Cover: Own Goal

Rio de Janeiro’s iconic Flamengo football team clinched the Brazilian title in December 2009 after a 15-year drought and the streets of Copacabana – not to mention the hillside shanty towns – filled with a joyous riot of red and black. But stores selling football shirts saw no reason to smile. Walk into any sporting goods store around the world, be it Rio de Janeiro, Buenos Aires, Damascus, Cape Town or New Delhi, and the official canary-yellow shirt of Brazil’s five-times world champion national team will probably be on prominent display. Often, it’s a top seller, and arguable the most fashionable item in global football. Certainly it’s a top tourist souvenir for anyone visiting Brazil, and an object of desire for fans everywhere. But that’s where it stops, because the merchandizing success of the Brazilian national team has yet to rub off on the country’s clubs. Stores that stock the Brazilian national shirt probably also sell bleacherloads of shirts for teams such as Real Madrid, Milan and Manchester United, but top Brazilian teams like Flamengo, Corinthians and São Paulo get the cold shoulder. It’s one of the great paradoxes of Brazilian football today.

“Our Brazilian clubs have given up on internationalizing their brands,” said businessman Walter de Mattos Jr., founder and president of the O Lance! daily sports paper. “If things worked like they should, fans all round the world would be clamoring for shirts of at least four or five Brazilian clubs.” It’s that paradox again. Brazil has the best and most creative football in the world, but it’s still crawling when it comes to professionalization. Brazilian companies like Petrobras, Embraer, Gerdau and Vale enjoy international respect for their global reach and management skill, but Brazilian football wallows in an amateurish mire of debt, fis-cal irresponsibility and sometimes practices that are better reported on the crime pages. There have been and still are attempts to burnish Brazil’s favorite sport. But they tend to be shortlived. São Paulo FC had relatively the most success, while cross-town rivals Palmeiras is the latest club to try to improve. But the Palmeiras clean-up already shows signs of crashing up against the cultural and political limitations that always thwart would-be reformers of Brazilian football’s stygian substrata. We’ll come back to later to the reformers, both the frustrated and more or less successful. For now, it’s important to note the most visible impact of this dissonance: the country that produces football stars by the plane-load can’t stop them flying off to foreign fame. As soon as theyachieve any kind of name in Brazil, most are sold abroad. Many are sold as promising youth players, leaving even before they can become hometown heroes. President Luiz Inácio Lula da Silva, himself a staunch Corinthians fan, complained that “Brazil sees its youngsters leave when they’re 17 and come back home to play when they’re 32. They spend their best years abroad.” Brazil’s Central Bank started registering the ‘export’ of athletes in 1992.

Sales since then have exceeded US$2 billion. Of the 1,776 players leaving Brazil in 2008, more than 40% (762) went to Europe, the top market, with 209 going to Portugal alone. But Brazilian players can now be found in just about every country – Vietnam, Azerbaijan, Japan, the United Arab Emirates, South Africa and Australia, to mention but a few. Many adopt local citizenship to play for national teams. They’re becoming so common, warned Joseph Blatter, president of FIFA, the sport’s international governing body, that some day “all the world’s national teams will be composed just of Brazilians.” But is this good for Brazilian football? In the short term, it apparently is.

“These sales help Brazilian clubs, most of which are buried in debt,” said economist Elena Landau of Rio’s Catholic University. A Botafogo fan, Landau is an outspoken critic of how Brazilian football is currently structured. “The problem is that we are simply exporting commodities,” she said. A partner in the Sergio Bermudes law firm, Landau is something of an expert. A decade ago she was hired by Atlético Mineiro FC to overhaul team management. But the project flopped because of internal bickering in the club. Landau may use the jargon of an economist, but she hits the nail right on the head. Brazil is selling off its stars with a very low level of added value. Attacking midfielder Kaká, elected FIFA’s best player in the world in 2007, was sold by São Paulo FC to Milan FC in 2003 for US$8.25 million. Six years later Milan resold him to Real Madrid FC for no less than US$100 million.

