Will Brazilian football fully open its doors to Middle Eastern investment?

BUENOS AIRES – Brazil, often upheld as the spiritual home of soccer, passed a “Football, Inc” bill in August 2021, allowing domestic clubs to pivot from non-profit associations to corporations known as “Sociedade Anonima do Futebol” or SAFs.

North American capital has already started to flow into some of the country’s domestic clubs.

There is also interest from the Middle East in the domestic club Esporte Clube Bahia and in the emergence of a potential new league to compete against one of the country’s rival leagues.

Amid the shift in Brazil’s football landscape, investors are pushing to tap into new potential revenue streams — notably from the sale of lucrative TV rights, following a similar path to that of the English Premier League.

According to Dr Daniel Moya Lopez, journalism professor at the University of Seville, the Covid-19 pandemic has impacted the global sports industry.

Lopez tells World that Deloitte's estimate is that the average valuation of the 20 most economically powerful clubs fell from around more than $506 million to over $445 million.

For investors turning their attention to Brazil, Dr Joao Manuel Casquinha Malaia Santos, a history professor at the Federal University of Santa Maria in Rio Grande do Sul, says Brazil’s “big” football clubs place its domestic league in a unique position — one which is able to draw upon a large fan base to fill stadiums and one which offers from the fans perspective around 10 teams who are pushing “to win the title.”

Santos suggests underlying economic reasons are driving the clubs’ business-model shift, due to “the serious financial crises” that have accumulated over decades.

“The Brazilian government, for different reasons throughout history, has always been very ‘generous’ with these big clubs, forgiving debts and establishing generous lines of financing for these debts. However, these debts have rarely been paid. The non-profit club model does not hold boards accountable for mismanaging money, and so they spend money without accountability in order to win titles and write their names in history,” Santos tells TRT World.

He notes some of the biggest clubs hold debts amounting to $100 to $200 million. 

“Some big clubs manage to maintain the previous structure, but for others, the only salvation to get resources is with a change in its structure, allowing the entry of investors. If this is the situation for big clubs, imagine for small ones,” says Santos, suggesting the pandemic is not the main driver, but in some cases “it accelerated” the pre-existing crises.

Lopez describes an “enormous” financial opportunity for investors looking at Brazil, due to its legacy of producing talented players.

“If you invest in the source of the product, you expect to receive a financial reward later on, in the sale of players, directly or indirectly,” says Lopez.

On January 19, the International Federation of Football History & Statistics described Brazil’s ‘Serie A’ as the “best league in the world for the second time in the history of the IFFHS annual ranking launched since 1991.” 

However, for others, Brazilian clubs remain regional powerhouses, notably in the Copa Libertadores (the region’s premier South American club competition), which won five of the last six competitions — but compared to the main European leagues, economic and footballing disparities arguably exist.

“In the first three editions of the FIFA Club World Cup (2000, 2005 and 2006), the champion was a Brazilian team. Since then, only in 2012 did they become champion again,” says Lopez. “Brazil continues to export many talented players.”

In recent history, Brazilian clubs have been unable to retain players such as Ronaldo, Rivaldo and Ronaldinho, who enjoyed large club successes in Europe.

“Pele became one of the greats in football history without having to play in Europe. Today that is unthinkable,” says Lopez.

City Football Group (CFG), which is the total or partial owner of 12 clubs and backed by the powerful Abu Dhabi United Group, is currently deep in negotiations with Brazilian club Esporte Clube Bahia (Bahia SAF). The northeastern football club is understood to be concluding the last steps prior to announcing what could be a 90 percent stake in Bahia for 1 billion reais ($190 million). Around half of the investment is expected to be used to recruit players, while a third would write off the club’s debt.

After Bahia’s return to the top flight, Lopez says the move is in line with CFG’s most recent strategy of investing in second-tier clubs that later compete in the first division.

