Flamengo (red/black) and Palmeiras (white/green)

The English Premier League is the world’s richest and highest-profile league – grouping six of the top 10 most valuable clubs of the world. While part of its financial success is due to the billions of petrodollars poured in by oligarchs and millionaires with checkered pasts, the high level of professionalization of the clubs also comes into play. For starters, the clubs themselves own the league, not England’s Football Association. They negotiate broadcasting rights as a united front – and it has become the top source of revenue for the world’s most powerful teams.

According to consultancy L.E.K., Brazilian football teams should look to England as something to emulate. First, however, clubs need to change their entire organization model. Most of them are still social clubs, with paying members and multiple sports, such as basketball, volleyball, and swimming. In order to become more profitable, they need to become companies, in which football is treated separately.

Of the 20 Brazilian football teams analyzed by L.E.K., 14 posted losses in 2016 – either because they’ve spent too much on signings, or invested too much money on new stadiums. The problem is that no one is held accountable for their frequent poor decisions. “If it were a company, club presidents would be sacked, as their decisions create unmanageable debts,” wrote Fernando Fernandes, a partner at L.E.K.

Brazilian football teams get their money from the wrong places

Much of the revenue raised by Brazilian football teams comes from ticket sales. However, teams don’t sell enough tickets for that model to work. During the 2017 season, only 41 percent of seats were sold – while that rate reaches 96 percent in England and 92 percent in the German Bundesliga. The average attendance per game in Brazil was 16,000 – against England’s 36,500 and Germany’s 43,200.

Another source of revenue is the clubs’ season ticket membership models. Unlike the traditional European season ticket programs, Brazilian clubs offer “supporter-member” benefits, with monthly subscriptions in exchange for discounts on ticket prices. There is much room for growth of these programs in Brazil, as many of the country’s clubs count their fan bases in the tens of millions.

“The ten Brazilian football clubs with the largest fan bases could be expected to add USD 130 million to USD 210 million in revenue if they increased the number of fans participating in their ‘supporter-member’ programs to around three percent of their fan base,” says the L.E.K. report. However, no team is even close to the three percent mark. São Paulo, the team with the highest number of paying fans, has reached only 1 percent of its fan base.

That is just not enough, as you can see: 

brazilian football

By not acting as a united front, teams lose bargaining power when negotiating their TV deals. According to L.E.K., revenue of the Brazilian football league would jump from USD 1.1 billion to USD 3.7 billion if the league was managed similarly to Spain’s La Liga.

Changes that must be made

Almost all Brazilian football clubs are owned by their members, a model that establishes incipient rules of accountability for executives. Plus, presidents are elected for two-to-three-year terms, which limits any long-term planning. Executives step in and over-invest for short-term gains, leaving massive debts for future administrations.

“In fact, even in years when there has been a large share of nonrecurring line items in clubs’ revenues, clubs have taken few actions aimed at sustainability over both the medium and the long term. For example, in 2016, clubs received a cash injection of approximately USD 215 million in future television rights. They used nearly half of that money to acquire players instead of reducing their debt to private creditors.”

brazilian football

Roughly 70 percent of the largest Brazilian clubs have not generated enough recurring operating income to cover the interest on their debts, a scenario that can be aggravated by an increase in financial obligations. L.E.K. also highlights that over half of the clubs’ debt is with the government, due to the delay in payment of taxes and fees. If it weren’t for constant bailouts (USD 180 million in 2016 alone), many clubs would be on the cusp of bankruptcy.

Here is the L.E.K. diagnosis for changing that:

“Using other leagues as a reference, and understanding the challenges Brazilian clubs face, it becomes clear that in order for Brazilian football to thrive as a sector, a sport and a form of entertainment, the country’s main football clubs must relinquish the existing model in favor of a mixed-capital company club model that includes the participation of the club association and private investors.

This change in model would be a fundamental step toward starting a cycle of virtuous transformation that would allow Brazilian football to improve in terms of both revenue and international competition in just a few years. Without this change, Brazilian teams’ potential will never be fulfilled, and the country’s best players will continue to flourish in the better-equipped European leagues.”

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MoneyNov 03, 2018

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BY The Brazilian Report

We are an in-depth content platform about Brazil, made by Brazilians and destined to foreign audiences.