A Premier League model beckons for Brazilian football

FOR ALL the talk of samba football and Copacabana beach dudes juggling balls on the sand, Brazilian football is still largely anonymous to the rest of the world. Every four years, the media focuses on the Brazilian national team and expectation invariably exceeds reality – it is now 20 years since they won the World Cup, eight since they were humbled on their own turf by a rampant Germany. That’s international football, but what about Brazil’s domestic game, which despite exporting hundreds of players, is still something of a mystery?

That may be about to change after the passing of a law that will enable Brazilian clubs to behave like corporate bodies rather than non profit-making organisations. This means the free market will start to dominate and will influence club behaviour, as well as create both winners and losers. It will surely be good news for the giants of the Brazilian game but could, if greed gains the upper hand, create bigger imbalances than there are today. In 2020, the revenues of the top five clubs accounted for 56% of overall income, with Flamengo generated 14% on their own. At present, the distribution of TV revenues is certainly sub-optimal, with around a quarter of the total going to two clubs, Flamengo and Palmeiras, between 2017 and 2021. 

But the rebooting of Brazilian football could also lead to greater professionalism and the creation of global franchises in a country whose chief football brand is unequivocally the national side.

It was starting to happen in some ways, mainly through the increased awareness of South America’s Copa Libertadores, which has received greater exposure in Europe in recent years, but not always for the right reasons.

But this new law will open the door for greater investment from abroad, in fact it is already underway with two iconic but financially challenged Brazilian clubs, Botafogo and Vasca da Gama, benefitting from US investors. Meanwhile, another club, Cruzeiro, also with fiscal issues, was bought by World Cup legend Ronaldo. These three clubs had combined debts of around US$ 450 million and, according to EY, the total debt among top flight teams was US$ 1.9 billion (R$ 10.3 billion) in 2020. As well as these takeovers, two clubs were already owned by companies, Red Bull Bragantino, now part of the Red Bull multi-club model, and Cuiba, who are backed by a tyre company. 

In tandem with the new law, Brazilian clubs are threatening to break away and form their own competition. Naturally, money is at the root of this initiative, although critics have called for the Liga do Futebol Brasileiro (Libra) to be more than a way of distributing TV cash. 

Brazilian domestic football has suffered from a poor overseas image and selling games to broadcasters has always been difficult, even though some clubs have huge fanbases. The game has been damaged by poor, short-termist owners, bad playing surfaces, corruption, crowd violence and an overcrowded playing calendar. Brazil stubbornly holds on to its state championships, which allow small clubs to become cannon fodder for the big names. But the biggest South American market is still obsessed with the sport with 80%-plus following the Serie A championship and three quarters of the nation interested in football (source: Brand Finance).

Currently, six club presidents have committed to the new project, from Flamengo, Palmeiras, Corinthians, Sao Paulo, Santos and Red Bull Bragantino. Some believe a breakaway league will release Brazilian football from the chains that have prevented real progress, calling it a moment of liberation. 

TV money will be more democratically distributed, claim the advocates, although there are currently two versions on the table. The first is 40% equally shared, 30% based on performance and 30% engagement, while the second is 50% – 25% – 25%. Essentially, though, Brazilian football’s rebirth does depend on making the pot bigger and successfully marketing Brazil to the rest of the world.

How realistic is the dream of raising Brazil’s competitiveness? The country has always been seen as one of potential, but for various reasons, it has rarely been realised on a consistent basis. From a football perspective, Brazilian clubs remain the dominant force in South America, winning six of the last 10 Copa Libertadores. Six of this year’s last 16 are from Brazil, including heavyweights Palmeiras, Flamengo and Corinthians.

An interesting development is the rise of Flamengo, one of the most popular clubs in Brazil and one that has tried to build a global reputation. Brand Finance’s Football 50 has been dominated by Europe since its inception, but for the first time, a Brazilian club has made its way into the list, albeit at number 49. According to Brand Finance, Flamengo’s brand is far more advanced than Palmeiras, its nearest competitor among Brazilian clubs. 

Can Brazilian clubs ever generate enough money to retain some of the talent that gets sold abroad before it reaches its peak? As one journalist commented, if Brazil was to stop players going to Europe, it would create the best league in the world. That’s a bold claim, but Brazil exports more footballers abroad than any other country, but often fails to leverage the full value. It’s worth noting that Brazilian club revenues in 2020 totalled R$ 5.3 billion (£ 890 million/ US$ 1.1 billion/€ 1 billion).

Until revenues allow the Brazilian game to truly compete with other leagues, it would seem unlikely the trade route will change, although the trend is negative in terms of numbers. Between 2017 and 2022, 1,219 players left Brazil with the chief route being to Portugal (source: CIES Football Observatory). Also, any designs on creating a Club World Cup will be a little hollow while Europe is so dominant.