Ferran Soriano, CEO of CFG, announced in a video released in early December that the organisation is "honoured that Bahia's shareholders have placed their trust in us and voted in favour of City Football Group's investment” after 98.6 percent of CFG’s shareholders of the club voted to turn it into a ‘SAF’ or corporation, potentially paving the way for Bahia to become CFG's 13th club.

CFG-owned New York City FC has already loaned Uruguayan midfielder Nicolas Acevedo to Bahia, while Lopez suggests the club will likely become a “leading team in Brazil” thanks to the organisation’s financial muscle.

“What remains to be seen is how it affects the identity of the club. Many CFG clubs changed their crests and colours to adopt Manchester City's parent brand. Among them Montevideo City, which was previously Club Atletico Torque,” says Lopez, describing them as “subsidiaries” and not clubs in their own right, suggesting these changes damage the whole culture of the club.

A number of prominent Brazilian clubs have received backing from US investors.

American businessman John Textor owns a 90 percent stake in Botafogo and has more than a 40 percent stake in Premier League club Crystal Palace.

777 Partners, based in Miami, has a 70 percent stake investment in Vasco de Game, who famously beat Manchester United 3-1 at the FIFA Club World Cup 2000. The organisation also has stakes in Sevilla in Spain, Genoa in Italy and Standard de Liege in Belgium and is involved in the international distribution rights for the Argentine and Brazilian football leagues and the national team clubs of Chile and Peru.

However, the potential shift in club models could be an issue.

“There is a whole political organisation within the clubs that needs to accept this change. And that amounts to historically strong groups in club politics losing power,” says Santos.

Among some fans, it raises questions about whether a number of Brazilian clubs could remain competitive.

The clubs themselves also have different positions concerning the share of broadcast revenues, resulting in the emergence of rifts.

Currently, two different projects for Brazil’s domestic leagues have been proposed by separate backers.

One is ‘Liga Forte Futebol,’ backed by 26 clubs from both divisions — including Atletico Mineiro, Cuiaba and Fluminense.

Another is ‘Liga do Futebol Brasileiro,’ or Libra —  backed by some of Brazil’s elite clubs, including Corinthians, Flamengo and Santos — whose aim is to establish a league run by clubs, capitalising on different revenue streams akin to the Premier League.

Reportedly, the United Arab Emirates’s Mubadala Capital, the fully owned asset management branch of Mubadala Investment Company, is seeking to invest $971 million for a 20 percent stake in Libra. 

Lopez says today there are “three big investors” in global football — China, the US and the Middle East, which has largely focused on Europe and is “practically everywhere in the world” aside from Africa.

“The consequence of these large investments of capital [that are] unconnected to the sport is the pursuit of closed competitions such as the failed European Super League or the plans for the Libra League in Brazil. The competition, the effort and the sporting merit no longer matter; only the turnover for the clubs (does),” says Lopez.

He describes it as a “neoliberal” model of football that is “economically profitable in the short and medium term, but in the long term, these aggressive investments, which depersonalise the social and cultural value of the sport, can generate a wound which is difficult to recover from.”

Lopez says the 16 to 17 clubs opposing the proposal potentially face marginalisation and questions the impact upon smaller sides.

In Brazil, Santos says foreign investment has caused “a certain euphoria in the press with these investors who are arriving in clubs like Botafogo, Vasco, Cruzeiro and Bahia.”

He describes the issue as being heralded by the general press and fans of these clubs as “a salvation for Brazilian football.”

Santos says foreign investment is already “heating up the player market” among both the big clubs and smaller ones like Red Bull Bragantino.

“The fans of these clubs are also excited, filling the stadiums and with great expectations for the coming years. Locally and regionally, I believe there is a certain impact as more resources are coming into the competition for good players within the Brazilian league and also in other South American leagues,” says Santos.

However, Santos doesn’t believe in the near future that the Brazilian league will be able to compete with the main European leagues.

“We are on the periphery of capitalism. Even with foreign investment, I do not believe that the Brazilian consumer market has the capacity to boost the Brazilian league to reach investment levels to match or surpass the strongest leagues in the world,” says Santos.