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Government loan to Rugby League in the wake of COVID-19, raises questions about whether other sports should be supported through State aid

06 May 2020
The UK Government has awarded a £16m loan to the Rugby Football League in order to "protect the entire sport" from COVID-19 hardship. The move raises questions about whether public funding should support other sports, such as football and rugby union, and how such interventions can be structured to comply with State aid law. 

The Rugby Football League (RFL) has become the first major sport in the UK to receive a bespoke bail out package during the COVID-19 outbreak after securing a £16 million emergency loan to safeguard the immediate future of the sport on Friday 1 May 2020. The terms of repayment of the loan have not been disclosed. The decision comes at a time when there has been criticism of Premier League soccer clubs making use of the Coronavirus Job Retention Scheme.  

The public funding provided is in the form of an emergency Government loan to the Rugby Football League ("RFL"), the governing body of the sport in the UK, and has been awarded to help the sport survive the impact of the coronavirus pandemic, noting the role that its clubs play in the community. The support will then be distributed to the Super League, Championship and League 1 clubs. 

The emergency loan will mitigate the extreme financial hardship the sport has endured since the beginning of the COVID-19 outbreak. Due to social distancing measures, the season has been suspended and many rugby league clubs had expressed concerns over the future of the sport. The Hull KR chairman, Neil Hudgell, warned rugby league could cease to exist as a full-time sport by next year, should external financial support not be secured. 

Oliver Dowden MP, the Secretary of State for Digital, Culture, Media and Sport, said “We are intervening as an exception, not to save an individual business or organisation, but to protect an entire sport, the community it supports, the World Cup held here next year and its legacy for generations to come.” 

Administration of funding and eligibility

The RFL will administer this funding, in partnership with Sport England and the Department for Digital, Culture, Media and Sport ("DCMS").  All RFL Super League, Championship and League 1 clubs based in England are eligible to apply for public funding.  Details on how clubs can apply and when the fund will open will be announced by the RFL in due course.

Loan terms and State aid considerations

The UK Government has confirmed that the money will be issued as an emergency loan, rather than a grant, which implies that RFL will be responsible for repaying it over a period of time. However, the exact terms have not yet been disclosed. 

As with other awards of public funding, the award of the loan will need to be designed to meet State aid law. This will need to be considered in the transfer of the loan to the RFL and thereafter to each recipient sports club. In simplest terms, a loan at prevailing market rates is normally considered non-aid, whereas a loan with preferential rates is normally considered a State aid (with the aid element being the difference between the market rate interest and the preferential rate over the lifetime of the loan). On this basis the amount of aid (ie. the grant equivalent) contained in a loan is normally much less than the loan capital. This means that usual mechanisms for award of small amounts of aid can often be used (eg. de minimis, see below).

One practical challenge public sector bodies often face when trying to make a loan align with commercial practice, is that when faced with providing finance to entities in distress, commercial operators will normally raise the rate and securities required, or even refuse to undertake investment altogether.  

There are a number of high profile State aid cases involving sports clubs. In 2016, the Spanish football clubs, Valencia, Hercules and Elche, were ordered to repay millions of euros of financial support received from the Spanish state following European Commission investigations (although the repayment in the cases of Valencia and Elche was subsequently annulled by the General Court on appeal).  Real Madrid were also investigated for unlawful State aid in a property transaction, although recovery of the aid was also eventually reversed. 

Even where State aid recovery is ultimately not ordered, the process of responding to investigations can be resource intensive for the public bodies providing the funding and the sports clubs involved. 

A precedent for other sports?

Although the government is keen to avoid setting a precedent, many other sports face similar hardship as a result of the COVID-19 pandemic. RFL, which is heavily reliant on gate receipts rather than broadcast revenue, was seen as a particularly urgent case. However, it seems inevitable that other sports in the UK will also look for financial support. This seems especially likely for close contact sports which may stay suspended for longer and for which gate receipts for live matches may be delayed further still.

