Brazilian football aims to score investments as well as goals

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Brazil has an unrivaled record of footballing talent. But in the birthplace of some of the best players to have graced stadiums around the world, many national teams have long underperformed off the pitch.

Indebtedness, mismanagement and, in some cases, alleged embezzlement have all hampered the game.

Change is now on the cards in the spiritual house of o jogo skipjack (the beautiful game), as the drive to professionalize the business side of sport gains ground. Those pushing for reform in the $1 billion industry point to the kind of commercial success achieved in Europe’s big leagues in recent decades.

A number of Brazilian parties are seeking to attract outside capital by adopting a new type of corporate structure, instead of the usual not-for-profit model.

The first such proposed deal was unveiled towards the end of last year, when Ronaldo Luís Nazário de Lima, one of the greatest strikers of all time, announced his intention to buy 90% of his club Cruzeiro childhood home in the city of Belo Horizonte. . The former superstar has pledged 400 million reais ($75m) funding through his company Tara Sports for the once-top-flight team, which was demoted from Brazil’s top division two years ago. years amid a corruption scandal and mounting debts.

American businessman John Textor, majority shareholder of Crystal Palace FC in England, then signed a binding contract last month to acquire 90% of Botafogo, pledging to pay Rio de Janeiro 400 million reais. Fans celebrated in the street after the sale was approved.

US investor John Textor, right, celebrates with a fan as he finalizes details of his Botafogo takeover © Jose Lucena/TheNEWS2/ZUMA Press Wire/Alamy

“It’s a moment in history. I know I’m in and I know other foreign investors have been inspired,” he told the Financial Times. “There is capital and people looking to other clubs to do the same.”

The two pioneering agreements stem from a law passed last year aimed at improving the transparency and governance of football clubs, as well as reducing debt levels.

Within the framework of traditionally constituted teams, associations, exempt from certain taxes and owned by supporters, elect powerful leaders. Critics say this system encourages a tendency to borrow and spend irresponsibly to achieve glory on the pitch.

Although becoming corporate is not prohibited, the legislation aims to overcome resistance within club hierarchies. It creates a special type of company, which can sell shares to investors, with favorable tax treatment and a mechanism for renegotiation and resolution of debts.

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“With the owners taking care of the money, we will have greater financial rationality,” said Eduardo Carlezzo, a lawyer advising clubs on the matter. “We will have instances where fans embrace it, but in others there may be a lot of criticism. There will be a period of cultural accommodation.

He believes the new model will initially appeal to the most indebted clubs, some of which have at times fallen behind on wages.

The debts of Brazil’s top 23 teams rose by a fifth to reach 10.3 billion reais ($1.9 billion) in 2020, according to research by EY. This was nearly double their total revenue of R$5.3 billion, which despite the Covid-19 hit, has grown significantly over the past decade.

For fans who complain about the exodus of players to foreign leagues, the hope is that a long overdue revamp will result in more money to persuade them to stay.

“If you keep your talents, you’ll have the best championship in the world,” said Pedro Mesquita, head of investment banking at XP, which advised on the Cruzeiro and Botafogo deals. “[The law] opened a new path. . . There will still be at least five or six big transactions by the end of the year”.

Alerrandro of the now renamed Red Bull Bragantino, who struck a deal with the drinks group in 2019

Alerrandro of the now renamed Red Bull Bragantino, who struck a deal with the drinks group in 2019 © Miguel Schincariol/Getty Images

A Crosstown de Cruzeiro rival, América-MG, has been linked to the US-based Kapital Football Group. “Nothing has been decided yet and we are still in talks,” KFG said.

Foreigners have already tried to exploit the vein of Brazilian football, but rarely with success. A handful of partnerships struck in the 1990s with foreigners either didn’t last or turned sour, such as a venture between Bank of America and Vasco da Gama. A notable exception was the takeover of Bragantino by Red Bull in 2019. Backed by the energy drink brand, he was promoted to the national top tier.

Not all teams will be attracted to the new model, analysts say. Flamengo, for example, is credited with reviving its fortunes as an association after electing a board ten years ago on a professional management platform.

However, the club’s advisers believe that the new legal system may have an impact on the sector.

“It’s not a panacea, it’s a tool that helps those with the right mentality,” said Jorge Braga, a business turnaround specialist who was named Botafogo’s chief executive last year after his relegation. “There is a very significant financial obligation for those who invest in this structure”.

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If debt reduction targets are not met, the new owner becomes co-responsible with the old association, which continues to manage the club’s non-football and social activities.

Early experiences at Cruzeiro, which has almost a billion reais in debt, suggest it won’t be easy. Although the deal is yet to be done with due diligence still ongoing, Ronaldo has already installed a new administration, which has had to make tough decisions. Fans protested the sacking of a veteran goalkeeper.

The budget has been cut to match revenue, according to director Gabriel Lima, who was brought in from Valladolid, a Spanish club controlled by Ronaldo.

“Cruzeiro is a patient who was in the intensive care unit. He needs shock treatment, which is never good, but he needs it to survive, improve and then walk,” he said.

While fan membership sales have been strong so far, Lima said a challenge was to rehabilitate the club’s image in the eyes of potential sponsors.

Marcelo Ferreira Rocha, from an independent supporters’ organisation, said the main expectation was to return to the top division. “We dreamed of restructuring the club and there was no other way,” he said. “But since everything is new, we don’t know what awaits us.”

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Despite Brazil’s famous national passion for football, a post-pandemic challenge across the board is boosting ticket sales. Although average attendance at top-flight Serie A matches rose 13% to more than 21,000 in 2019, stadiums were still less than half full on average, according to data compiled by the group. Globo media.

There is also potential to bring Brazilian clubs to international audiences, Textor argued. “Most people haven’t heard of Corinthians, Botafogo, Palmeiras – they’re just not brands. Well why not?” He asked.

One way could be to revise broadcast arrangements and game times. The clubs have been in talks over a possible new competition controlled by themselves, instead of the national federation.

Bargaining clubs collectively with TV stations over transmission rights, rather than on the current individual basis, could “increase the size of the pie”, said Pedro Daniel, executive director of sports, media and entertainment at EY. in Brazil.

Financial fair play rules, setting limits on club spending, are also important in attracting more investors, he added. “[It is] fundamental for the sustainable development of the industry”.

Additional reporting by Carolina Ingizza

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