Brazilian Football overview: growth, transformation and untapped potential

While on the pitch the Brazilian Série A has just passed the halfway point of the 2024 season, off the pitch Brazilian football is experiencing tumultuous changes that will shape the league's future competitiveness both domestically and internationally. This article summarizes the key regulatory and market developments shaping the Brazilian football landscape and analyses the recent financial and operational performance of local football clubs.

Article by Francesco Dell'Aquila | Football Benchmark

Key developments shaping Brazilian football

A significant turning point for Brazilian football has been the introduction of a new regulatory framework, Law 14,193/2021 approved by the Brazilian state in August 2021, allowing football clubs to become limited companies ("Sociedade An?nima do Futebol," SAF). The primary goal of the SAF regime is to improve governance and financial management of football clubs, thereby attracting new investors. Among other legal changes, the new regime allows clubs to transfer assets into a new entity free of liability, issue private bonds and benefit from a favourable tax regime. As of today, nine clubs have transitioned to SAF, with three already welcoming foreign investors: Botafogo FR (John Textor through the Eagle Football group), CR Vasco da Gama (777 Partners) and EC Bahia (City Football Group).

The future of Brazilian football is closely tied to the upcoming sale of broadcasting rights. The Brazilian league is one of the few major leagues still adopting an individual negotiation system, but the current agreements will expire in 2024, with a centralized sale announced for 2025. Presently, two factions of clubs from the first three divisions — LIBRA and Liga Forte Uni?o (LFU) — are negotiating separately with investors and broadcasters, primarily differing in their preferred revenue distribution models. It remains to be seen how the coexistence of these two groups negotiating independently will impact the maximization of media rights value.

According to reports, LIBRA has reached a five-year agreement with Brazilian broadcaster Globo worth around R$1.3 billion per year (approximately EUR 200 million). Meanwhile, LFU, which includes 32 clubs, recently joined by Corinthians, has secured a R$2.6 billion (around EUR 500 million) deal with XP Investimentos, General Atlantic, and Life Capital Partners. This deal involves selling 20% of their future media rights for the next 50 years, starting in 2025. Several clubs in this group have already accounted for this income in their 2023 financial statements, with Fluminense FC and SC Internacional recording the highest amounts, EUR 40 million and EUR 39 million, respectively. In order to maintain comparability with previous seasons, this revenue stream has been considered extraordinary income and excluded from the operating revenues in the following analysis of Brazilian clubs' financial performance.

Financial performance

The aggregate operating revenue of the Brasileiro Série A clubs, excluding player trading and extraordinary income, has witnessed a growth trajectory, increasing by 30% over the past five seasons to reach a record EUR 1.4 billion in 2023, despite the pandemic's impact. This rise is even more significant in local currency, with a 63% increase from 2019 to 2023. The main drivers of this achievement are matchday income, boosted by stadiums built for the 2014 FIFA World Cup, as well as rising commercial revenues and prize money from international competitions.

However, the latest available average operating revenue per club in the Brasileiro Série A is EUR 68 million, significantly lower than the average in the European Big Five leagues. For instance, the average revenue for a Premier League club was EUR 349 million in 2022/23, five times more than the Brasileir?o. The French Ligue 1, buoyed by CVC Capital Partners' investment, is the closest Big Five league, with an average of EUR 119 million per club, 1.75 times higher.

Despite these differences, the Brazilian league has demonstrated remarkable growth potential. Over the past five seasons, the Brazilian league's revenue growth of +30% has outpaced all the European Big Five leagues, whose growth rates ranged from 13% for the Italian Serie A to 26% for Ligue 1. This impressive growth trajectory highlights the Brazilian football market's potential as a fertile ground for substantial investment returns. Investors might find significant opportunities in this dynamic and rapidly evolving market, which shows promising signs of possibly narrowing the gap with its European counterparts.

At club level, CR Flamengo stand out as the best-performing Brazilian club, with nearly EUR 200 million in operating revenues for the 2023 season. This success is primarily driven by substantial commercial revenue growth and achievements on the international stage. SE Palmeiras, SC Corinthians, and S?o Paulo FC are the only other Brazilian clubs to surpass the EUR 100 million revenue threshold, while 11 clubs exceeded EUR 50 million in 2023.

Despite these successes, the gap with European elite clubs remains considerable. The best-performing European club, Real Madrid CF, recorded operating revenues of EUR 830 million, 4.2 times higher than CR Flamengo's. Comparatively, Flamengo's financial stature aligns more closely with a medium-sized English Premier League team like Wolverhampton Wanderers FC (EUR 194 million) or top clubs outside the Big Five leagues, such as SL Benfica and AFC Ajax (both at EUR 196 million). On the other hand, in the South American context, particularly against main international competitors from Argentina, CR Flamengo's operating revenues are 1.6 times those of Boca Juniors FC (EUR 127 million in 2022/23).

Domestically, there is a notable revenue imbalance, with the ratio between the top and bottom clubs by total operating revenue in the Brazilian first division averaging 12x over the past five seasons. In contrast, the English Premier League, often seen as a model of best practice, had a ratio of 5.1x in the 2022/23 season.

Looking ahead, the outlook for Brazilian clubs is encouraging due to several factors: continuous commercial growth, the anticipated boost in media income from centralized commercialization, and additional revenue from the new FIFA Club World Cup, for which SE Palmeiras, CR Flamengo, and Fluminense FC have already qualified.

