A wealth of potential - business review of the Brasileiro Série A


By 2022, 20 years will have passed since the Brazilian national football team last won the FIFA World Cup, even though the “Seleção” enters every tournament as one of the favourites. Despite that, Brazilian clubs are dominating the football scene on the South American continent, having won five of the last 10 Copa Libertadores, including the last edition by Grêmio. This year is no different as two Brazilian clubs (Grêmio and SE Palmeiras) have reached the semi-finals. Now that four years have passed since Brazil hosted the 2014 World Cup, and with the 2018 Campeonato Brasileiro Série A (Brasileirão) entering in the crucial phase of competition, it is a good time to take a look back at the progression and development of the Brazilian league from a business perspective.

Hosting the World Cup is always a big opportunity for a local league for multiple reasons: the attraction of new and developed infrastructure could potentially boost matchday revenues, while the prestige of the event can yield indirect effects like greater demand which can in turn result in increased commercial and broadcasting revenues. Upon examining Brazilian football clubs' revenues, the aggregate data show an impressive increase of about 30% from 2015 to 2017 with total operating revenues overcoming the EUR 1 billion threshold. Despite the controversy regarding excessive set-up costs, the 2014 World Cup seems to have had a reasonably positive impact, at least on the economic growth of Brazilian football. The new available infrastructure (five refurbished stadia and six brand new facilities) are the most apparent legacy for Brazilian clubs, but at the same time they are yet to be fully exploited. It is notable that several host stadiums now belong to clubs playing in the lower tiers of domestic football who cannot attract large crowds. Indeed, broadcasting revenues still represent the main source of income in the top division, accounting for almost half of total revenues in 2017, followed by commercial revenues (30%), while matchday revenues only represented 21% of total operating revenues.

The new broadcasting and commercial deals the World Cup has attracted in the following years are indirect consequences. The 2016 season saw a real turning point, with the value of broadcasting rights increasing by more than 50%, thanks to the breaking up of Globo’s monopoly in favour of new media players entering the market. Moreover, the recently-announced OTT deal to stream Brasileirão matches for USD 150 million, and the Facebook stream of the Copa Libertadores, starting by 2019, portends another strong indicator of the importance of the broadcast income stream. Looking at the club level, the best performers in absolute terms are CR Flamengo, despite their failure to win the domestic title since 2009, and SE Palmeiras, who are the only clubs with matchday revenues higher than broadcasting revenues. The Copa Libertadores holder, Grêmio, show the highest percentage increase in the 2015-2017 period (up by 55% from EUR 47 million to EUR 73 million).

On the other hand, revenue growth can appear meaningless if not combined with greater profits. Upon closer examination, operating expenses show an increasing trend in line with revenues, exhibiting a 28% increase between 2015 and 2017. Salary expenses are – as for any professional football team – the main cost item for Brazilian clubs, with a stable ratio around 57% of total operating costs in the three seasons considered. The staff cost to revenues ratio observed in 2017 (53%) is in line with the English Premier League (58%) and Spanish La Liga (55%), and lower than the ratios of Italian Serie A (69%) and French Ligue 1 (68%).

Interestingly, in 2016 the Brazilian government implemented the PROFUT regulation designed to improve the transparency and profitability of Brazilian football clubs – which is indicative that a clear pathway for sustainability seems to be cultivated by local stakeholders. This has turned into positive economic signals with an increase of aggregate profitability, especially in the 2016 season, which shows the best result: an aggregate profit after tax of EUR 102 million (mainly due to the first year of the new TV deal cycle), mitigated in 2017 with the increase in staff costs.

Last but not least, player trading activities continue to play an important role in the Brazilian business ecosystem. Being well-known “talent-factorys” and sellers, clubs have historically relied on income from outgoing transfers. This trend is still present, as evidenced by a 63% increase in the aggregate profit on the disposal of players’ registrations over the three seasons under analysis. The acquisition by AFC Ajax of the 21-year-old David Neres from São Paulo FC for EUR 12 million – after only eight appearances with the first team – is quite indicative of the clubs’ ability to nurture young talents and sell them at a premium to European clubs. The 2018 transfer market window seems to further accentuate this aspect, with the sales of Vinícius Júnior and Arthur Melo to Spanish giants Real Madrid FC and FC Barcelona (respectively for EUR 45 million and EUR 30 million).

Despite encouraging trends and positive financial results, one should not overlook the potential for improvement. Increasing matchday revenue and the international profile of the league – through the sales of media rights on international markets – clearly seems the way to go forward. Ongoing discussions about competition alignment to the European calendar (from August to May) provide further evidence that local stakeholders intend to fully harness the Brasileirão’s economic potential and position it as a long-term sustainable competition in the South American continent.