Brazilian Soccer’s Financial Disarray Starts to Show on the Field

Yichang’s Article

SÃO PAULO, Brazil — Less than a year after its humiliating elimination from the World Cup, Brazilian soccer has a new crisis on its hands.

Brazil’s professional teams are drowning in debt, hemorrhaging players and playing in near-empty stadiums. Eight of the top 12 clubs are behind on salaries; if they were businesses, nearly every team in the first division, Serie A, would be bankrupt.

Now, with Brazil’s economy in recession, and sponsors and fans cutting back on spending, the clubs’ finances are expected to get even worse. The clubs must publish their 2014 results by April 30, and only one — Rio de Janeiro’s Flamengo — will be able to announce that it has earned enough to service its debt and pay its taxes, according to estimations by Cesar Grafietti, a credit manager at the Brazilian investment bank Itaú BBA.

The consequences are increasingly visible on the field.

Brazil’s clubs make much of their money by selling their players — almost none of whom are free agents — to foreign clubs, but the export of Brazilian soccer talent is accelerating. And instead of sending stars like Neymar to top European clubs like Barcelona for tens of millions of dollars, Brazilian clubs are selling their best players to teams in countries out of the global soccer spotlight.

Cruzeiro, a club from Belo Horizonte that was the league champion in 2013 and 2014, this year sold two top young players, Éverton Ribeiro and Ricardo Goulart, to teams in the United Arab Emirates and China. Ribeiro and Goulart are considered to be strong candidates to play on Brazil’s national team in the 2018 World Cup, though playing in second-tier leagues may hurt their chances.

Teams desperate for cash are selling ever-younger players, even teenagers who have not yet established themselves and can command only modest transfer fees.

“The clubs are selling their futures,” said Amir Somoggi, a sports management consultant in São Paulo. Somoggi estimated that Brazilian clubs would sell more than 1,200 players to foreign teams this year.

“Fans used to be able to see top talents play for at least a few years here before they got sent abroad,” Grafietti said. “Now the best players are going immediately, and the quality of the spectacle is suffering.”

The clubs’ troubles are rooted in years of reckless management. All of the first-division clubs are structured as nonprofit organizations that in theory exist to serve their fans. Qualified fans — usually those who pay a modest membership fee — vote to choose the clubs’ top management, which does not receive salaries. Fans usually do not elect those who promise long-term success, but those who promise a championship immediately, no matter the cost.

São Paulo’s Corinthians, for example, in 2013 paid a 15 million euro transfer fee (about $16.1 million) to bring striker Alexandre Pato back from the Italian club A.C. Milan. Corinthians kept Pato for only a year before sending him on loan to its city rival São Paulo F.C.

To stay afloat, many clubs are resorting to bank loans at interest rates that often exceed 30 percent a year, and to blatant tax evasion.

As nonprofits, the clubs do not pay corporate income tax, but they withhold income tax from their players’ salaries and are supposed to pay social security contributions. Many do not, however, and spend the money deducted from players’ paychecks instead.

As a result, the government has become the clubs’ biggest creditor, with about four billion reais ($1.3 billion) in unpaid taxes.

In an attempt to save the country’s national sport and send some money into federal coffers, President Dilma Rousseff last month sent legislation to congress that would waive most penalties for late payments and would give the clubs up to 20 years to pay their back taxes.

Three times in the past 15 years, the government has given the clubs similar refinancing deals. This time will be different, government officials say, because the proposed legislation demands that the clubs put their houses in order.

The proposed bill would forbid clubs from spending more than 70 percent of revenue on salaries, require them to pay all taxes and salaries on time, and demand that they break even financially no later than 2021. The bill would also require the clubs to invest in player development and women’s soccer.

Somoggi estimated that, for the clubs to meet these requirements, they would have to cut spending on salaries by 30 percent on average.

To enforce the new requirements, the legislation would make management personally liable for missteps and would relegate noncompliant clubs out of the first division.

The response of many clubs to the proposed changes has been outrage.

“The bill creates penal aspects that are entirely inappropriate,” said Lázaro Cunha, director of legal affairs for the Belo Horizonte club Atlético Mineiro. “If it passes, there will be a rebellion among the clubs.”

Cunha said he agreed that “the clubs must improve management and fiscal responsibility,” but that the new bill was “uncalled-for and unprecedented government interference in the business of private entities.”

Atlético Mineiro and other clubs are working to persuade congress to change the bill, but Eduardo Bandeira de Mello, the president of Flamengo, Brazil’s most popular club, said he supported it.

“It is severe but necessary,” he said.

De Mello, a longtime executive in Brazil’s national development bank before he took the reins of Flamengo in 2013, spent his first years at the club cutting costs to balance the books.

“We sent Vágner Love, our best player, abroad and we made no big hires for two years,” he said. “It hurt our performance.”

With his club’s finances now relatively solid, de Mello said he was eager for the bill to pass so other teams would have to play by the same rules.

Whether the current bill survives the lobbying effort against it, few dispute that Brazilian soccer must change. The national team’s humiliating defeat to Germany in last year’s World Cup semifinals, a national embarrassment that highlighted the weakened state of the country’s domestic game, convinced many Brazilians that their league needed major structural reform.

“That 7-1 loss was a wake-up call,” said Juca Kfouri, a leading Brazilian soccer journalist. “There’s support among players and in society for change.”

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Brazilian Soccer’s Financial Disarray Starts to Show on the Field

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