The profit of almost 1,200% led Italian Prime Minister Silvio Berlusconi, who also owns Milan FC, to rejoice that “Kaká was the best signing in our history.” And he added, with his habitual subtlety, that Milan “bought him for peanuts.” Sports journalist Juca Kfouri says “Brazil is totally short-sighted in this respect. Instead of exporting the show, we are exporting the artists.” And Mattos Jr., of O Lance!, makes the following comparison: “It’s as if Disney were to sell the world Mickey Mouse, instead of his cartoon films and theme parks.” It’s incredible that Brazil should have made so little progress in an area where it enjoys globally recognized competitive advantages. Álvaro Antonio Cardoso de Souza, a former president of Citibank in Brazil and today director of the Brazilian chapter of the WWF environmental NGO, argues that Brazil’s backwardness has two causes.

“The economy of Brazilian football has a very low level of transparency compared to the financial or capital markets, which operate based on great openness,” he said. “Obscure or weak management will generally frighten away serious investors.” The second problem, Souza said, lies in the obstacles Brazilian football faces in morphing from just a mass sport into also being an entertainment product. “This requires greater investment in security, cleanliness and comfort. In Europe, going to a football match is almost like going to the theater.”

But Souza sees grounds for hope: “Things are much better than 10 years ago, although there’s a long way to go and progress is slow. We have to speed up. One reason for urging faster progress is that in 2014, Brazil will host the World Cup Finals – global football’s premier competition.

While this excites fans across the country, it also sets off warning bells for management specialists who are familiar with the national game. “Without some strong intervention from the government, going far beyond just building or renovating stadiums, the World Cup won’t change anything,” said Landau, the economist. “The government needs to lay down new rules to make Brazilian football and the official competitions more transparent.” Brazilian clubs are facing a situation similar to that of the world with global warming. Some of the sport’s directors have woken up to the seriousness of the situation and are aware that major changes are needed in club management. But there are still disagreements. Decisions come slowly and are usually too timid to resolve the problem. “Clubs in Brazil are run like family concerns and invest without much logic,” said Eduardo Gonçalves, a star of Brazil’s title-winning 1970 World Cup team and better known as Tostão.

“In general, club bosses make changes only when they feel threatened with losing their power.” For Tostão, today a top sports columnist, the major problem is the political structure of the sport, based on the Brazilian Football Confederation (CBF) and the 27 state-level federations: “Those in power never change; they hang on to their positions thanks to a kind of devil’s bargain.” Criticism of the current structure is almost unanimous. “Football in Brazil is still a wonderful way to make money under the table,” said Kfouri, while for Landau “the CBF is a virtually feudal organization, it’s not representative and has zero transparency.” Putting it in a nutshell: the greatest impediment to Brazilian football seeking a better future is Brazilian football’s own murky past. It can’t be denied that there’s a qualitative change underway in the posture of some directors, albeit at only a few clubs. Subjects like fiscal responsibility and planning have gained importance for some boards. São Paulo FC was a pioneer in this movement back in the 1990s.

“Even today São Paulo is the main benchmark for Brazil’s clubs,” said Landau. The team’s successful professionalization of its activities – yielding three Brazilian championships and one world clubs title just this decade – can be debited to three main factors. The first is stability in the management model. “The election of a new club president changes things very little,” said Adalberto Baptista, São Paulo’s vice-president for marketing. Next comes separation of the club’s business into three areas: professional football; stadium management and club social activities. “Each of these has to make its own profit, because the money from one side cannot be used to bail out the other,” he said. The third factor, last but not least, is transparency in club numbers and financial reporting. Another fact giving cause for hope in 2009 was the election as president of Palmeiras FC of Luiz Gonzaga Belluzzo, an economics professor at the prestigious Unicamp university. Belluzzo became an overnight popularity phenomenon – something not very common for a Brazilian football club boss.

