Brazilian football clubs move from association to corporation model

The context of the new law

Published in August 2021, Law No. 14.193 created the Football Corporations (SAF), setting-up a new legal framework that is intended to stimulate football clubs, constituted as associations, to become joint stock companies.

The potential of this new law is big. By 2021, in the first division of the Brazilian Championship (Serie A), only 2 football clubs follow the model of joint stock companies. The other 18 football clubs are incorporated as associations. In the Serie B all 20 football clubs are associations. In the Serie C, out of 20 only one is a company.

One of the reasons that have been named for the continuation of the association model is the high taxation that clubs would face in case they change the legal structure to the company model. As associations, considered as non-profitable organizations, clubs do not pay several taxes. On the other hand, by becoming corporations they would be taxed according to the general system, what would represent a very expensive bill to the clubs. Luckily, the new law addressed it, as we will show in the next paragraphs.

Among the various innovations there are 4 main pillars that will surely leverage business and investments in the Brazilian football market, namely, (i) the new unified tax over the monthly revenue (ii) the new rules regarding financial restructuring for football clubs, (iii) the obligations regarding compliance and transparency in the management of the clubs and (iv) separation between the association and the Football Corporation.

Tax system

Starting with the new tax system applicable to the Football Corporations (SAF), certainly the highlight and most attractive part of the new legal framework, we can easily say that in terms of taxation, Brazilian corporate football model is now one of the most attractive systems for investments and profit-making.

While footballs clubs worldwide are usually bound to the general taxation system of its countries, Brazil created a special form and unified 5 different taxes (including income tax) into one single tax of 5% calculated over the club’s monthly revenue during the first 5 years of incorporation, excepting the revenue arising from player’s transfers. As of the 6th year the rate goes to 4%, including the revenue generated by player’s transfers.

This very small tax rate, that is one of the lowest in the country compared to other industries, facilitates the club’s accounting and tax compliance, which is usually a huge task faced by regular companies in Brazil that are forced to comprehend a super complex tax system.

Financial restructuring

The new law sets a variety of judiciary and non-judiciary actions that can be taken in order to restructure the debts through payment plans, especially for civil and labor debts. There is also an open door to find an agreement with the Federal Government for some pending debts.

These rules regarding financial restructuring for football clubs creates great business opportunities for banks, financial institutions and receivables investment funds (FIDCs), as well as for big consulting companies with experience in financial and accounting reorganization.

Compliance and transparency

Regarding the new compliance and transparency obligations in club management, the greatest business opportunities certainly open up for investors (family offices, venture capital and private equity firms) and entrepreneurs linked to the world of football.

Whether seeking minority stakes and less interference in the club's routine activity or seeking majority stakes and control over the club's management, the new compliance and transparency rules are the essential pillar to attract funds, especially foreign capital.

In addition to improving the business environment and drawing investors’ attention, the corporate structure as well as its compliance and transparency rules also allow investments to be made in the most varied ways possible.

Separation between the association and the Football Corporation

Nowadays, with very little exception, football clubs are intoxicated of debts, what was maximized due to the pandemic. In Brazil it is not different. So, one of the issues that any club or investor would face during the creation of a corporation from an existing club incorporated as association is the solidarity responsibility for the debts. And this is not a small issue.

The law took the right step to clearly separate the responsibilities and to create a safe legal environment for investment in which the debts of the association will remain with this entity. However, in order to respect creditors and guarantee the payment the Football Corporation in which the association is a shareholder will destinate 20% of its revenues to creditors, according to a payment plan approved by them, and also 50% of any dividends that might be paid to the association.

Final remarks

Brazilian football has been for years the largest provider of talents to the global football market. Everyone looking to Brazil has been always focused on the player’s trading. Despite being one of the most successful and rich competitions out of the 5 big leagues in Europe, due to the reasons we explained here, Brazilian clubs were, up to now, forgotten by investors.

Well, this is going to change, since we are already feeling and seeing the arrival of foreign investors, well organized football groups, looking for opportunities in the country.

Considering that the world of football is going in direction of multi-club ownership model, it makes all sense to have a club in Brazil, not only for the capabilities to grow talent, but also because the money that flows in the top competitions.

 

Eduardo Carlezzo, managing partner of Carlezzo Advogados (This email address is being protected from spambots. You need JavaScript enabled to view it.).

Eduardo Diamante Teixeira de Sousa, partner of Carlezzo Advogados (This email address is being protected from spambots. You need JavaScript enabled to view it.).


Todos os Direitos Reservados | 2020
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