Brazilian Football: Big Opportunity, Big Risk

• Published date: 13 November 2022
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Debt Capital Markets, Financial Services, Corporate and Company Law, Contracts and Commercial Law
• Law Firm: Ankura Consulting Group LLC
• Author: Felix Vetter and Reecha Patel

Current state

Brazil, "o Pais de Futebol", is arguably the country most synonymous with football. Yet despite the national team's continuous success, and some of the largest, most ardent, fan bases in the world, Brazilian football clubs trail European clubs significantly in financial fire power. Brazilian clubs generate just 2% of global football revenue.

The COVID pandemic has significantly weakened the already poor financial position of Brazilian clubs. A recent study of 23 Brazilian clubs by EY identified that:

• Debt levels in 2020 stood at R $10.3bn (US $1.9bn), up 19% from 2019, an average of R $450m (US $83m) per club; and
• Combined Revenue fell 14% year-on-year (YoY) to R $5.3bn (US $998m). Further, commercial revenue made up just 13% of total income compared to an average of 43% amongst European clubs analysed in the Deloitte Money League.

On top of the precarious financial position, for decades Brazilian clubs have been stricken with poor governance by elected officials, who are often unpaid, appointed based on popularity and who offer short-term fixes. As a result Brazilian football has been an unattractive proposition for many outside investors.

Law change

In a bid to improve the ownership structures of clubs and open them up to investment opportunities, Law No.14,193 was promulgated on August 6th, 2021.

This law created a new corporate structure, Sociedade An'nima do Futebol (SAF, "football corporation"), which may be constructed in three ways:

• The club can be directly transformed into a SAF;
• The club can transfer only its assets and the football operations to a SAF; or
• A new SAF may be established.

The SAF has to issue a special type of share, similar to a "golden share", to the original founding legal entity which retains certain veto rights such as changes to the SAF's name and symbols or movement of its location.

Given the indebtedness of Brazilian football clubs, a key area of the new law is that the original club, not the SAF, retains the clubs' debts with an obligation to settle them, generally within 10 years. In exchange for the debt remaining with the founding entity, the SAF has to pay the original club a percentage of current revenues and dividends as a shareholder of the SAF.

How will the new law help attract investment?

• Improved governance and transparency -the new law requires disclosure of owner and beneficiary details from entities with 5% or more equity in the SAF. Additionally corporations will need to publish corporate...