TI: Corporate donations to sports clubs in Hungary pose high corruption risk

October 22, 2015


Orban

Transparency International Hungary released a report this morning entitled “Corruption Risks in Hungarian Sports Financing”.

The report looks at a particular corporate tax benefit scheme known as TAO introduced under the second Orbán government in 2011. The scheme essentially allows corporations to write off 100 percent of donations made to sport clubs meeting certain criteria. The government argues such contributions are private contributions.  However, Transparency International (TI) believes such contributions amount to a diversion of corporate taxes from public coffers to private sports clubs, and that for this reason such contributions should technically be regarded as public funds.

Since 2011, the TAO contribution has brought in more than HUF 204 billion (USD 766 million) worth of contributions to Hungarian sport clubs. By law the sporting associations of these beneficiary sports – which include football, basketball, handball, water polo and ice hockey – are not required to disclose details of such contributions to the public.  In fact, the sources of such contributions are kept secret, and state organs responsible for supervising the TAO system are not required to make public information about contributions.

By far the largest beneficiary of the TAO system has been Hungary’s soccer association (MLS), with over 1,100 Hungarian soccer clubs receiving TAO contributions over four years. Of these, 13 clubs received the lion’s share.

Between 2011 and 2014 Hungarian soccer clubs received TAO contributions totaling HUF 74.5 billion (USD 276 million).   Of this 28 percent (HUF 21 billion/USD 77 million) went to 13 clubs.  And of the HUF 21 billion, HUF 9.2 billion (12 percent of all TAO contributions) went to the soccer academy located in Prime Minister Viktor Orbán’s home town of Felcsút.  This amount represents 44 percent of TAO contributions received by the 13 most privileged soccer clubs.

Money = Access

Although TI supports the modernization of Hungarian sporting clubs, it has a problem with the method by which public funds are effectively being diverted to sporting organizations.  The system has huge corruption risks and, despite the government’s position that the funding is “private money”, in the opinion of the anti-corruption NGO, the system represents a diversion of tax revenues away from public coffers to private sports associations.

“The government created the corporate sports sponsorship system in a way that enables sport clubs favored by politicians to gain uncontrolled access to funds that reduce the state’s tax revenues, and to do so in a manner that is completely legal,” says the author of the report, Gyula Mucsi.

Sports clubs wishing to receive such contributions must have a “sports development program” approved by the respective national sporting association. The sporting association decides which team can receive the corporate contributions.  The decision process is completely closed and not transparent in the least, according to Mucsi.

Perhaps this explains why so many prominent Fidesz politicians have been appointed to head various sporting clubs and sporting associations over the past several years.  Recent amendments to Hungary’s Sports Act, which entered into effect in January 2015, allow sports clubs to sidestep any obligation to disclose the sources of such contributions.

Transparency International Hungary’s report shines light on the serious corruption risks presented through the finely-tuned TAO contribution system. Aside from the very intransparent manner in which public funds are effectively diverted to sports clubs for, say, the construction of sporting stadiums, the TAO contributions are not private donations, says the NGO.

Furthermore, there is no way for the public to gain insight into how sporting associations actually go about approving a sport club’s “sports development program” which serves as the basis for its eligibility to receive TAO contributions.  Nor is there any way to determine who received how much from which corporation because neither the sporting associations nor the government are required to make such information available to the public.

That the heads of these sporting associations tend to be individuals with very close ties to the government further increases the risk of corruption, says TI, noting that the method by which the funds are distributed to sports club is completely disproportionate.