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FactCheck: Was the FAI's rescue package from the government a 'bailout'?

Shane Ross insisted the €20m package is not a bailout – but is he right?

Factcheck

YESTERDAY, THE GOVERNMENT announced a financial rescue package for the Football Association of Ireland (FAI) to save the beleaguered organisation from collapse.

The package includes a new tranche of State funding and an annual loan for the next three years which has prevented the FAI from insolvency and a resulting raft of redundancies.

But despite acknowledging that the government had secured the FAI’s future, Sport Minister Shane Ross was insistent that the rescue deal was a simple financial arrangement, and not a bailout. Is he right?

The Claim

Minister for Sport Shane Ross said that the FAI’s ‘Financial Rescue Package’ is not a bailout.

Speaking about the rescue deal to reporters yesterday, he said:

It’s certainly not a bailout. There are strict conditions. We are increasing the funding we are already giving. It’s quite the opposite to a bailout, it’s a highly conditioned loan and grant.

The Facts

First of all, let’s look at what exactly is meant by the term ‘bailout’.

Here’s the Collins English Dictionary’s definition: “A bailout of an organisation or individual that has financial problems is the act of helping them by giving them money”.

We also asked two economists to define the term and to describe how bailouts work.

Jim Power, Chief Economist at Friends First, explained that the financial situation of the business, organisation or state being bailed out is important to the concept.

He told TheJournal.ie:

A bailout is what happens when an organisation is in terminal trouble, and somebody steps in and injects the finance to keep it going.

Power pointed to Ireland’s economic bailout by the International Monetary Fund in 2011, when the State couldn’t pay back its debts, and the government’s recapitalisation of Irish banks in 2008 as examples of bailouts.

“If an organisation is in terminal trouble to the point that it won’t be able to survive, but it receives money to keep it going, that is a bailout,” Power added.

Professor David Jacobsen, Emeritus Professor of Economics at Dublin City University, also explained that a bailout is what happens when an organisation receives money because it is in such a perilous financial state that other forms of funding are not available.

“It’s a situation where special financial allowances are made because banks are not willing to continue to fund or lend to a borrower at ongoing interest rates, whether that’s a government, an agency, or even a corporation,” he said.

Although Bank of Ireland – the FAI’s main creditor – were involved in the package announced yesterday, it was clear that they were not willing to help the organisation up to this point without the government’s support.

In addition, the loan arrangement between the organisation, the government and the bank comes with a preferential interest rate that would not have been agreed in normal circumstances.

Funding the FAI

Next, we’ll look at what the FAI’s rescue deal entails and how it came about.

Last month, the organisation revealed that it had debts of over €62 million, following a year of turmoil off the pitch after it emerged that former chief executive John Delaney had given it a €100,000 “bridging loan”.

That revelation eventually led to the removal of the FAI’s annual Sport Ireland grant in April.

In December, Ross said no funding from his department’s Sports Capital Programme would be provided until corporate governance and financial control issues had been resolved to his satisfaction.

All this time, the organisation was kept afloat by the early drawdown of Uefa funds due to it.

Last month, the FAI asked Ross for €18 million as it attempted to negotiate a refinancing package with Bank of Ireland, its main creditor – something Newstalk’s Off the Ball reported at the time was described as “a request for a bailout” by Ross himself.

The organisation needed the money to meet short-term debts and remain solvent, and news soon emerged of talks between the government, the FAI, Uefa and Bank of Ireland to save the association.

Those talks culminated in yesterday’s announcement.

The package is made up of €20 million in funding over three years, including a doubling of annual State funding to €5.8 million and an annual interest-free loan of €2.5 million.

In a press release detailing the package, Ross described how it had secured the future of the FAI. Said Ross:

It has been a difficult journey to get to this place, where we can heave a sigh of relief knowing that Irish football has a future. Today we are delivering for all those who depend on football for their livelihood…

Despite insisting that the package was not a bailout, Ross acknowledged that the future of the organisation was made possible because of the funding.

Economic analysis

As well as providing a definition of the term ‘bailout’ earlier, both Power and Jacobsen analysed the nature of the organisation’s rescue package.

“In the case of the FAI, it would have folded if the government didn’t intervene,” Power said. “That to me is a bailout.”

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Jacobsen analysed the deal in similar terms, drawing an analogy with the IMF’s bailout of the Irish government in 2011.

“This is definitely a bailout,” he said. “To say it isn’t absolutely contradicts what happened when the Troika gave money to the government in 2011.”

Verdict

Shane Ross said that the rescue deal given to the FAI was not a bailout.

According to the standard dictionary definition and the opinions of two respected economists a bailout is a financial package that is given to an organisation, company or country which is in such a bad financial position that it requires an injection of capital to avoid bankruptcy.

The money is required because an organisation, company or country cannot secure finances from any other lender.

The FAI said last December that it required at least €18m to secure its future, and the government’s package was heralded by both the Department of Sport and Shane Ross yesterday as having done so.

Therefore, we rate Shane Ross’ claim: FALSE

As per our verdict guide, this means: The claim is inaccurate.

TheJournal.ie’s FactCheck is a signatory to the International Fact-Checking Network’s Code of Principles. You can read it here. For information on how FactCheck works, what the verdicts mean, and how you can take part, check out our Reader’s Guide here. You can read about the team of editors and reporters who work on the factchecks here. 

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