatively long. Regarding follow-up action in the field of exemptions, COM noted that it was not a first priority for that Communication, but that there was the idea of a general review of all exemptions to see whether they were still relevant. COM recalled the existing VAT exemptions for non-profit sport organisations and noted that there had been a lot of reaction in the consultation process. Concerning the next steps in the review process, COM informed that no agenda had been agreed, but that exemptions would be dealt with in the medium term. In the discussion, the XG addressed different aspects relating to exemptions from a

XG FIN Report 2nd meeting 4 viewpoint of a sport federation and what a possible abolition of the exemption could mean. COM mentioned that during the consultation process there was one sport federation which pointed out that the exemption was actually not so attractive: if the exemption was abolished, sport organisations could charge VAT to their members at a reduced rate and deduct input VAT. However, COM also noted that other respondents had said the opposite. The question arose what was meant by action 10 in the Communication which stated that the COM could provide guidance if needed. COM stressed that it was the additional activities of a non-profit (sport) organisation that sometimes caused a problem, not the provisions guiding the exemptions for sport. In that respect, there was an ongoing discussion with 2-3 Member States as to how wide / narrow exemptions regarding additional activities should be applied. COM noted that already today there existed possibilities within the Directive (e.g. a scheme for SMEs and specific thresholds) and the Communication called on Member States to make use of them. The COM was prepared to help on a case-by-case basis if needed. COM (DG COMP) then recalled the basic principles regarding the application of State aid rules in the field of sport, i.e. that aid granted by a MS which distorted or threatened to distort competition by favouring certain undertakings, insofar as it affected trade between Member States, was considered State aid. Despite the general ban on State aid, there were, however, derogations, i.e. circumstances where government interventions could be necessary for a well-functioning and equitable economy. The Treaty therefore left room for a number of policy objectives for which State aid could be considered compatible (Art. 107 TFEU). State aid law was very complex, in particular when it came to taxation, where MS had a lot of discretionary power. Regarding sport, professional sport usually involved economic activity and was therefore subject to EU law and State aid rules; subsidies (e.g. clubs activities, transfers, media rights) could affect trade. Generally speaking, amateur and grassroots sport fell outside the scope of State aid rules. COM noted that there were currently only very few notifications and decisions in the field of sport (mainly linked to infrastructure or individual sport clubs). The construction of infrastructure with a view to its future commercial exploitation by the State or third party operators, to which it was intrinsically linked, would constitute an economic activity. Consequently, the public support towards sports infrastructure dedicated to or benefiting certain undertakings was likely to involve State aid. However, under certain conditions, such financing of infrastructure which was open for the general public could be found compatible with the common market under Article 107(3) TFEU as it was demonstrated in the Commission Decision of 13 October 2011 concerning the support of the sport sector in Hungary through a tax benefit scheme. The proposal by Hungary had been to grant around 60 million of yearly public financing towards the renovation and upgrading of existing sport infrastructure in Hungary. COM agreed that the funding scheme furthered a common interest while ensuring sufficient safeguards were in place to minimise potential distortions of competition between professional clubs. COM also noted that in 2001 it did not object to a public subsidy scheme for professional sports clubs, notified by France, since the subsidies did not constitute State Aid under the EC Treaty. Under the scheme, French local authorities would be able to grant professional sports clubs with state-approved youth training centres public subsidies of up to 2.3 million a year per recipient club. The sports

