RIO DE JANEIRO, BRAZIL – Brazilian soccer returned to the spotlight at the beginning of the year for reasons that usually do not stand out. Behind the headlines is an acronym that is still unknown but which promises to be increasingly recurrent: the SAF, an acronym for Sociedade Anônima de Futebol (“Football Limited Company”).
The new legal figure has opened the way for some of the most traditional clubs in the country, such as Cruzeiro and Botafogo, to attract large investors, some from abroad, willing to invest millions of dollars. And there is more to come.
The entry of investors into clubs is nothing new, but this time it is different: the deeper connections – with the right to control every part of soccer – and the scope have the potential to transform soccer on and off the field.
The movement happens in parallel, not by chance, with the backstage negotiations to form a Brazilian soccer league, along with the English Premier League or Spanish soccer’s LaLiga, among other benchmarks.
“It’s a new asset class, especially for the Brazilian market, with some triggers that help in the attractiveness”, said Christian Laloe, partner and co-founder of Fig Venture Partners, the financial arm of the Figer Group.
“This is an asset class uncorrelated to the economy. And the formation of the league should completely change the valuation level of the teams. At the start, it will already be one of the largest in the world,” said the executive. “And, with the league, the values will also change and, probably, the broadcasting rights model.
According to sources in Brazilian soccer and the capital market, negotiations to form a league that brings together the big clubs are advancing so that a successful outcome may be announced by the end of this year.
Investment banks are already presenting proposals that include strong interest from companies to become the league’s official partner, similar to what exists in European countries, such as LaLiga Santander in Spain.
On the foreign investor side, the completion of two major deals – with Cruzeiro and Botafogo – in about a month drew attention to this attractive asset in the local market, evaluated the executive.
Fig Venture Partners is structuring a private equity fund – in the form of a private equity fund (FIP) – to raise funds with investors to take over the SAF of a major Brazilian club. There are negotiations with three to four clubs in the A and B series of soccer in the country, equivalent to the first two divisions.
It is not an isolated event. According to market sources, investors are interested in clubs of different sizes, which demystifies the view that only the most traditional or popular clubs could attract investors. “Everything is a question of price,” he summarized.
The SAF is a legal figure that became possible in August last year with the new Club-Company Law, whose project was approved in Congress in July.
Cruzeiro and Botafogo came out ahead with the approval of the creation of SAFs by their respective boards and club members. They attracted the former player and now businessman Ronaldo and the American Eagle Holding, owned by businessman John Textor, the main shareholder of Crystal Palace.
Vasco da Gama, with the interest of 777 Partners, a private equity group that has already invested in European clubs such as Genoa, from Italy, and Sevilla, from Spain, is the strongest candidate to be next. Still, SAF has not yet been approved by the partners.
With the SAF constituted comes the due diligence work by investment banks and law firms, as in traditional capital market operations, such as M&A, until the process eventually results in a binding proposal.
“There is a more evident movement in the more indebted clubs, but there is a potential demand from investors for all of them,” said Laloe.
He believes this is a product initially aimed at institutional and qualified investors, with a long-term profile, from five to seven years for an eventual exit event, possibly through an IPO. But the possibilities as an asset are more comprehensive.
The executive affirmed that, in his evaluation, it would end up being natural to open the product to retail investors soon.
HOW TO GENERATE REVENUE
One of the main effects expected for the clubs will be gaining efficiency in financial management. Others will be a stimulus for good governance and transparency practices.
“There are two major challenges: soccer management and financial management, through a company, an LLC, which SAF is, where you can ‘work the balance sheet’.”
“Today, a non-profit association does not allow that. Clubs ‘sell their lunch to pay for dinner’ and sell a player worth R$10 million (US$1.9 million) for R$2 million because they need cash,” said Laloe, with the vision of someone who has worked for 25 years in the financial market, 15 of which in North America and Europe, with expertise in structured credit, private equity, and venture capital.
It is a door that opens and becomes more attractive to other professionals in the capital market.
The executive pointed out operations of financial leverage of the balance sheet and structuring of long-term credit as examples of “working the balance sheet”, which today is not allowed clubs that have not chosen to approve SAFs for soccer management.
Another expected change is the potential increase in revenue streams, many of which are new through marketing initiatives that can explore in-depth and with a medium and long-term perspective the engagement of fans.
“More and more Brazilian soccer will be capital-driven, by the injection into the clubs.” According to him, traditional clubs with large fan bases can fall behind in terms of competitiveness if they cannot expand revenues.
The Figer Group has a long tradition of five decades in world soccer: its founder, Juan Figer, was a pioneer as a professional player negotiation agent globally. The group has represented or intermediated the negotiation of stars such as Maradona, Romario, Dunga, and Casagrande in the 1980s and 1990s.
The group was also one of the pioneers in the professionalized management of soccer clubs, with Iraty Sports Club, from Paraná, in 1995. More recently, in 2010, it took over the soccer administration of Londrina Esporte Clube, a position it holds to this day.
With information from Exame