Brazilian clubs to the fore again

TWO Brazilian and two Argentinian clubs will contest the semi-finals of the Copa Libertadores at the end of October 2018. Grêmio, the holders, and Palmeiras will face-off against the Buenos Aires duo, River Plate and Boca Juniors. Two enticing ties are in prospect, but the last four line-up is arguably one of the strongest of recent years.

Brazilian clubs have won five of the last eight Libertadores, although only one of the last four. Interest in domestic Brazilian football seems to be on the rise once more with the average attendance in the 2018 season touching 19,000 – the highest for some time. Of the 20 clubs in the top flight, 12 are enjoying higher gates, notably Flamengo, whose 50,000 average is around three times their 2017 figure.

There’s also good news for Brazil in the form of new broadcasting agreements. The Joint venture between BR Foot Sports Media and FanHero will create a global OTT service devoted to Campeonato Brasileiro Sèrie A.  The deal for international media rights is not yet finalised with all 20 clubs, but most clubs have agreed to cede these rights to the Brazilian football confederation so they can be sold on a collective basis. The deal looks set to be worth USD 150 million to Brazilian football.

According to KPMG’s Football Benchmark, TV rights account for around 50% of revenues for Brazil’s Serie A clubs, versus 30% from commercial activity and 20% for matchdays.

Brazil, despite the mass interest in football, is way behind Europe in terms of financial strength. In Soccerex’s Football Finance 100, published earlier this year, 11 Brazilian clubs were in the list, but none higher than 71stplace.

A survey by Sports Value, in May 2018, revealed that the Brazilian football market generated around R$ 6.25 billion in revenues (equivalent to € 1.2 billion), with 81% attributable to the top 20 clubs. KPMG estimated that revenues among clubs have rose by around 30% between 2015 and 2017.

KPMG noted in its recent paper,  A Wealth of Potential,  that the most profitable club in 2017 was Flamengo, whose profit reached € 44 million. The Rio de Janeiro-based institution, which plays at the famous Maracanã stadium, has recently been boosted by the sale of the 18 year-old prodigy, Vinícius Júnior, to Real Madrid for the equivalent of € 46 million.

This transfer, plus the sale of Grêmio’s Arthur Melo to Barcelona (€ 31m-plus), underline that Brazil is still capable of developing and selling young talent to Europe. KPMG said: “Player trading activities continue to play an important role in the Brazilian business ecosystem. Being well-known “talent-factories” and sellers, clubs have historically relied on income from outgoing transfers. This trend is still present, as evidenced by a 63% increase in the aggregate profit on the disposal of players’ registrations over the three seasons under analysis (2015-2017).”

Indeed, Europe’s top clubs in 2017-18 all had a Brazilian in their title-winning squads, including Manchester City’s Jesus and Fernandinho, Real Madrid’s Marcelo, Barcelona’s Coutinho, Bayern’s Rafinha, Juventus’ Sandro and PSG’s Neymar. Wherever there is success, there is a key Brazilian playing his part, and wherever you go in the world, Brazilian footballers of all standards can be found plying their trade.

Further evidence of the mobility of Brazilian players is found in the country’s World Cup squad for 2018 – only three were playing domestic football. In 2002, almost half the Brazil squad was still employed in Brazil, underlining that talent is now exported earlier in players’ careers.

That hasn’t stopped players’ wages from taking-up over half of club operating revenues. KPMG reported that salaries as a percentage of revenues have been a stable 57%, which compares favourably to the Premier League (58%) and La Liga (55%) and is lower than both Italy’s Serie A and France’s Ligue 1. But as highlighted by LEK Consulting in May 2018, the high indebtedness of Brazil’s leading clubs, along with poor operating results, have made it difficult to pay competitive wages to retain talent. The highest payroll at the end of 2016 was found at Palmeiras with a total wage bill of US$ 40 million, way below the lowest Premier League club. LEK said in order for Brazilian clubs to become competitive, they would need a cash injection of between US$ 0.6 to US$ 1.2 billion per year.

Brazilian clubs have been fortunate in that they have benefitted from significant levels of debt forgiveness and extension from the government. Around 55% of clubs’ debts are with the government in the form of taxes and fees, but this process, along with a requirement for greater financial transparency, is part of the Programme for Modernisation of Management and Fiscal Responsibility of Brazilian Soccer (Profut).

There’s no doubt that Brazilian domestic football represents the only possible competitor to Europe, given its ability to continually develop exciting talent. The league is more open than most European competitions as demonstrated by the fact there have been six champions over the past 10 years, with São Paulo’s Corinthians, the last team from Brazil to win the FIFA Club World Cup, securing three titles in that period.

Whether it will ever to be possible for Brazil’s clubs to be able to compete globally depends on the economic development of Brazil itself as much as the evolution of football. Brazil has, repeatedly, promised much down the decades, but its potential still remains largely untapped. From a football perspective, some market watchers, such as LEK, advocate a new model for the Brazilian game.

LEK said, in its paper on Brazil: “In order for Brazilian football to thrive as a sector, a sport and form of entertainment, the country’s main football clubs must relinquish the existing model in favour off 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 revenues and international competition in just a few years.”

The authors of the paper, Fernando Monteiro and Fernando Fernandes, added that without this change, the potential of Brazil’s biggest clubs will never be realised and the nation’s best players will continue to flourish in the better-equipped European leagues.

KPMG, meanwhile, point to the ongoing discussions about competition alignment to the European calendar as further evidence that local stakeholders are looking to harness Brazil’s economic potential and position its football league as the long-term sustainable competition in South America. Over the coming weeks, the Copa Libertadores will reveal if Brazil’s top clubs are the best in the region.

Sources: KPMG Football Benchmark,  Soccerex,  LEK Consulting,  Sports Value,  BicharaeMotta,

Photo: PA

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