XG FIN Report 2nd meeting 5 concerned were football, basketball, rugby and volleyball. This type of education was intended by the French authorities to provide young people with an education allowing them reach the best sporting level and to reconcile sports training with a thorough education. COM also recalled the joint statement (Vice-President AlmuniaUEFA President Platini) issued earlier in 2012 on the interaction between the application to professional football of Financial Fair Play (FFP) rules by UEFA and the control of State aid in professional football by the COM. When the finances of football clubs were not soundly managed and, as a result, they experienced financial difficulties, there was a particular risk that public authorities may be tempted to grant state aid. The joint statement announced that COM and UEFA would cooperate and discuss issues such as the fiscal treatment of clubs and the treatment of clubs receiving rescue and restructuring aid from public authorities. COM furthermore mentioned three recent decisions, following complaints, to open formal investigations to examine whether public funding was in line with EU state aid rules, notably in DK and SE (building of multifunctional arenas) and DE (Nuerburg Ring). At that stage, COM had concerns that the public funding might procure an undue economic advantage to the new arenas which their competitors did not receive, thereby distorting competition in the internal market. COM noted that it had received several complaints concerning public support measures in the field of sport. Even though at first glace an activity might look like a local investment, there could still be the potential to affect trade (trans-border effect). Lastly, it might not always be straightforward to distinguish the amateur and professional activities this should be done on a case-by-case basis. If an amateur sport club was run by a professional club, their economic link needed to be investigated. In the discussion the question inter alia arose what the situation was when organising an international event. In that case huge budgets (including public money) were planned, e.g. renovation and building of stadiums for the purpose of the event. COM said that it had never received a notification regarding major sport events; complaints had been received if e.g. the stadiums were used afterwards by clubs. However, it was not excluded that such State aid could be found compatible. Finally COM (DG MARKT) updated the group on on-going activities and next steps in the field of gambling /betting, especially referring to the Green Paper and consultation in 2011 on on-line gambling in the Internal Market and the respective findings which were feeding into the preparation of a Communication from the COM which was scheduled for adoption in the autumn of 2012. Regarding the link with the financing of sport, COM noted the different systems of distribution of revenue generated by gambling activity and the fact that there was no single most efficient system. Concerning the funding of good causes, including sport, a distinction should be made between state lotteries, charity lotteries and commercial operators. In addition, COM mentioned a workshop on on-line gambling and systems of revenue distribution held in Brussels on 6 June 2011, which was the third expert-based workshop in connection with the Green Paper. In the discussion the French law on online betting was mentioned. According to the law, operators had to enter into agreements with competition organisers in order to offer bets on the competition. Those agreements would have to be signed by all licensed operators. The bill banned exclusive agreements between operators and organisers. A refusal by the organiser to sign an agreement would have to be justified to ARJEL. The agreements would also have to contain rules against corruption and match-fixing. The agreements could provide financial clauses. The

XG FIN Report 2nd meeting 6 fees would cover the costs incurred by the competition organisers in setting up processes to respond to the challenges of corruption and match-fixing. The system was still under review and a report on the new system had not yet been received; so far the main beneficiaries were the football and the tennis federation since the main bets were based on these sports. The dialogue between the COM and the French authorities regarding the compatibility of the law with the internal market was ongoing. COM (MARKT) noted the distinction between the funding of grassroots sport and the funding of specific integrity measures. It informed that no specific measures on sustainable financing were currently planned; the focus of action was on integrity measures and the fight against match-fixing. 4. SECTION "HOUSEHOLD EXPENDITURE AND VOLUNTEERING" The chairman explained that the biggest investment in grassroots sport was from the participants themselves who paid their membership fees and subscriptions to take part in their favourite pastimes. Furthermore, he pointed out in that section the idea of the "reverse" solidarity mechanism where the grassroots level was funding the national governing body and elite sport - an aspect that had also been mentioned in the "Study on the funding of grassroots sport in the EU". This meant that a club had to generate income in order to pay affiliation fees to its representative national governing body, membership fees being the biggest income for most grassroots clubs. In addition the importance of volunteering was underlined as the third point within this part of the document. The XG agreed on the content and the structure of that section. The chairman invited the group to provide comments to the recommendations. In the discussion, while noting the crucial importance of volunteering, it was mentioned that it was not the remit of the XG to deal with the issue in-depth. Some interesting figures and experiences could possibly be presented after the EURO 2012 in Poland/Ukraine and the Olympic Games in London. Besides, solutions should be developed (e.g. digital awareness) for the volunteers who were not taken for those events. One MS pointed out that for an international event 1000 educated volunteers were selected and they were put in a database for future events. 5. SECTION "PUBLIC SECTOR SUBSIDIES" The chairman introduced the section by noting that sport was funded across MS both centrally and through local authorities and could take different forms (e.g. direct support, tax advantages). However, the degree to which responsibility was devolved locally differed from country to country. He noted the informative presentations in the morning regarding State aid and VAT issues. In line with the working document, he referred to three types of subsidies: funding for national sport federations and governing bodies of sport; infrastructure funding; and support for individual sport clubs and their activities. The XG agreed on the content and the structure of that section. The chairman invited the group to provide comments to the recommendations. In the discussion, one MS stressed the importance of an interpretation of State aid rules that would benefit sport by mentioning the example of support to build stadiums (e.g. for major sport events) and sport infrastructure more generally. The

