How tax break gives Real Madrid and Barcelona an unfair edge

Big two keep on spending while other Spanish clubs must sell to pay debts

Barcelona spent £48.6m on Neymar, but how did they manage to afford it? (Getty Images)

In response to a question asked in the Spanish parliament, last month, the Government was obliged to disclose the amount of unpaid tax owed by professional football clubs in the country's top two divisions. The sum was a staggering €663,876,441 (about £575m). This in a country that benefits from a European Union bailout potentially worth as much as €100bn.

What was no less shocking, but not that surprising, was the caveat that accompanied the unpaid tax figure. The total did not include the tax debts of four clubs that are exempt because, under legislation passed by the Spanish Government in 1990, they were not obliged to reconstitute themselves as public limited companies and could continue to be owned by their members, or "socios".

Those four are Real Madrid and Barcelona, who also take around 50 per cent of La Liga's total television revenue for themselves, as well as Athletic Bilbao and Osasuna. They have been permitted to retain their status as sports clubs, owned by their members, and to add insult to injury for the rest, the Government refused to disclose how much debt the four owed to the Spanish purse.

The reason given was that because there are only four clubs that fall into the non-public limited company category, it might be possible to divine individual debts from the total sum. It was yet another advantage afforded to the four exempted clubs whose status is, as The Independent reports today, under threat from a European Commission investigation.

As well as being treated as not-for-profit organisations, the four exempted clubs benefit under corporation and property tax laws. They are also permitted to have affiliate professional basketball clubs which operate out of the same structure, an important factor in a country where basketball is the second sport.

This season, Real Madrid Baloncesto finished runners-up in the final of the Euroleague, basketball's Champions League equivalent. Barcelona Basquet were placed fourth overall. In the last 21 years the Spanish basketball title has been won by clubs outside Madrid and Barcelona on only five occasions. Investment in both clubs' squads has been significant, with Barcelona Basquet, for instance, operating on a €28m budget last year despite just €4m in earnings.

As the summer's football transfers take shape, with Madrid preparing to spend potentially upwards of £100m on Gareth Bale, and Barcelona having spent £48.6m on Neymar, the question again arises: how do they manage it?

The Spanish economy is in meltdown, with unemployment at 26 per cent and youth unemployment at 50 per cent. Yet none of this has affected the spending power of Madrid, and to a lesser extent Barcelona. Estimated by Deloitte to be the first, and only football club with an annual revenue in excess of €500m, Madrid is recognised as the most valuable club in the world.

Others might have richer owners, but Madrid has not allowed any other club, even those powered by Middle Eastern oil fortunes (Manchester City and Paris Saint-Germain) or Russian oligarchs (Chelsea and Monaco) to supplant it when it comes to buying the world's most sought-after players.

Already under investigation over allegations that the club benefited from illegal state aid for a land deal with Madrid City Council that originated in 1996, Real Madrid find themselves in a very different football landscape to the one on which the galacticos era was established more than 10 years ago.

There is greater scrutiny of their advantages over other clubs and how they measure up to Uefa financial fair play. Last year the Uefa chairman, Michel Platini, who drove the establishment of FFP, and the EC competitions commissioner, Joaquin Almunia, signed a joint statement which declared that both were opposed to illegal state aid.

In that statement both Uefa and the EC declared that, "European undertakings should compete on a level playing field, where no operator is given special advantages by any layer of the government". It added that a "common concern" is that "a more equal tax treatment of football clubs would also promote a more level playing field".

Yet, the four exempted clubs benefit from different tax obligations. And outside the big two, Spanish football is already facing considerable problems. The sale of Roberto Soldado to Tottenham by Valencia was the latest departure in a long line of around 25 leading players, including Radamel Falcao, Alvaro Negredo and Jesus Navas, who have recently left La Liga clubs.

The total debt of clubs in the league is estimated at €4.1bn (£3.53bn). It is evident that whatever the extent of the privileges lavished on Madrid, Barcelona and the two other exemptions, the plc status – or "Sociedades Anonimas Deportivas" [SAD] is not working for the rest.

If Uefa is serious about taking on the advantages which undermine its FFP programme, then it will surely look to the EC to address Madrid and Barcelona's privileged not-for-profit status. But given that the investigation has already been going for four years, it is unlikely that anything will prevent Madrid spending big again this summer.