By means of a controversial tax scheme – and in defiance of European regulations – billions are flowing from the Hungarian treasury to sports associations. The corporate sector prospers, along with Orbán and his friends’ favorite clubs. The European Commission looks the other way. ‘Sports’ potential to unite citizens is enormous.’
- Hungary goes to the polls today. All signs point to Fidesz, incumbent Prime Minister Viktor Orbán’s party, once again emerging victorious.
- Under Orbán, Hungary has become one of the most corrupt countries in the European Union. The government contracts and European subsidies that end up with members of the prime minister’s inner circle, for instance his own son-in-law, are legendary.
- Follow the Money shows that Orbán also manages to poison sports with his corruption. His government devised an ingenious scheme to make corporate donations doubly deductible. As a result, billions are flowing from companies to sports facilities such as football stadiums – at the expense of the Hungarian taxpayer. Hardly surprising: most of the money goes to the prime minister and his cronies’ favourite clubs.
- The European Commission’s role in this is noteworthy. While they claim to fight ‘clientelism, favouritism, and nepotism’, they expressly allow Hungary to give state aid to sports clubs.
- How did Follow the Money investigate this? After appealing to the European equivalent of the Freedom of Information Law, we were given access to email traffic between Brussels and Budapest, as well as Hungary’s annual reports to Brussels about the tax scheme.
A concrete structure, meant to have become a grandstand, sits at the edge of a sports complex where weeds grow waist-high. The half-finished building is covered with graffiti.
In the adjacent parking lot, with room for 150 cars, plants also have free rein. Kicking a ball is impossible, because of the vegetation. You would need to go over to the stretch of artificial turf, which either has been partly dismantled or was never completed in the first place.
This was to be the stadium of Szigetszentmiklósi TK, a football club in a small town south of Budapest. Price tag: 3.5 billion forints, almost 10 million euros.
Double tax advantage
The fact that it’s a ruin is not for lack of generous gifts. Hunland, Dutchman Jos Jannsen’s Hungarian-based livestock trading company, donated 380 thousand euros. The American company General Electric donated a whopping 2.1 million. Europe’s largest insurance provider, German company Allianz, donated 1.5 million euros.
Construction on the stadium has stalled, because the second division club failed to find financing among its own supporters. It was never a love for the club that prompted the international business community to pony up the money, but a double tax advantage, and the chance to score points with Prime Minister Viktor Orbán.
- Orbán’s son-in-law’s company earned millions of euros by installing street lighting. The awarding of 39 public contracts, partly financed by European grants, was examined by OLAF’s European fraud investigators. They advised Hungary to initiate a criminal investigation, but nothing came of it.
- The Hungarian Prime Minister’s family and friends were given large tracts of farmland that would allow them to receive millions in European agricultural subsidies, according to research by The New York Times. This money, and the awarding of government contracts, made Orbán’s childhood friend Lőrinc Mészáros the richest man in Hungary.
- With a European subsidy of 2 million euros, a railway line was built in the village where Orbán grew up. The railway is entirely unprofitable because nobody uses it.
- The prominent Central European University was run out of Budapest by the Hungarian government, because it received money from George Soros.
- Recently, universities and other public facilities have been placed under the umbrellas of semi-private foundations, run by Orbán loyalists. It’s one of the biggest privatizations since the end of communism in Hungary in 1989.
- Independent media have largely fallen into the hands of pro-government businessmen. Freedom of the press has been systematically destroyed, according to the Council of Europe.
- Amendments to the constitution and electoral law make it nearly impossible to defeat Orbán’s party Fidesz through elections. Hungary goes to the polls today. Practically the entire opposition has rallied behind one candidate (conservative politician Péter Márki-Zay) and yet Orbán’s party seems to have the best shot at winning the election.
In 2011, the Hungarian government asked the European Commission to approve an unusual financial scheme. Too few Hungarians participate in sports, and that is – according to the government – because the stadiums, sports halls and fields are deprecated, even dangerous. Money is needed and Orbán has a plan: corporate financing.
Businesses may deduct their donation from their taxable income as well as from their tax liability. Donations to sports clubs, therefore, leaves these businesses richer, while the bill is footed by the Hungarian taxpayer.
Domestically, the Orbán government maintains that the corporate sector is generous enough to donate money to build and refurbish stadiums, purchase sports equipment, and pay trainers. But they know better. Hungary explicitly asks the European Commission whether this tax structure is acceptable. Or is it contrary to the state aid rules that are meant to protect the European internal market?
Yes, so judges the European Commission. Hungary does indeed draw money from the state coffers, and there is a risk that one club will receive much more than another, which would also disrupt the ‘level playing field’ of Hungarian and European competitions.
Yes, so judges the European Commission, Hungary does indeed draw money from the state coffers
Still, Brussels approved the scheme. Two arguments tipped the scales: the Hungarian authorities promised to do their best to limit the distortion of competition, and the population would start exercising more. The European Commission deems this more important than regulations meant to protect a level playing field for all sports clubs. And, as the Commission itself puts it: ‘Sports’ potential to unite citizens is enormous.’