XG FIN Report 2nd meeting 7 discussion was followed by a short tour-de-table among the members of the XG FIN on how public money to national sport federations was distributed. This was based on the questionnaire sent out ahead of the meeting. The chairman thanked for the presentations and invited MS to send their contributions by e-mail following the meeting to put them in Annex II (Best Practice Examples). Hungary presented its new sport support scheme (corporate tax benefit). In 2011 HU had adopted a programme to increase the participation of citizens in sport activities that required the modernisation of sports infrastructure and the training of young people. The measure focused on the five most popular team sports in HU, namely football, handball, basketball, ice-hockey and water-polo, as they were expected to have the greatest impact on the local population's sports activity. Private investors were also not able to fill the funding gap necessary to modernize the infrastructures. Therefore HU had designed an aid scheme with the objective to channel additional funds to the sport sector by incentivizing commercial undertakings through tax benefits to contribute to sport development. These funds could be used for three main purposes: training of the young generation; personnel costs; and investments to create or modernize sport infrastructure. HU continued by explaining the details of the scheme consisting of two main parts: donation for certain sport objectives by corporate tax benefit; and transfer tax exemption. It also explained who where the direct beneficiaries of the measure (the sport organisations; professional sport clubs that are members of the sport associations specified in the previous point; and investors of the sport sectors if they can benefit from transfer tax exemption) and the indirect beneficiaries (e.g. sport organisations using the subsidised facilities; sportsmen, sportswomen of the professional sport clubs and the general public having access to better sport equipment and facilities; improved quality of school and student sport). He furthermore outlined the benefit for the general public (i.e. all subsidised sport sites/facilities should be open for use by the general public). Besides in case of receiving aid for sport infrastructure developments, the aid recipients had to undertake to make the sport establishment concerned available for the purposes of school and student sport, leisure sport or other community events for a period of at least 15 years after putting the establishment into operation, in at least 20% of its daily operation time plus for at least 10 entire days a year. In addition, all subsidised sport sites/facilities should be adequate to be used for other purposes besides the activities of the professional sport clubs (facilities with multifunctional character). HU concluded that it set up strong monitoring and control mechanisms to ensure the proper implementation of the scheme and would report to the Commission on an annual basis. Further information can be found here: http://ec.europa.eu/competition/state_aid/cases/240466/240466_1271180_52_3.p df http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1322&format=H TML&aged=0&language=EN&guiLanguage=en 6. SECTION "SPONSORSHIP AND DONATIONS" The chairman explained the significance of sponsorship for grassroots sport and noted that sponsorship naturally had its highest monetary value for elite sport. Furthermore, he referred to corporate social responsibility and philanthropic

XG FIN Report 2nd meeting 8 donation, which were important areas to be mentioned in that section. The XG agreed on the content and the structure of that section. The chairman invited the group to provide comments to the recommendations. In the discussion several examples were mentioned from MS, such as the proposed banning of alcohol sponsorship in Ireland to which sports and arts were objecting. The result of the proposal was that matches of the rugby cup (Heineken cup) would not be broadcast in IE (except indirectly though UK channels). Some MS underlined that it was useful to address the effect of a ban and instead of legislative rules consider guidelines; some thought it would be good to have best practice examples. Several MS underlined that the value of grassroots sport should be highlighted in that section as well. One MS added that according to a survey in 2008, grassroots sport (2.05 bn EUR) received almost twice as much financial support from companies as elite sport (1.1 bn EUR); however, in case of grassroots sport there were around 90.000 recipients (mainly clubs). 7. SECTION "LOTTERIES, BETTING AND GAMBLING" The chairman presented the part of the working document relating to lotteries and to levies on betting and gambling. He noted that according to the comments from MS and as a result of the first meeting's discussion it was clear that this was a national competence and that there were differences in national regulatory schemes across countries regarding the contribution of these services to the funding of sport. This section was split in two parts, namely one on national lotteries and another on betting. The XG agreed on the content and the structure of that section. The chairman invited the group to provide additional comments to the recommendations in writing. 8. SECTION "MEDIA RIGHTS" The chairman gave an overview on the use of media rights to directly fund grassroots sport. The section included the areas collective selling, exclusivity, territoriality and piracy, which all affected the value of media rights and sport's ability to apply solidarity mechanisms. The XG agreed on the content and the structure of that section. The chairman invited the group to provide additional comments to the recommendations in writing 9. A.O.B.

- Next steps The chairman thanked the members for their active participation and explained the next steps. He noted that Germany (sponsorship) and Hungary (State aid) kindly offered to further contribute to the paper. The revision of the document taking into account the comments from that meeting would be prepared by the lead expert (UK) and sent out to the XG members for comments. Furthermore, it was decided to produce a three-page summary, which could in the end be presented to the Council. In addition, the Best Practice Examples document should be further completed and input from MS was expected there as well.

XG FIN Report 2nd meeting 9 - Date and place of next meeting The XG FIN agreed to hold its next meeting in Brussels on Wednesday, 14 November 2012.