He was seen as a harbinger of hope for modernization at a club that, over the last three decades, spent long periods in the wilderness. Palmeiras’ last national titles came in 1993 and ’94, when it was associated with Italian milk giant Parmalat. This year Palmeiras initially led the Brazilian championship with ease, but threw it away and ended up fifth. That slip-up was sufficient to undermine all the new strategy. Belluzzo lost his cool after a crucial game, insulted the referee and was handed a nine-month suspension by Brazil’s top sports regulatory body. Even with Belluzzo sidelined, his project to reform Palmeiras continues along its market-driven track. “In the first place, clubs must learn to exploit their huge potential, because their millions of fans are also consumers,” Belluzzo said. On the other hand, there must be rational management. “A club can’t spend more than it brings in, and it must invest efficiently. It’s unacceptable to hire a player and then discover a month later than he’s no good. And finally, transparency is a must.” Thanks to his reputation, Belluzzo has become a leader among the clubs for a major financial reorganization project. He heads up a commission within the Club of 13 – a grouping of Brazilian’s biggest football clubs – that seeks to put together a wide-ranging proposal to professionalize the sport. When ready, it will be negotiated with the federal government. The basic idea is to create rules that prevent clubs accumulating debts, and at the same time renegotiate existing debts of around R$2 billion – just over US$1 billion at current exchange rates. Much of the money would come from a generous credit line from the governmentrun Brazilian Development Bank (BNDES), and many economists compare it to the Proer program that the federal government used to stabilize the financial system after the end of hyperinflation in 1994.

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“There has to be commitment on both sides,” Belluzzo said. “The government must recognize the importance of football for the country and accept refinancing the debts via the BNDES so that the clubs can regain viability.” For their part, the clubs would commit to spending only what they earn. “If the deficit persists, there’s no point in refinancing the debt,” he said. One of Belluzzo’s main projects is modernizing the Palmeiras stadium complex, called Palestra Itália. It would be a total upgrade, not just of the stadium itself but also the substantial adjacent area destined to club members. New construction involves buildings with courts and sporting and administrative facilities, which for decades have been wedged precariously under the grandstand. The project is budgeted at around R$300 million, some US$170 million, to be fully financed by the WTorre construction company which will then co-manage the revamped stadium for 30 years. Palmeiras will gain some additional income now, rising in the future when the stadium reverts to its sole control. Following the trend of American stadiums, the new Arena Palestra was designed to maximize profitability. That applies both to match days, with VIP boxes and other high-price areas, food halls, entertainment and shopping, all of which are unheard-of in Brazil, and also to non-match days when multi-use rooms and auditoriums will be able to house meetings and events of various types. In addition the stadium will have a large garage building catering to non-stadium customers during regular commercial hours. All parts of the new stadium have been designed to receive sponsorship, starting with the overall name of the complex and including each of the individual areas. The grandstand behind one of the goals, for example, could carry the name of a car maker, while the opposing stand might be named for a pharmaceutical company. Recent years have brought some good news, albeit not enough. One is growing average club revenue. Still modest by international standards, this has been rising steadily. In the last 12 years the annual TV rights for the Brazilian championship, the clubs’ largest source of revenue, has jumped from US$20 million to US$170 million. “Comparatively it’s still very little,” said newspaper boss Mattos Jr. “Brazilian (first division) clubs get an average of US$10 million each (per year) from TV rights; in English football it’s 10 times more.” Even so, the business of football is advancing. New products like transmission via pay-per-view TV are achieving unheralded profitability. In the coming years the clubs plan boosting income further by offering matches via new platforms like cellular phones and the internet. Sponsorship value has risen still further. In 1995 the largest contract in the sector was Flamengo’s roughly US$500,000 a year from Petrobras. Today it’s the roughly US$17 million a year that Corinthians collects from the various brands plastered over its shirt. Mid-seized European clubs often get less. Palmeiras now receives 50% more than Italian club Fiorentina to wear a company logo on its shirt. Ticket sales have also risen substantially, in particular in the city of São Paulo. During more than a decade when entrance prices were often pegged the net result of ticket sales less game expenses was frequently negative. The fans were a kind of necessary evil. For the clubs, full stadiums above all mean more muscle to negotiate better TV contracts. These in turn mean the chance to push up sponsorship money. Six years ago a grandstand ticket to a major game involving São Paulo teams cost around US$3. Today it’s US$17, and is likely to reach US$30 (R$50) at Corinthians games in the next Libertadores Cup – the prestigious South American clubs championship. Obviously the overvaluation of the Brazilian real currency against the US dollar has helped boost revenues, when expressed in that currency. But it is still possible (and necessary) to generate much more revenue. “Brazilian teams need to find other sources of income,” said financial analyst Amir Somoggi, who works for the Brazilian branch of the US auditing firm Crowe Horwath RCS, one of the world’s 10 largest. One area where Brazilian clubs slip up is selling licensed products. But even here, there’s been progress. In 2005 Corinthians earned less than R$450,000 from licensing; in 2010 the club should net over R$10 million. That’s still very little compared with Europe. Barcelona’s professional management team helped the club earn 384.8 million in the 2007-08 season, of which 117.4 million came from marketing. And bear in mind that Barcelona considers its team shirt to be sacrosanct. The only name appearing is that of Unicef, the UN Children’s Fund, which doesn’t pay, it receives 1.5 million a year from the club. The gulf between Brazil and the Old World looks even wider when fans are taken into account. Flamengo, for example, today has the largest fan following in the world at 32.6 million (see table). In other words, the club has almost as many followers as the population of Spain. “A figure like that is an extraordinary brand asset in any part of the world,” said Mattos Jr. “Manchester United has just 4.2 million fans in England, but it’s the most popular club in Asia where its games attract large audiences and where people buy its products in great quantity.” Who knows, maybe now with the Brazilian title under its belt and having just elected the first woman president in its history, former Olympic swimmer Patricia Amorim, Flamengo’s luck might change. But Amorim sees problems ahead. First is the male chauvinism that dominates Brazilian football. “People underestimate my capacity to manage football but I will prove them wrong,” she said in her first interview after being elected. Sadly, the increase in revenues in not translating into an equivalent improvement in the situation of the clubs. On the contrary, with rare exceptions they have to rely on bank loans to meet urgent obligations and honor existing debts. In most cases, however, and no matter how professional the current administration, they are saddled with a heavy burden of past debts. The BIC and Banif banks are today the leading source of financing for clubs, which give in guarantee their share of TV rights to be paid by the Globo television company. “This is amateurish administration, without the slightest notion of sustainability,” said Landau, the economist. “If they could escape from their debt servicing payments, the great majority of Brazilian clubs would today be making a profit,” said Paulo Vinícius Coelho, a columnist for the Folha de S.Paulo newspaper. The only solution, in the opinion of virtually all specialists, is for clubs to cease to be a perpetual source of harmful political machination and become companies. “The president of Corinthians should have the same salary as the CEO of a multinational company, with a bonus for winning titles and commission on the sale of players,” said columnist Kfouri.

