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Brazilian club football is shown the light, but chooses to remain in the dark

The Campeonato Brasileiro Série A – or Brasileirão – will be the only major football league in the world without international, local-language distribution in 2019. International TV coverage of the Brasileirão can only be found on the international, Portuguese-language channels of Brazilian media group Globo.

Twice over the past 12 months, investors have attempted to acquire international media rights and stadium advertising rights to the league. Twice, the deals have gone up in smoke.

The Brasileirão has long suffered from mismanagement and short-termism, and there are two Portuguese phrases which are helpful when trying to comprehend the business of Brazilian football.

Jeitinho Brasileiro.

Literally, “the Brazilian way”. Figuratively, the idea that trickery and bending the rules is the smartest way to get things done.

Comprar gato por lebre.

To buy a cat, thinking it was a rabbit – to be duped and get a bad deal.

Mis-sold rights

The Brasileirão’s international media rights are brokered by the Brazilian Football Federation (CBF) on behalf of the top-tier clubs, and are packaged alongside stadium advertising rights, seemingly to attract media rights distributors with contacts at global brands.

A first attempt at completing an international media and advertising deal collapsed in December last year. A shapeshifting consortium, eventually named FanFoot after multiple changes in ownership structure, withdrew from a proposed deal that would have been worth R$137.5m (€31.5m/$37m) per year.

FanFoot says the CBF and the clubs had attempted to sell it ‘exclusive’ international media rights and stadium advertising rights, when both were anything but exclusive.

For one, Globo holds non-exclusive, global rights to broadcast the Brasileirão in Portuguese via its individual domestic free-to-air and pay-per-view deals with clubs.

Having done little to no research before its bid, this came as a surprise to FanFoot. Given that FanFoot’s plan was to create a global, interactive streaming service aimed at the Brazilian football diaspora, the lack of exclusivity presented an insurmountable problem.

To add insult to injury, the CBF neglected to mention its league-wide stadium advertising deal with Gol Airlines, which stretches into 2019.

The prevailing story in the Brazilian media is that FanFoot’s refusal – or inability – to pay its first instalment was the primary cause of the deal’s collapse. In reality, Fanfoot simply decided not to buy the cat.

Money or nothing

Enter Sport Promotion and Swiss investment fund Ecotonian. This group followed up the collapse of FanFoot’s deal by offering even more money – up to $460m over as many as ten years, from 2019 to 2028 – for the same inventory of rights, plus international betting rights.

After their offer was accepted in March, the deal collapsed on April 22. It transpired that the CBF, overseen by its compliance officer EY, had neglected to make international betting rights available to other bidders. Sources say that the CBF was advised to cancel the tender, and the clubs voted to abort the deal with Sport Promotion and Ecotonian.

Some club presidents remain in contact – outside the parameters of the tender process – with investment fund Prudent, an unsuccessful bidder in the second tender.

Prudent bid against Sport Promotion and Ecotonian in the second tender process, offering a huge $800m, plus a 50-per-cent share of additional revenue and a commitment to invest $500m in global marketing of the Brasileirão. It reduced its bid to $604m – still $144m more than Sport Promotion’s bid – after being erroneously told betting rights were not available.

Its offer was still rejected. In a letter to the CBF, Prudent is understood to have described the situation as “a joke”.

The clubs empowered the CBF to negotiate the deal on their behalf as an admission of the reality that, even though each club still signs off on the deal, a collective sale is the only way to maximise the overall return. But the CBF’s inability to run a successful tender process – even when overseen by compliance officers – means Brazilian clubs will now earn nothing for their international media and betting rights in 2019.

Caveats

Some clubs hope that Prudent can be brought back to the negotiating table, but there are doubts whether any deal on the investment fund’s terms would be feasible.

For many onlookers, the numbers don’t add up. The $1.3bn total investment Prudent offered is an eyewatering amount of money for what the Brazilian league can offer in return. International media and betting rights to the Brasileiro were worth just $9m per year from 2016 to 2018.

One long-time Brazilian football executive, who asked not to be named, told SportBusiness that Prudent’s proposed investment came with several caveats – notably that each club would have to undergo regular external audits, and that any contract between Prudent and Brazilian clubs would have to be subject to New York state law, not Brazilian law.

This would give Prudent a much better chance of reclaiming misappropriated funds than if it had to bring litigation in Brazil – a legitimate worry given Brazilian football’s chequered past and the Brazilian legal system’s vulnerability to corruption.

