State tackles funding for sports

As the country's largest contributor to sports organizations, gaming company Sazka's financial problems also mean problems for public finances. As a result, the government has said it is working on a proposal for a new way to fund sports that would involve more direct government subsidies and do away with special tax breaks for gaming companies currently used to promote largely voluntary donations to sports organizations.

Finance Minister Miroslav Kalousek and Education, Youth and Sports Minister Josef Dobeš announced Jan. 21 that a part of subsidies formerly distributed to sports organizations through the Czech Sports Association (ČSTV) would now be directly routed to the individual federations, saying they no longer trusted the ČSTV to responsibly allocate the money.

Dobeš said the ČSTV had mishandled sports financing in the past, and under the new system, the money "cannot be provided for salaries, for car leasing, for refreshments and the like."

The ČSTV is the major shareholder of Sazka, with 68 percent of its stock, and the ministers have blamed much of Sazka's financial downfall on inaction by the leadership of the ČSTV.

Starting this year, the annual 270 million Kč in funds from the Finance Ministry would no longer be given to the ČSTV to distribute, and instead would be allocated directly to individual sports organizations based on their membership numbers, property portfolio and achievements. The annual 1.9 billion Kč in funds from the Education Ministry would still be distributed by the ČSTV, Dobeš said, because that money is already pledged to specifically targeted subsidies.

In addition, the ministers said to support those subsidies in the longer term, they will propose a change to tax law that scraps the current tax breaks gaming companies receive and instead uses that tax revenue to directly finance sports organizations. The ministers hope to propose the amendment later this year and to have it enacted by 2012 at the earliest and 2013 at the latest.

"We agreed the state will never give up on financing sports," Kalousek said. "We guarantee that in 2012, sports will not get less money than this year. We cannot promise more, because we do not know how it will look, but we can certainly say it won't be less."

Although a number of sports organizations declined to comment on the new funding system or the proposed tax, Jiří Kejval, the Czech Olympic Committee's vice chairman for economics, hailed the proposed new system as more transparent and said it could lead to more concrete funding, citing falling funds available for sports partly due to Sazka's financial problems.

"For the sports environment, it is undoubtedly a positive thing," Kejval said. "The mandatory taxes on gambling will be more transparent, and the levies won't end up who knows where, just not in sports. Money from the state budget targets resources directly to athletes. The situation will clearly be easier to use and to provide more money for sports than there is now."

A boost to sports funding would be much needed considering the forecast loss of 700 million Kč a year that is usually given by Sazka, which is currently entangled in insolvency proceedings filed by Radovan Vítek, who owns 1.5 billion Kč of Sazka's debt. In early 2010, Petr Novák, coach of Olympic speed skater Martina Sáblíková, said they were considering moving Sáblíková abroad for training because of the unsuitable training facilities here.

"It is obvious that the sports environment will feel the drop in incomes as it already did," Kejval said. "Sazka in its best years used to give us billions of crowns per year."

The ČSTV disputes the ministers' characterization of how it mishandled finances and has challenged whether the new system really would promote greater funding for sports.

"The minister has a right to determine the government policy of sports financing," said Jan Boháč, ČSTV general secretary, but added that the new concept and how money will be allocated were not conceived transparently.

"Three-fourths of sports associations keep asking [how] the division of money [was] determined," Boháč said. "The current division will only worsen things."

The changes to the system would compromise some of the services the ČSTV provides, such as casualty insurance and covering the cost of copyrighted music for games, which would "worsen the conditions for organized sports ... and bring costs several times higher for sports clubs," Boháč said.

One definite loser in the deal would be gaming companies, which would likely lose significant profits under the new tax.

According to an analysis by Erik Hegedus, an analyst at investment bank Wood & Co., if the tax is set at 20 percent, which is said to be the most likely level, companies across the board would lose money as their current civic contributions that afford them tax breaks tend to be lower. Under the current system, donations have to be between 6 percent and 20 percent of the company's profits, but even the largest companies give less than 20 percent.

For example, Hegedus said Fortuna gives about 15 percent of its profit from gaming as civic donations, while smaller companies tend to give well below 10 percent.

"This could be very damaging and cause those smaller companies to pull out of the market within two or three years," he said.

In the case of larger companies, Hegedus said, they would most likely make up for their losses by soaking up increased market share from those companies that are forced to drop out, or they would have to increase commissions on bets or adjust the odds on games.

The backlash could be even greater than just individual company losses, Magda Pekařová, a spokeswoman for gaming company Synot said. She countered that sports funding will not be more secure in the hands of the government.

"Everything will depend on the current condition of the state," she said, adding that the burden of the higher tax could lead to the shutdown of legitimate lottery companies and promote increased illegal gambling.

"A similar situation happened in Poland, where the state increased the tax and administrative burden, and all the legal lottery operators closed or started using foreign tax benefits and doing business illegally," Pekařová said. "The same situation may arise for us."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com