Tax authorities tighten screw on Spanish clubs

27 June 2013 11:46

News that the Spanish tax authorities intend to pursue World Footballer of the Year Lionel Messi on charges of avoiding more than four million euros ($5.2 million) tax on income from his image rights has captured world attention.

The Spanish taxman's focus on the previously squeaky-clean Argentine superstar is in keeping with a more robust approach to the world of football when it comes to paying their dues to society in a time of economic crisis.

On the surface, the health of Spanish football looks rosy. The national team are world and European champions and all 11 players chosen in FIFA's 2012 team of the year played in La Liga.

But beneath that healthy exterior is a mountain of debt that clubs below the big two are struggling to cope with.

At the end of the 2011/12 season the total debt of Spanish clubs stood at an incredible 3.3 billion euros, much of it owed to the tax authorities.

Latest figures released in March showed that although the debt to the state had fallen by 8.2% in the past year, there was still some 690.4 million euros outstanding - 535.8 million of which belonged to teams in the Primera Division.

The authorities claim the reduction in the debt is thanks to their firm stance, with repayment plans in place with a number of clubs.

The Spanish Professional Football League has also begun to take serious measures to curb the culture of debt amongst its members.

Clubs will have to lodge with the league their budgets for the upcoming season along with their operating costs and the amount they are due to repay tax authorities over the season.

The league will then set a limit that the club is allowed to spend on its first-team squad and management team.

Moreover, from the 2014/15 season clubs will have to deposit 35% of their income from television rights with the league, and it will then be used as security against them failing to pay the tax authorities on time.

The long-term goal of these measures is to clear the clubs' tax debts by 2020.

The regulations will also coincide with UEFA's newly implemented Financial Fair Play (FFP) rules which threaten clubs that fail to balance their books with expulsion from European competition.

However, there has been scepticism as to whether bigger clubs who fail to meet such obligations will be punished as harshly as smaller fry.

Stefan Szymanski, professor of sport management at the University of Michigan and who has written extensively about the economics of European football, points out that tax authorities often struggle with clamping down on big clubs with huge fanbases and significant power to influence governments.

"Tax authorities the world over will go after a well-known player or football club once in a while as it is a very strong way of sending a message that everyone is liable for tax.

"The problem comes when big football clubs are too big to fail. Governments don't want big clubs to go bust so try to tell tax authorities to lay off a bit."

That is a particularly relevant point in Spain where football forms a significant part of the culture.

Moreover, there is the intangible aspect of what Spanish football, particularly the national team, has offered as a morale boost within the country and as a positive image of Spain abroad at a time where the news agenda has otherwise been dominated by financial doom.

However, the economic crisis has already began to take its toll.

Falling attendances, reduced sponsorship, a television deal heavily weighted in favour of the big two clubs, Real Madrid and Barcelona, and a need to service debts mean other clubs can no longer afford to hold onto their better players, while their ability to compete in European competition is also greatly diminished.

Source: AFP