However, the Commission does require the Hungarian authorities to report annually on the tax scheme. They want to ‘monitor’ things.
Hungary does indeed send reports to Brussels. But upon obtaining the reports, after appealing to the European equivalent of the Freedom of Information Law, Follow the Money established that they do not contain the necessary information.
The Hungarian reports are full of tables and graphs that indicate explosive growth in sports association membership, but they do not mention how much money individual sports clubs have received. As a result, the European Commission cannot assess if or how the subsidy measure has been disruptive. Emails between Brussels and Budapest, also obtained, show that the Commission has not requested additional information.
This passive attitude is indicative of how Hungary’s prime minister and Europe’s enfant terrible has been treated, ever since taking office in 2010: with velvet gloves.
The European Commission regularly warns of ‘clientelism, favouritism, and nepotism,’ and of the risks of close ties between business and politics. But they turn a blind eye to Hungary when it breaks the rules with its sports subsidy policy.
The erosion of Hungarian democracy has been a thorn in Europe’s side for years. Corruption increases every year, according to the Corruption Perception Index, while freedom of the press decreases (World Press Freedom Index).
In 2018, the European Parliament received a report by Dutch MEP Judith Sargentini on the decline of the ‘values of the Union’. It called on the Commission to take action, but the EU has proven unable to put a stop to the negative developments.
The Member States are not dealing with the Hungarian problem because, in the European Council, Poland refuses to get involved. The criminal procedure instituted – called the Article 7 procedure – devolved into endless discussions. The European Commission prefers to continue their ‘dialogue’ with Orbán, through exchanges of letters that lead nowhere.
The political faction of which Orbán's party Fidesz has long been a member, the Christian Democratic European People’s Party, won’t act either, not even when the Hungarian Prime Minister openly campaigned against EPP leader Jean-Claude Juncker. Time and again, the Christian Democrats threaten to expel Fidesz, but in the end it is Orbán himself who decided to leave the EPP.
Since the end of 2020, Brussels has had a new weapon in its arsenal; the Rule of Law Mechanism. If the EU's fundamental values are undermined, EU subsidies can be stopped. So far, it hasn’t been applied, despite repeated calls from the European Parliament.
In Hungary itself, there is also criticism of Orbán’s brand of sports financing.
‘Companies are aware to which clubs they should or shouldn’t donate if they want to stay on the government’s good side’, says Miklós Ligeti of Transparency International’s Hungarian office. ‘As a result, certain clubs receive disproportionate amounts of money. The clearest example of this is Puskás Akadémia, Felcsút’s football club.’ Prime Minister Viktor Orbán grew up in the village of Felcsút and he is one of the founders of the football association.
100 million for Orban’s club
In 2015, Ligeti demanded disclosure of the money flowing from the state treasury to sports clubs. Two years later, Hungary’s highest court ruled that the government must disclose all transactions between companies and sports clubs that took place between 2011 and 2016. Reluctantly, the government handed over tens of thousands of documents to Ligeti’s Transparency International. They, in collaboration with Atlatszo’s investigative journalists, put them online.
At that point, in 2019, it became indisputable that one football club received far more than others: Puskás Akadémia in Felcsút received around 30 million euros over five years. By the end of 2021, it turned out, Orbán’s football club had already received close to 100 million euros.
‘The sports federations are led by politicians from the ruling party, or by people loyal to the government’
By 2019, it should have been clear to the European Commission that Hungary does not distribute its state aid to sports clubs fairly, and that it does not guarantee a level playing field in sports. They could also have known that political friendships play an important role in awarding subsidies.
Orbán’s childhood friend Lőrinc Mészáros, once a plumber and now the richest man in Hungary, was mayor of Felcsút and chairman of Puskas Akademia. Mészáros was always open about it. He owes his fortune to three things: God, luck and Viktor Orbán.
The actual distribution of subsidies is handled in part by the sports federations. ‘They determine where the money goes,’ says Ligeti of Transparency International. ‘But those federations are closely intertwined with politics. They are led by politicians from the ruling party, or by people loyal to the government.’
Buying political influence
For example, the leader of Orbán’s party Fidesz is also chairman of the handball association. The president of the water polo association was Fidesz’ candidate for mayor of the city of Pécs in 2019 (he lost). And wealthy businessman and banker Sándor Csányi is the president of the football federation. Ligeti: ‘Csányi is oligarch number 1, a state within the state. He doesn’t even have to be a member of any particular party, because he owns the parties, that's how powerful he is.’
Dutch meat trader Jos Janssen – who donated almost 400,000 to build a stadium that never materialized – appears to have a keen sense of how you can buy political influence through sports clubs. As far back as 2012, his company Hunland was a sponsor of Péter Szijjártó’s indoor football team. At the time, Szijjártó was the spokesman for Prime Minister Orbán, and has served as Minister of Foreign Affairs and Trade since 2014. When Szijjártó plays football, he does so with the Hunland logo on his butt. German car manufacturer BMW is one of the other sponsors.
‘Companies have a political compass, which they use to navigate their money straight into government-affiliated pockets,’ says Ligeti.
