Via Financial Times

For Thaís Santos, the enduring popularity of football in Brazil is easily explained: “Our politics is not so good, so it is our escape.”

But unfortunately for the Rio de Janeiro resident and the rest of the country’s millions of football fans, their refuge may be under threat.

Following years of financial mismanagement and corruption, some of Brazil’s biggest clubs are on the brink of collapse, with some expected to go under as soon as next year. “Some clubs will not survive 2020,” said Cesar Grafietti, a sports economist with Brazilian bank Itaú Unibanco.

In the past decade, the cumulative debt of the country’s 20 top-leuaue teams has soared 176 per cent to R$6.9bn ($1.7bn), even as revenue from TV rights increased 160 per cent to R$2bn.

Compounding the issue,say analysts, is that the clubs themselves are resisting the very reform needed to save them — a dose of professional management.

“The problem in Brazilian football is the lack of professionalisation. The clubs are run like personal kingdoms,” said Amir Somoggi, director of Sports Value, a market intelligence group.

At the crux is the refusal of Brazil’s sports authorities to transform the game to meet the requirements of globalised competition. In contrast with Europe, where the game is dominated by professional leagues and teams have adopted company structures, Brazil has clung to a traditional club model.

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The country’s biggest teams, such as Cruzeiro, Corinthians and São Paulo, are run as non-profit organisations, with powerful executives chosen by popular vote from the clubs’ membership. Critics say the result is financial mismanagement and in some instances graft.

“Because the executives are not responsible to any owner, they do not invest, they do bad things to the brand. And at the end of a three-year term, they leave,” said Mr Somoggi.

Mr Grafietti said: “Most clubs spend more than they raise. And then they catch their breath by selling players.”

According to Fifa, world football’s governing body, Brazil exports more players than any other country, at more than 1,000 every year — angering fans and hitting the quality of the game at home.

The story of the Cruzeiro club speaks volumes. The board of the Minas Gerais team has for more than a year been dogged by a police investigation into suspected money laundering and fraud. With debt reaching more than $100m this year, the club stopped paying players’ salaries. After a woeful, embittered season, the club was this month demoted to the second division for the first time in its history.

Cruzeiro’s survival is now in question, with finances likely to be hit further by plunging revenue from television rights and ticket sales in the lower division.

Almost 40 per cent of Brazilian clubs’ revenues come from TV rights, while a further 24 per cent are from player transfers, according to a Sports Value study.

“In football there is globalisation going on, yet Brazil doesn’t get investment from anywhere. How can you explain the country being an icon of football when even the best players go elsewhere?” said Pedro Trengrouse, a sports lawyer at the Getúlio Vargas Foundation.

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For a football team to legally receive investment in Brazil, it would need to adopt a formal company structure. However, such moves have historically been rebuffed by clubs’ management, who would risk losing their positions in the event of a professional reshuffle.

3m


Estimated number of jobs Brazilian football could create if clubs were professionally managed, compared with 300,000 at present

Clubs would also have to pay more tax under such a structure. At present they qualify for the lower rate levied on non-profit organisations and charities.

They further benefit from sympathetic officialdom, which has historically treated the financial excesses of these flagbearers of Brazilian culture with a light touch.

“Why would clubs pay their debts if no one is responsible for it? Why would they pay if the government is not enforcing it?” said Mr Trengrouse.

The malaise in the national game in a country famed for its love of football is starkly illustrated on match days, when stadiums are on average occupied at below half capacity, in contrast to leading European leagues, where top tier matches are typically played before packed crowds.

Critics also point to the opportunity cost of the current approach. A study by the Getúlio Vargas Foundation found that if properly managed, football could contribute 1.1 per cent to Brazil’s gross domestic product and create 3m jobs, up from 0.2 per cent and 300,000 now. “We are the ones paying the cost of the systemic inefficiency in Brazilian football,” said Mr Trengrouse.

Analysts cite numerous international examples that Brazil could follow, notably England’s Premier League, whose global success generates billions of dollars in TV rights.

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“Brazil could be like the English market. But here they are lazy,” said Mr Somoggi, pointing to clubs’ unwillingness to engage in serious financial restructuring or develop alternative revenue streams through fan engagement or brand activation.

There is one notable exception. In 2012, a group of fans were elected to the board of Flamengo on a platform of bringing professional management to a club’s on the brink of bankruptcy.

The team immediately began restructuring debt, signing sponsorship deals and renegotiating deals with players, agents, coaches and employees. The changes freed up cash to spend on developing the club, and after years in the doldrums Flamengo last month won the Brazilian league and the Copa Libertadores — the South American Champions League — and finished as runners-up in the Fifa Club World Cup at the weekend.

“If you have good management and credibility, you will have more money,” said Wallim Vasconcellos, a vice-president at Flamengo. “If you have more money, you can invest. There is no magic.”