No more investor exemptions – the new football club ownership rules in Germany
Ownership rules have always been a hot topic in German football. Traditionalists have tended to venerate the existing ownership rules in Germany as the last bastion against the commercialisation of European football. Nonetheless, football clubs are constantly in search of new ways of funding, be it due to the financial impact of the Covid-19 pandemic or other reasons, such as compliance with financial sustainability rules.
Germany’s national competition agency, the Federal Cartel Office (FCO), added new fuel to the fire when it published the preliminary findings of its investigation into the German Football League’s (Deutsche Fußball Liga - DFL) ownership rules in 2021, in particular its consideration of the current rules as a potential restriction of competition. Having initially defending its position, the DFL has now proposed commitments to address the FCO’s antitrust concerns.
These commitments could have serious consequences for the financial situation of the clubs and the entire league.
The FCO’s preliminary findings: the benefactor exemption as source of the problem
German football clubs, organised as simple registered (non-profit) associations, are permitted to spin off their professional football division as a corporation, in order to attract investors. However, investors may only participate in the spun-off corporation if the non-profit parent club association holds more than 50% of the voting rights or, in case of a partnership limited by shares, acts as general partner (the 50+1 rule).
Since its introduction in 1999, the 50+1 rule’s compliance with competition law has been hotly contested. In 2019, following a request from the DFL that the FCO declare that there was no ground for action in this matter, the FCO formally launched an investigation.
In its 2021 preliminary findings, the FCO stated that the 50+1 rule may constitute a restriction of competition, but considered the main goals of the rule are legitimate:
- Preservation of the clubs’ non-profit association character. This shall avail fans of the opportunity to participate in their club as a member, and in this way be more than ‘just’ a regular consumer.
- Fair and balanced competition between all clubs participating in the first and second division of the Bundesliga. With investment opportunities equally limited, no club can benefit from anomalistic or particularly significant investments that would give it an unfair advantage over other clubs, thereby potentially distorting competition.
To this extent, the FCO considered the 50+1 rule suitable and appropriate to achieve its legitimate goals.
However, under its current articles of association, the DFL can grant an exemption if an investor continuously invests in and significantly promotes a football club for more than 20 years (the benefactor exemption). Such exemptions have in the past been granted to VfL Wolfsburg, Bayer Leverkusen and TSG Hoffenheim. In the FCO’s view, this exemption undermines the above objectives, on the basis that:
- If an exemption is granted, the club members would not have any further decisive influence on the spin-off’s football division, effectively contradicting the goal of preserving the non-profit association character of clubs; and
- Clubs which were granted an exemption would have access to significantly more funding, leading to a competitive disadvantage over more traditional clubs without investors.
The DFL’s initial reaction: money doesn’t put the ball in the back of the net
The DFL contested these preliminary findings and submitted an extensive letter to the FCO. It argued that due to its autonomy as a sports association, it is free to design the 50+1 rule as it sees fit. Moreover, in its view the current exemption rule would guarantee stability and offer enhanced resistance during a crisis; a corporation that supports a club for over 20 years would not simply withdraw when times get tough. Most importantly, the DFL also pointed out that the clubs benefiting from the exception were statistically not necessarily more successful in the first and second division of the Bundesliga, and in practice the exemption had no effect on competition.
The DFL’s new commitment proposal: no more exemptions going forward
Having had limited success in publicly defending its position over the last two years, in March 2023 the DFL proposed commitments to address FCO’s concerns, by removing the benefactor exemption.
For the clubs already exempted (VfL Wolfsburg, Bayer Leverkusen and TSG Hoffenheim), the DFL would introduce a grandfathering clause under certain conditions:
- Member participation: The exempted clubs are required to increase the participation of the non-profit parent club associations as well as overall transparency. To achieve this, the non-profit associations shall have the right to appoint members to the decision-making bodies of the professional football division and will be granted veto rights on significant changes to the club’s identity, such as changes to the club’s logo, the reduction of free-standing space in the stadium or exiting the DFL leagues (e.g. in order to participate in a new Super League).
- Compensation: Furthermore, the DFL proposes an obligatory compensation for structural and financial advantages resulting e.g. from existing profit-and-loss transfer agreements.
What’s next in the FCO’s investigation?
The FCO swiftly reacted by establishing that, in its preliminary view, the commitments offered by the DFL were suitable to overcome its antitrust concerns. This would mean the end of the benefactor rule for new investors. However, the proceedings before the FCO have not yet been concluded. Following submission of the DFL’s proposals, football clubs and investors will have the opportunity to comment .
Gambling the future of its clubs?
German football has traditionally been a difficult field to navigate for investors. The benefactor exemption has been handled very strictly with only three exceptions granted so far and several unsuccessful attempts by other clubs in recent years.
The Covid-19 pandemic has already left its mark in German football with many clubs suffering financially. The abolition of the benefactor exemption might further impact clubs’ efforts in generating - or even retaining - income streams. Only a few days before the DFL’s proposal, TSG Hoffenheim’s majority shareholder, Dietmar Hopp, surprisingly announced that he will return his voting rights to the non-profit parent club association. While it’s not clear if the scrapping of the benefactor rule played a role in this decision, it may well have been part of Hopp’s considerations, and could be a sign for other investors to reconsider active or potential investments.
However, while the door for investments may not be as widely open as in other leagues, the clubs are not fully cut off from any funding under the proposed new rules. This is evidenced by 777 Partners’ new EUR 100m investment in Hertha BSC, which was announced only a few days after the DFL’s proposal. While 777 Partners will reportedly acquire 64.7% of the shares, the non-profit association will retain the majority of voting rights in the club’s professional division, in compliance with the 50+1 rule. Further, investors have already found creative means to gain more influence in clubs, as seen through Red Bull’s investment in RB Leipzig.
More than ever, investments in German football clubs require an investment plan that meets all financial, legal and sports requirements.
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