Despite the huge amounts of money on offer to the clubs, local experts believe they would have rejected Prudent’s terms. Most Brazilian clubs would need to be completely restructured in order to survive a thorough external audit. In the words of another South American football business executive: “There is absolutely no way the clubs would have agreed to those conditions. Not a chance.”

Disparity

Bringing all of Brazil’s clubs on to the same commercial page is difficult, to say the least, but it is becoming increasingly necessary. The biggest clubs – Flamengo, Corinthians, Palmeiras, São Paulo and Vasco da Gama – earn many times more than the smallest clubs in Brazil’s top tier, and the total debt of Brazilian clubs is now understood to be well over R$5bn.

This, along with the failure of the two potentially lucrative international rights tenders, has led to renewed calls for a complete overhaul of Brazilian football’s commercial structure, and for collective selling.

Brazilian clubs operate as non-commercial members’ associations, electing autocratic presidents that often spend beyond the clubs’ means. As most clubs are not companies, they are unable to form private entities under which they can negotiate purely on business terms with each other, and externally make more from commercial rights via collective selling.

For Fernando Monteiro, managing director of LEK Consulting, the need for the change is urgent.

“The change has to happen. We need a model which is not associative. We need to have an enterprise model for football in Brazil. It needs to change because otherwise it’s not a good asset to attract investments.”

Monteiro believes that instead of relying on an angel investor, clubs need to start fixing their own problems.

“Some investors are approaching us to think about how we could develop a powerful league in Brazil, but it’s clear that that should be a consequence of stronger clubs, not a precursor. These initiatives, which sounded positive, were not well implemented. The clubs are still being managed under the old model, in the associative model, without financial discipline. Without a good level of professionalism, it’s like trying to run before you can walk. I think we need to walk before we run.”

Brazilian club football’s immense commercial potential can make it difficult to understand why wholesale reform isn’t at the very top of its agenda. But according to Fernando Manuel, head of sports rights at Brazilian media group Globo, the issues go a little deeper.

“One way or another, this may have to do with the overall workings of the country itself, a cultural or social trait perhaps,” Manuel says. “In almost every subject, there is great difficulty in Brazil in understanding – or even focusing – on just how important it is to prioritise agendas which lead to stable and constructive pacts for parties which have clear, common goals. There is a difficulty to place such common objectives above individual interests.”

Mistakes of the past

Brazil has tried to walk before. A distinctly Brazilian version of German football’s ownership model was attempted in the late 1990s and early 2000s. Banks and investment funds began creating joint ventures with football clubs, which would operate the commercial side of the clubs. The members associations would continue to wholly control the club’s on-pitch activities.

Instead of the harmonious relationships seen in Germany, Brazil’s versions – the parceria – were ruinous.

The ISL agency planned to invest €667m in Flamengo over 15 years but went bankrupt just three years into the deal. The debt they accumulated from player transfers and expansive operational costs was passed to the members’ club after the joint venture was dissolved.

Bank of America attempted something similar with Vasco da Gama. It planned to invest a minimum of €116m over ten years into Vasco, but quickly became alarmed when income from commercial rights was being paid directly to accounts associated to the members’ club, and not to the joint venture.

Whether through bankruptcy or simply cutting losses, none of those investors are still around. In the words of one Brazilian football executive: “The clubs would take your money and then kick your ass out of Brazil.”

In some cases, members’ clubs held their investors to ransom, threatening to play their youth teams in senior matches unless they were given more money.

Learning process

The man leading Bank of America’s disastrous investment in Vasco was investment banker Luis Barboza. Twenty years later, Barboza is back, spearheading Prudent’s attempts to buy into Brazilian football.

Whether by accident or design, Prudent’s offer has served Brazilian clubs with a reminder of what they could have, should they abandon the Brazilian way. Monteiro believes that due to the clubs’ spiraling debts, they will eventually have no choice but to listen.

“It is positive that you have investors bringing attention to what could happen if the model was better. Clubs are in a very bad financial situation, and they’re going to need money, otherwise they’re going to go bankrupt.

“If you put everything together, I think there is a good chance of something starting to happen. It’s hard to say if it’s going to be next year or in three years. But I think it’s very, very hard for this situation to remain the same. Either we’re getting close to the end, or something is going to change. It’s very hard to extend the situation for much longer, in my opinion.”

In the interim, the Brazilian league has vanished from the world’s television screens. If the CBF and the clubs want that to change, they have two choices: professionalise, or get used to selling a cat.

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