Netting all costs from gross income, including player trading and extraordinary revenues, Brazilian clubs have shown a significant positive trend. Since 2019, their aggregate performance has consistently improved, culminating in an aggregate net profit of EUR 213 million in 2023. However, this figure is heavily influenced by the EUR 239 million one-off total income from the LFU's sale of future broadcasting rights, already accounted for by some clubs in 2023. Without this extraordinary source of income, the aggregate net result would have seen a net loss of EUR 25 million.

Compared to the European Big Five leagues, the aggregate net result of Brazilian clubs is second only to the EUR 251 million profit recorded by LaLiga's clubs, largely driven by FC Barcelona's extraordinary income of EUR 793 million from the sale of a further 15% of their future domestic media rights to Sixth Street. This highlights the resilience and potential of Brazilian football, positioning it as an attractive market for investment and growth.

Transfer activities

Player trading is a crucial source of income of Brazilian clubs' business models. Over the past six seasons (2018/19 to 2023/24) they generated EUR 1.7 billion in transfer income, averaging EUR 284m per year. Major transactions in the period under consideration include the sales of Rodrygo from Santos FC and Vinicius Junior from CR Flamengo to Real Madrid CF for EUR 45m each and Vitor Roque from Club Athletico Paranaense to FC Barcelona for EUR 40m. The analysis does not include the EUR 47 million income associated with the recent transfer of Endrick from SE Palmeiras to Real Madrid CF, as the transfer pertains to the 2024/25 season, which is not within the scope of this analysis. Despite these earnings, the Brasileiro Série A is only the 8th league by 6-year aggregate transfer income, behind not only the European Big Five Leagues, but also the Portuguese and the Dutch first divisions, which generated EUR 2.3 billion and EUR 1.8 billion, respectively.

During the same period, Brazilian clubs have significantly increased their transfer market investments. The league's net transfer balance, however, did not suffer any setback, as it generated a net surplus of EUR 153m in 2023/24 and EUR 827m over six years on aggregate, which represents the third highest cumulative result after the Portuguese and the Dutch leagues.

At club level, CR Flamengo and SE Palmeiras were both the top spenders and earners over the past six seasons, while Gremio FBPA and Club Athletico Paranaense recorded the best cumulative net balances. Among the 20 Série A clubs, over the past six seasons, 16 recorded a positive cumulative net transfer balance, with only four (Fortaleza EC, Botafogo FR, EC Bahia, and Red Bull Bragantino) recording a negative balance.

Squad value

CR Flamengo and SE Palmeiras lead in squad market value as of June 2024, according to Football Benchmark’s Player Valuation platform, with values of EUR 200 million and EUR 191 million, respectively. The average player value in the Brasileiro Série A (EUR 2.7 million) is significantly lower than in the European Big Five leagues, where averages range from EUR 24.5 million in the EPL to EUR 9.8 million in Ligue 1. Additionally, the Brazilian league's average is lower than that of the Portuguese Primeira Liga, the Dutch Eredivisie and the English Championship.

Despite this, Brazilian clubs dominate South America in terms of squad value, with eight clubs ranking in the Top 10 among CONMEBOL clubs. CR Flamengo's squad value is nearly three times that of River Plate (EUR 75 million) and Boca Juniors (EUR 74 million). Furthermore, the average player value in the Argentinian league stands at EUR 1.2 million, which is less than half of the average in Brazil.

Social media performance

Brazilian football's great untapped potential lies in its massive fan base, as Brazil is not only the world's seventh-most populous country, but undoubtedly also one of the most football-passionate nations globally.

Social media followers are a good proxy for the strength of a football league or club's fan base. As of August 2024, the average social media followers per club in the Brasileiro Série A (11.4m) was just behind the European Big Five leagues, close to the Ligue 1 (15.2m) and the Bundesliga (14.1m), and ahead of other leagues such as the Saudi Pro League, Turkish SüperLig, Liga MX, Argentinian Primera División and the MLS.

CR Flamengo boost the highest number of followers among the Brazilian clubs (56.3m), followed by SC Corinthians Paulista (36.8m). Notably, six Brazilian clubs are among the top 50 clubs by social media followers globally: in addition to the two mentioned above, there are S?o Paulo FC (21.9m), SE Palmeiras (21.3m), CR Vasco da Gama (13.4m) and Santos FC (13.1m), with the latter currently competing in the Brazilian second division.

Conclusions

On the pitch, Brazilian clubs are already dominating South American international competitions: 45% of the Copa Libertadores semi-finalists in the past 10 seasons were Brazilian, with six winners in the past decade. The influx of resources from new investors driven by the SAF regime and the upcoming media rights sale will likely strengthen Brazilian dominance in the region, enhance its global positioning against emerging markets like the Saudi Pro League and the MLS, and potentially narrow the gap with Europe's Big Five leagues.

Investors can now tap into the Brazilian football market, capitalizing on a vast audience, passionate fans and one of the world's largest talent factories. While European football may have reached a steady state, the Brazilian market could still offer significant growth opportunities and potential capital gains, without forgetting the critical challenges associated with the restructuring of Brazilian clubs’ debts accumulated over the past decade and the improvement of governance standards.