Pandemic deprives Brazilian soccer clubs of R$1 billion as debt soars to R$10 billion – study

RIO DE JANEIRO, BRAZIL – Empty stadiums have exposed the chronic inability of Brazil’s 20 largest teams to balance their finances, according to an exclusive study.

If it has wreaked havoc on companies in the most varied sectors, the Covid-19 pandemic has been particularly cruel to Brazilian soccer clubs. With fragile finances, largely outdated management structures, and little investment in digital business, the country’s most traditional teams were easy prey in 2020.

The crisis ultimately exposed fragilities and raised questions about the future of institutions with millions of fans.

The extent of the blow is exposed in an unprecedented study by Sports Value consulting firm. The 20 largest clubs’ combined loss of revenue in 2020, compared to 2019, reached R$1 billion (US$184 million)– revenues slumped from R$6.1 billion to R$5.1 billion. The largest declines were seen in TV and awards (- R$636 million), ticket sales (- R$384 million), and social and amateur (- R$117 million). Revenue losses ranged from 19.5% to 26% among clubs.

The slump in revenues amplified the financial hole. The deficit of the 20 largest Brazilian teams totaled R$1.03 billion in 2020, amplifying a chronic problem, namely the outsize debts, which now total R$10 billion. The debt ranking is led by Atlético-MG, which owes R$1.2 billion.

The red sea in the 2020 balance sheets is driven by Cruzeiro, which in 2020 debuted in the Brazilian championship’s B Series: a loss of R$227 million. Palmeiras (- R$151 million), Botafogo (- R$139 million), São Paulo (- R$130 million), and Corinthians (- R$123 million), complete the top 5 worst balance sheets. Even Flamengo, Brazilian champion and recent model of good financial management, posted a loss of R$107 million in 2020.

In terms of revenue, Rio’s Flamengo tops the list of clubs with the highest losses, affected by factors such as fewer prizes and a drop in ticket sales: a R$282 million drop in revenue. Cruzeiro (- R$166 million), Internacional (- R$160 million), Santos (- R$160 million), and Fluminense (-$71 million) complete the list of the 5 clubs that have lost the most.

The expected end of the pandemic and return to some normality tends to ease the burden on clubs, but there are warning points for the future, says Amir Somoggi, Sports Value’s founder. The main one is an expected consistent reduction in television income — both in Brazil and in Europe, Somoggi points out, clubs will need to adapt to a “new normal.”

While companies from the most varied sectors needed to adapt their costs to the new reality, clubs were inefficient in cutting costs at the same rate. As a result, they closed 2020 with soccer costs corresponding to 87% of revenues, compared to 79% in 2019. Many clubs spent more on soccer than they made in the year, a clear indicator of poor management — at Cruzeiro, soccer costs reached 151% of revenue, but even so were not enough to take the team back to the first division in the national championship.

What is the solution? Somoggi points out that a commonly suggested solution, a bill to convert clubs into companies, has initial challenges. How can the debts be addressed? Separating the rotten part of clubs from a new, light and healthy structure is a solution criticized by Somoggi and financial experts.

Source: Exame