In 2019, the European Commission ignored the revelations about the millions flowing to Orbán’s favorite club. But not for the first time. In 2015, Transparency International warned them of corruption and clientelism in Hungarian sports. Hungarian MEP Péter Niedermüller then asked the European Commissioner responsible, Margrethe Vestager, to take another critical look at the Commission’s decision to approve the tax scheme.
Hungary is allowed to maintain the subsidy scheme until June 30, 2023
Initially, Vestager replied that she was unaware of Transparency International’s warnings. When Niedermüller was not satisfied with that, she said she would ‘consider’ looking them over. She also pointed to Hungary’s annual reports, which would allow the Commission to keep an eye on whether everything is happening according to the agreements. Ten months later, the European Commission approved the financial scheme for the second time. Hungary is allowed to maintain the subsidy scheme until June 30, 2023.
Meanwhile, in its annual reports to Brussels, the Hungarian government focuses primarily on the efficiency of state aid: do people exercise more? According to Eurostat, the European statistical office, between 2014 and 2019, the amount of Hungarians practicing sports has barely grown.
The Hungarian government paints a different picture: between 2011 to 2019, the number of footballers and handball players increased by 50 and 75 percent respectively. The number of ice hockey players has tripled, and the number of volleyball players has quadrupled. The water polo association, meanwhile, had more than twice as many members in 2019 as eight years before.
In 2021, Hungary claims a sudden addition of 70,000 new football players, an increase of 35 percent compared to the previous year. The handball association, the most popular sport in Hungary after football, goes from just over 40,000 to more than 100,000 members – in 2021 alone.
None of the sports associations responded to Follow the Money’s requests to substantiate those numbers. But Hungarian sports sociologist Támas Dóczi says, when asked, that he has his doubts about the exceptional growth figures. ‘They want to register as many players and teams as possible because then they can submit more funding applications.’
Week in, week out, teams registered for competition are unable to assemble a full squad
The fact is, Hungarian football pitches play host to some embarrassing moments. Week in, week out, teams registered for competition are unable to assemble a full squad – nowhere near everyone who is registered as a member shows up. These incomplete squads are being slaughtered by more fortunate opponents, as shown by a survey by Hungarian news site Index.
Thanks to the influx of cash due to Orbán’s tax scheme, many youth teams were able to hire extra staff. For example, Mórahalom’s fourteen-year-olds had at their disposal a team manager, an equipment manager, and an interpreter. It didn’t do them much good, though; by the end of the season, they were the lowest-ranking team.
More important matters than sports association growth figures, on the other hand, are left unreported by the Hungarian government: how much money is going to individual professional sports clubs? These are commercial enterprises that can ruin the Hungarian and European level playing field.
‘When a large part of aid goes to a small number of clubs, you will of course distort competition,’ says Ben van Rompuy of Leiden University, who specializes in European competition law, state aid and sports. ‘But the European Commission accepts so many aid measures that it cannot monitor all of them. My impression is, they only give it a critical look when there is a complaint. Or if something blatant comes up in the media, so that they are forced to act.’
Over a period of ten years, 2.5 billion euros from the Hungarian treasury has gone to sports clubs
Hungarian news site 24.hu’s annually publishes the financial data of six sports associations that benefit from the tax scheme. Over a period of ten years, 2.5 billion euros from the Hungarian treasury has gone to sports clubs, according to their most recent calculation, from December 2021.
The ones who profit the most are not the sports clubs but the large Hungarian companies, says Ligeti. ‘They give most of the donations, but they’re also the ones who sell the sports clubs their equipment, and who build the new stadiums.’
Ligeti: ‘So it’s not a question of money going from the state treasury to sports clubs, it’s a way of allowing money to flow back to the companies.' Construction companies with strong ties to Viktor Orbán, particularly, benefited from the building and renovation of stadiums.
It’s the Hungarian taxpayer who suffers the biggest loss – thanks in part to the European Commission that approved a tax scheme, the main argument for which was that the social benefits of sports would outweigh the costs.
‘A blah-blah argument,’ Ligeti says. ‘The European Commission simply can’t be bothered to keep a close eye on the practical application of this tax scheme, although they should be. Because if it disproportionately favors certain clubs, it is in violation of EU rules.’
The European Commission says that it is up to the Hungarian authorities to ensure that the state aid meets the conditions that have been set
Leiden University’s Ben van Rompuy is a bit more understanding of the European Commission. ‘Unless their hand is forced, they usually will not act. Sports clearly aren’t a priority for the Commission, because it is a political minefield. In a way, I get it; they have limited resources and so they have to make choices. That being said, doing nothing does jeopardize the credibility of your state aid policy.’
In response, a spokesman for the European Commission said that it is up to the Hungarian authorities to ensure that the state aid meets the conditions that have been set. The spokesman adds that ‘despite the general ban on state aid, in some cases it is necessary for the government to intervene in order for the economy to function properly and fairly’.
Reports from Hungary are still sent to Brussels every year. Not in October, as was at one time agreed. First, it would arrive sometime around Christmas, now it doesn’t arrive until the summer – a year after the sports season has ended.
In Budapest, they seem to realize that no one is especially keen to read the reports, especially during holidays or over the summer break.
Translation by Chris Kok.