For example, the British Basketball League (BBL) has written again to the Government asking for a coronavirus bailout further to the RFL rescue loan announcement. The BBL has advised ministers it needs '£1m by the end of the summer or it could go bust'. 

Support measures available under State aid law during COVID-19


There are a number of measures available within State aid rules allowing for public support to be allocated to organisations during the COVID-19 pandemic, which are relevant for sports clubs: 

1. Market Economy Investor Principle: 

When a loan from a State body can be shown to be aligned with commercial practice, then the beneficiary may be regarded as receiving no "advantage" capable of comprising State aid. This is a reflection of the so-called Market Economy Investor Principle ("MEIP"), under which no aid arises from investments where the State is acting as an ordinary market investor. Although the principle is comparatively simple, care needs to be taken to put in place an audit trail that demonstrates that the rate and terms of the loan are indeed properly commercial.  

2. Temporary Framework:

In response to the COVID-19 pandemic, the European Commission adopted a Temporary Framework, making it easier for governments to provide State aid. In particular, this emergency measure paves the way to allow public authorities across the EU (plus the UK during the Brexit transition period) to award grants, repayable advances or individual tax or other benefits of a value of up to €800,000 per undertaking, provided certain compatibility conditions are met. On 6 April 2020, the UK received approval for a State aid umbrella scheme making use of the new options available under the COVID-19 Temporary Framework. An immediate example of the Temporary Framework's practical relevance is the delivery of grants under the Small Business Grant Fund and the Retail, Food and Hospitality Grant Fund.

3. General Block Exemption Regulation (GBER): 

Article 55 of GBER the offers an exemption specifically for public funds to be used to provide investment and operating aid to sport and multifunctional recreational infrastructures, under certain conditions. This has been used for various sports stadia investments, for example. A key requirement is that the aid recipient is not an 'undertaking in difficulty', which is defined at Article 2(18) GBER and broadly means organisations that are insolvent.

4. De Minimis aid: 


The existing "De Minimis" block exemption allows aid to be provided with relatively low administration up to a maximum of €200,000 (c. £170k at current conversion rates) per corporate group. Such amounts mean little to multinational corporations but can be a lifeline to small businesses.

5. Individual notifications: 

- Aid can be notified on the basis of Article 107(2)(b) TFEU, allowing compensation for undertakings affected by the pandemic (e.g. sporting events). A recent example of this is the Commission's approval on Thursday 12 March of a DKK 91 million (€12 million) Danish aid scheme to compensate businesses forced to cancel events of more than 1,000 people due to the COVID-19 restrictions; 

- Under the Rescue and Restructuring State aid Guidelines, Member States can notify State aid schemes to meet acute liquidity needs and support undertakings facing financial difficulties. This is how the many cases of government support for large banks across Europe were handled at the time of the financial crisis. e.g. Northern Rock. Given the administration involved, this tends to be reserved for the largest and/or deemed most strategically important businesses only.   

6. General Measures: 

A measure which is not selective (i.e. that benefits all on the same basis) will be "no aid". These general measures have been used extensively during the COVID-19 pandemic, for example to allow for deferrals of corporation tax and VAT.  

Conclusion

As the full economic impact of COVID-19 becomes clear and decisions are made in respect of social distancing arrangements at sporting events, it is likely that other sports, such as football, rugby and cricket, will also look to the government for State support.  Difficult decisions will need to be made as to which sports should be funded, and if so by how much. Given how emotive sports issues tend to be this will no doubt generate controversy one way or another. However, professional sport is often high profile international business just like many others and so cannot be subjected to unfettered State support. Thus whenever funding or other kinds of public funded support are given, then State aid considerations will need to be taken into account. 


DWF's award winning Public Sector law team has market leading experience of advising Central Government and Regional and Local Authorities as well as grant beneficiaries on State aid compliance and administering loan and grant schemes. Our team have advised on major sports infrastructure and successfully defended sports clubs from investigations. 

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