As the so-called “Football Inc.” initiative becomes more defined, it is not difficult to envisage a wave of investment in Brazilian football in the coming 12 months as there could be considerable upside for clubs with massive fanbases. It could also unleash some of the latest developments in the football industry, such as crypto currencies, data-driven and more strategic transfers and the arrival of more investors with multi-club portfolios. Another factor could be an influx of foreign talent into a league that has a low percentage (< 10%) of expatriates. This could not only be Brazil’s Premier League moment, but handled properly and with patience, it could also change the shape of global club football. 

Brazilian clubs have to improve financial performance

THERE will be one Brazilian club in the final of the Libertadores Cup this year with four teams in the last eight all meeting each other and the winners of those ties meeting in the semi-final. After a relatively lean spell during which Brazil won just one in five (2017), the South American champions may get their hands on the impressive Libertadores trophy once more.

The other half of the draw sees a potential repeat of the 2018 final, River Plate v Boca Juniors, in the semi-final, which will undoubtedly send CONMEBOL into blind panic.

It’s not all good news for Brazil’s clubs, though. From a financial perspective, they have issues to deal with. The consultancy, LEK estimated that 70% of Brazil’s top clubs do not generate enough operating income to even service the interest on their debts.

In order for Brazilian clubs to change their status, they have to look beyond their own shores and adapt their business models. Brazil, as a nation, is economically volatile. It is the world’s ninth largest economy and during the financial crisis of 2008-09, it was one of the countries that the rest of the world looked to – it was one of the so-called BRICs (Brazil, Russia, India, China). GDP growth was 7.5% in 2010, for example, but by 2015, the country had tipped into what became a brutal recession. Most recently, it was announced that the Brazilian economy shrank for the first time since 2016. Brazil may have some very large corporates, such as Vale – the biggest producer of Iron Ore and Nickel in the world – and Petrobras, but 55 million people live in poverty, the equivalent of 26.5% of the population.

Distribution of wealth is alarming in Brazil. The richest six people have the same wealth as the poorest 50% of the country, some 100 million. Furthermore, the richest 5% have the same wealth as 95% of the population. David Goldblatt, academic and football writer, described the country as an “unequal society that is off the scale…many people are not just poor, they are very poor.”

Historically, working class neighbourhoods such as the Brazilian favelas have created excellent footballers – Tottenham’s Champions League hero, Lucas Moura recently explained that he chose football to avoid a life of poverty and crime. Brazil, according to the World Peace Index, is ranked among the 60 worst countries in terms of internal/external conflict. Furthermore, the World Economic Forum, in 2018, named Brazil as the 13th most dangerous country and the second largest consumer of cocaine in the world.

Brazil also has the highest rate of violence and deaths at football matches. In the past year there have been almost 150 violent fights at games and no less than 19 deaths.

Clubs operating against a backdrop of poverty will always be limited in how they can evolve and grow commercially. For many people, South America is still remote and disconnected and for decades, Europe and the US have attempted to unlock the potential of the major countries. In the 1970s, the global financial community dipped its toes into financing projects in Latin America, forming consortiums to spread the lending risk and ensure individual banks were not over vulnerable. A curious transaction emerged from this period when Romario became part of a debt-swap deal involving PSV Eindhoven’s owner, Philips, and impaired Brazilian debt. Philips used the heavily discounted debt to pay for the transfer of legendary striker Romario from Vasco da Gama to PSV.

The dilemma Brazilian clubs have today is that they lose all their star players to Europe at a very young age, which can have the effect of diluting the appeal of the clubs themselves to fans around the world. The defection age is getting younger all the time, witness Real Madrid’s acquisition of teenage striker Vinícius Júnior for € 46 million from Flamengo. Footballers, like most commodities, are part of an export-led economy (total exports US$ 218 billion in 2017), but while this has enabled the developers of talent to earn much-needed income, it has also undermined the quality and stability of domestic football in Brazil.

According to CIES Football Observatory, there are more than 1,300 Brazilians playing around the world as expatriates. The most commonly-used route is Brazil to Portugal, which has involved 261 of currently employed players. Porto, Benfica and Sporting, Portugal’s leading clubs, have 15 Brazilians in their squad at present. Some of this traffic has been restricted due to the outlawing of third party ownership transactions, which were banned by FIFA in April 2015.

It is widely believed that Brazilian football clubs need to transform themselves into businesses that can lure capital to the domestic game and new investors. The corporate sectors have succeeded in attracting the rest of the world to Brazil, it is arguably time to make Brazil’s top clubs into global brands that can become more competitive with Europe’s commercially-run footballing giants.