Attachment of economic rights: a new solution for Brazil’s indebted football clubs’?

In Brazil, the sport business industry is growing. It’s considered a lucrative business and, as a result, attracts significant interest from investors. Its intrinsic logic leads seemingly to a paradox though, as while sporting rivals need to coexist, they also have to compete for players, supporters and revenue, leading to a very competitive economic environment, the complexity of which has only increased as competition has globalized.

 

For example, in 2012, the Brazilian championship clubs recorded a combined net profit on player transfers of more than 105 millions Euros, even after spending approximately 110 million Euros on transfers in¹. Needless to say, such numbers were unimaginable ten years ago.

 

Equally, the amount of money required for a club to compete at a professional level in Brazil has also increased dramatically, and we have seen it injected from both inside and outside of the sport². For example, profit-driven investors looking for the possibility of high returns have placed their money into Brazilian clubs in exchange for a percentage of the economic rights of certain players, giving them the opportunity to profit on a future sale of that player - known as third-party ownership of player’s economic rights³.

 

Before what has been nicknamed as the “Pelé Law”⁴, which is today’s foundation of the Brazilian sports law, soccer clubs in Brazil took on debt to finance the building of strong squads. However, as a direct result of the freedom – or quasi freedom - players now enjoy leading to a fierce competition between clubs for players skyrocketing their salaries, Brazilian clubs have experienced an exponential growth of their tax debts⁵, presenting them with a moral issue: who should they pay, their creditors or their players? In 2012 such financial chaos lead to certain well established clubs owing as much as R$ 742 millions, or about 230 millions Euros.

 

Even with the record player transfer profits, when tax debts are added to the equation, only a few Brazilian clubs actually make a profit⁶. The current operating costs for top-tier clubs make it almost impossible for them to stay solvent without some kind of help from an external investor.