Samba in the sand: Arab investors set sights on Brazilian football

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• A 51 percent stake in Atletico Mineiro could fetch $200m
• Liverpool legend John Barnes says European-sized deals unlikely
• Libra league expects broadcasting revenues to rise 56% to $1bn 

A new law allowing Brazil’s soccer clubs to seek foreign investment is already attracting investors from the Middle East.

But experts say Brazilian teams are unlikely to rival Europe’s top tier as the next Arab trophy assets.

Enrique Ubarri, senior managing director at FTI Consulting in Florida, said that Middle East and US investors have recently explored deals with Brazilian clubs.

“The merger and acquisition market is very active in Brazil,” he said. 

“We’ve met most of the clubs from Brasileirão Serie A and most of them have expressed interest in some transaction.

“The profile of the controlling equity investors is expected to be similar to those of European clubs, which includes mid and large investment funds from the US, Europe and Arab world, especially with expertise in the sports industry. 

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“However, the sector also brings opportunities for debt and minority equity investors, which may include financial institutions.”

Brazil’s largest clubs signed an agreement in May to create a league modelled on England’s Premier League that will centralise talks to sell transmission rights and marketing contracts. 

The biggest deal in the works is for a 51 percent stake in Brazilian champions Atletico Mineiro which could fetch $200 million, Reuters reported in August.

England and Liverpool legend John Barnes said the new legislation in Brazil was unlikely to attract the kind of deals seen in Europe, but he believed the acquisitions could be the catalyst for a trend in more Brazilian players being sold to European clubs instead.  

“It won’t be bigger than Europe,” Barnes told AGBI.

“It’s not like the English Premier League – and it won’t be – because what’s happening now is the people who want to buy Brazilian teams want to benefit from the players who are going to be exported. They know the value of Brazilian players. 

“The Brazilian clubs don’t make enough money – and you can’t, because no one apart from people in Brazil are interested in Brazilian football.

“[On the other hand] people all over the world support Liverpool, Arsenal, Manchester United, Real Madrid, FC Barcelona and Bayern Munich. They are world brands.”

John Barnes/Twitter

Brazil’s lucrative transfer market

Barnes, who made his name with a brilliant individual goal for England against Brazil at the Maracana in 1984, said Brazilian teams have been “unofficially” owned for years, but the clubs now want to capitalise on their own players when they get transferred to the more lucrative European leagues.

“What has happened in Brazil historically is there have been individual agents who have funded the salaries of these huge players,” Barnes said.

“And when those Brazilian players get transferred to Europe, the agents make the money and, of course, they give the clubs some. So, what the clubs are trying to do is say ‘we want to manage that situation by the clubs benefitting more’.”

Brazil, who have the won the World Cup a record five times, have produced some of the most iconic players in the history of the game from Pelé to Zico and Socrates to Ronaldinho, Neymar Jr. and Kaká.

According to the Swiss-based Centre International d’Étude du Sport (CIES) Football Observatory there are more players from Brazil plying their trade abroad than any other nation.

Despite having world-class players, Ubarri said the former regulatory framework, where clubs were designated not-for-profit entities, limited the entry of traditional equity and debt from investors.

“With the recent investor-friendly regulatory change and a new league which will likely boost clubs’ revenues, the Brazilian market is now perceived as an emerging investment opportunity for foreign investors,” Ubarri said.

“The new law allows clubs to create a Special Purpose Entities like structure, free of liabilities, which is an attractive vehicle for investment. 

“Other than the potential returns derived from local fan engagement and broadcasting rights, investments in infrastructure and youth categories could improve revenues in the mid-term by increasing transfers of Brazilian players to European clubs.”

Revenue challenges

Excluding the pandemic years, Brazilian club revenues have consistently grown in the last decade – and although there have been only three effective equity transactions in Brazil, mainly with clubs in challenging financial conditions with specific conditions, discussions are around a “two-to-three times revenue multiple”, Ubarri added.  

“In general, Brazilian clubs are currently facing high debt levels,” he said. 

“This is due not only to the impact of the pandemic but also due to historical poor governance.

“The recent increase in interest rates, from 4.5 percent in December 2019 to 13.75 percent in August 2021, puts pressure on the clubs’ cash generation, with increasing financial expense.

“The combination of the recent law with the macroeconomic scenario has accelerated discussions with potential investors to capitalise clubs and professionalise the football market.”

Libra, as Brazil’s new breakaway league is known, has 13 clubs including Sao Paulo, Flamengo, and Corinthians.

A second group, comprised of 25 teams, is also in public talks to join Libra.

“The league can achieve significant commercial growth through the centralised sales of broadcast rights and a competition restructure,” Peter Hawkings, sports investment lead and senior project manager at Portas Consulting, said.

“This has been a key selling point. Libra expects broadcasting revenues to increase 56 percent to $1 billion through centralised negotiations,” said Hawkings.

“Brazilian football clubs also have very large and passionate fan bases. For example, Flamengo has 38 million fans. 

“But many clubs could do a much better job of engaging their fans through improved membership offerings, new content, better products and increased stadium attendances.

“With a healthier financial situation, clubs can reduce indebtedness and invest in infrastructure, technology and rosters to create a virtuous cycle.”

Brazil’s clubs get only one percent of their revenues from international transmission rights. The Premier League gets 48 percent, and Spain’s La Liga gets 44 percent.

Last year, Brazil’s first division received $687 million in transmission rights.

By contrast, England’s Premier League got $3.9 billion in the 2021 from broadcasters.

Room for growth

Felipe Diniz, partner at business consultancy firm Mirow & Co in Rio de Janeiro, said that the new Sociedade Anônima do Futebol (SAF) law allows football teams to become corporations and, therefore, improve their business model, repay their debts and boost profitability. 

In December the sale of second division club Cruzeiro to retired Real Madrid and Brazil striker Ronaldo became the first deal to take advantage of the law, followed by Rio de Janeiro’s cash-strapped Botafogo and its crosstown rival Vasco da Gama.

Diniz said first-timers tapping into Brazilian football’s current period of “profound transformation” will be able to “capture significant value”.

“Across the sporting landscape, there are a few warning signs due to rate rises and some investors scaling back their allocations to private equity,” he said.

“However, this also provides opportunities. For the top teams and leagues we have seen continued demand with several high-profile transactions including Chelsea, AC Milan and Denver Broncos in the last two months. 

“Historically, these top teams’ valuations and revenues have also continued to grow in market downturns. We expect a first wave of investments and acquisitions in the next couple of years,” Diniz said. 

Diego López, founder and managing director at Global SWF, said Brazil’s clubs are “nowhere near European football” in terms of cash flows and revenue potential

“It sounds a bit of a cliché to me, and you have to bear in mind that most sovereign wealth funds (SWFs) have matured significantly and are sophisticated enough to study opportunities in detail.

“That means that when they buy football teams or sports in general, they buy into businesses and the potential of monetising the investment at a later date.

“Therefore, I struggle to see the new laws will change the market significantly at least when it comes to SWFs.”