Forward: Investing in Brazilian Football – FTI Consulting | Vette Leader

With the approval of Law 14.193/2021 1 Brazil this past August aim to ensure that the Beautiful Game continues to grow and expand in one of the world’s leading soccer nations. The new law allows Brazilian football clubs to be organized under the investor-friendly SAF (Sociedade Anônima do Futebol) regime.

Under SAF, football clubs that were previously not-for-profit organizations can be transformed into limited liability companies, creating new avenues for growth through capital investment. While some clubs have resisted the SAF model, others have embraced it to revitalize a club struggling with debt. Investors looking to get into the Brazilian football business should keep a close eye out for new opportunities throughout the remainder of 2022 and early 2023.

Restructuring of the Brazilian professional football market

Unlike in Europe, where football clubs are corporations – some are publicly traded, such as Tottenham and Manchester United in England and Rome and Juventus in Italy – most Brazilian clubs are structured as non-profit associations. While the non-profit model has certain advantages, particularly from a tax perspective, it does not promote standards of governance or club professionalism. It also introduces certain restrictions on access to the capital markets, limiting investment opportunities in one of the country’s leading entertainment sectors. 2

The new SAF regime 3 opens doors for investors by offering a number of significant changes in the industry, including:

  • Allowing clubs to transfer assets to a new entity without liability, making them attractive to potential investments from debt and equity investors;
  • setting standards for governance, including legal responsibility of club managers for financial decisions;
  • allowing private debt issuance as an alternative to raising capital;
  • introducing possible avenues for judicial reorganization, bankruptcy proceedings or other alternative forms of restructuring; and
  • Definition of a special tax regime with certain advantages over a typical limited liability company.

Football clubs structured as not-for-profit organizations may lack some of the corporate structures and controls required of publicly traded companies, so this presents an opportunity for local clubs to establish more professional standards. For clubs adopting the SAF model, this should result in significant improvements in internal processes and management standards to meet required governance standards, including the establishment of formal boards and review committees.

The global passion for football

Soccer is the most popular sport in the world with an estimated 3.5 billion fans. 4 The Brazilian soccer market is a well-positioned segment with multiple growth opportunities to continue expanding in the long-term. Brazil’s large population combined with widespread passion for football has produced several relevant local clubs with millions of fans. 5 In addition to the SAF investment opportunities, the local football industry could see several changes that will create new opportunities for additional revenue.

Following the example of some European leagues, Brazilian clubs are moving towards creating an independent league managed directly by the teams. 6 There are also growth opportunities in the segment of digital streaming services, in alternative transmission methods and in involving and monetizing the fan base. 7 With fresh capital, Brazil’s clubs can increase their investments to explore alternative revenue streams such as social media, fan token commercialization and others.

Finally, the country is known as a producer of talented young players who regularly attract the interest of international clubs. 8th Investments in player development infrastructure and youth categories should go into the market investment thesis.

Mastering challenges in an established market

Barring a pandemic-hit 2020, Brazilian clubs’ revenues have grown solidly in recent years, although debt-to-equity ratios remain generally high.

Traditionally, broadcasting rights and prize money are the largest source of revenue, followed by player transfers, sponsorship and product sales, and matchday revenue, which includes tickets and merchandising, and food and beverage sales.

Figure 1 – Serie A club financials (BRL billion)

illustration 1

However, club debt has accelerated in recent years, not only due to the recent impact of the pandemic, but also due to the lack of professional management in the local football industry. 9 In general, tax liabilities make up the largest part of a club’s debt. The other relevant liabilities usually include suppliers, agents, and staff and player payroll.

Investment opportunities continue to exist

The proliferation of heavily leveraged football clubs has accelerated stock transactions in Brazil. Investments in Brazilian football were initially focused on controlling stock deals, targeting clubs with difficult financial conditions and poor sporting results, but also with significant fan bases and strong brand awareness. As clubs evaluate the pros and cons of adopting the SAF model and how it can help them compete with other clubs, there will continue to be a steady supply of investment opportunities from clubs waiting for the right offer to appear. 10

How can FTI Consulting help?

FTI Consulting provides strategic advice with its global reach, and with its local office in Sao Paulo, Brazil, FTI Consulting can provide local insight into the latest international sports trends through an experienced team and network. FTI Consulting covers the full range of services for all leading players shaping the future of the sports industry. FTI Consulting is well positioned to assist with all steps of a potential transaction through its FTI Capital Advisors 11 Team.

FTI Consulting also has an experienced team to support the transaction process including but not limited to: due diligence of objectives, post-acquisition integration and improvement, liability management, ticketing optimization, overhead and stadium costs, relegation planning or multi-year business plans for the club.

If you are interested in exploring investment opportunities in the developing Brazilian soccer market, FTI Consulting would appreciate the opportunity to start a conversation.

Leave a Comment