But such a giant leap still seems impossible for the majority of Brazilian clubs. Decades of amateur management can’t be wiped away overnight. Under current legislation, amongst other privileges clubs cannot be declared bankrupt and they enjoy generous exemptions from tax and labor benefits. Even so, most don’t pay what tax they do owe. They have built up huge debts for taxes and unpaid labor benefits, and the government at all levels has never shown much interest in trying to collect. “The government has get behind these changes and set new rules,” said Landau, while businessman Mattos Jr. goes further: “The federal government should use the fact that these clubs are bankrupt and be instrumental in forcing them to become companies.” As long as that fails to happen, individual initiatives will blossom to fill the void. The major Pão de Açúcar supermarket group, apparently little connected with the sport, has made ventures into football. Acting on a request from its principal shareholder, Abílio Diniz, in 2003 the group created a football project within the employees’ club, the Pão de Açúcar Esporte Clube (Paec). This holds regular talent contests throughout the country to discover promising youngsters – one such attracted 72,000 hopefuls. The club has put together various youth teams and, as time passed, formed a professional team. In 2010 this will play in the São Paulo State second division. According to Fernando Soleiro, president of Paec, the plan is to make its most promising players available to major teams like São Paulo for free, but retaining the right to 50% of revenue from any future sale. In a final, supreme and slightly humiliating example, Milan FC makes a tidy revenue from Brazilian football. The Italian team makes its brand available for 11 holiday camps for children and young people located in 11 Brazilian state capitals. At the Milan Junior Camps, as they are called, the kids spend a week playing football under the watchful eye of professionals – and, of course, the kids buy team products. Milan might be a foreign team, but it’s beloved of many Brazilians. It seems Brazilians still have a lot to learn from the Europeans.

* Adriana Setti in Barcelona contributed to this story