Harvard Grad Swaps Soccer Club’s Cocaine Boss for Colombia IPO
Thirteen-time Colombian champion Millonarios, once owned by a drug cartel billionaire, plans to become Latin America’s first soccer team outside Chile to list shares as new owners and a Harvard University-trained turnaround specialist lead it out of bankruptcy.
In a bid to arrest two decades of on- and off-the-field decline, the government last year brought in Jose Roberto Arango, known for salvaging failing companies, to revamp the Bogota-based team. The government has owned about a 27 percent stake in the club since it seized the assets of Medellin cartel kingpin Gonzalo Rodriguez Gacha after his 1989 shootout death.
Millonarios is seeking to join companies offering a record number of shares in the Andean nation this year after President Juan Manuel Santos signed a law in May making it easier for soccer clubs to form corporations. The listing could pave the way for other squads for whom drug profits were a mainstay of funding in the 1980s and 1990s, said Ivan Novelo, manager of Dimayor, Colombian soccer’s governing body.
“There’s no more easy money in soccer,” Novelo said in a telephone interview. “There’s more transparency today in how clubs manage money, so much so that they almost all are facing bankruptcy and talent drains.”
Arango orchestrated the sale of the team out of bankruptcy to Azul y Blanco SA, a Bogota-based company created in April to rescue the club.
According to its prospectus filed with the securities regulator in March, Azul y Blanco counts among its investors Alessandro Corridori, the biggest shareholder in Fabricato SA, Colombia’s biggest textile maker, and Juan Carlos Ortiz, a shareholder of Interbolsa SA, the nation’s biggest brokerage.
The company, which paid 24 billion pesos ($13 million) for rights to the club name and its players, plans to offer this year shares worth almost the same amount and representing as much as a 51 percent stake, said Eduardo Silva, Azul y Blanco’s president. The proceeds will fund the purchase of a training facility. Practices are currently held at a tennis club.
“A model of broader participation is better for Colombian soccer, as it will reduce the role of drug money,” Silva said. “Millonarios’s big idea is to totally democratize ownership.”
The quality of Colombian soccer has suffered in recent years as teams have been slow to adopt business practices powering Colombia’s economy, said Novelo. The country hasn’t qualified for the World Cup since 1998.
Drugs to Debt
Millionarios was Colombia’s greatest team at its peak in the 1950s, when it defeated clubs including Real Madrid on frequent tours of Europe. Among its players from 1949 to 1953 was Argentine forward Alfredo Di Stefano, who went on to score the fourth-most total goals ever in Spain’s top division.
The club’s decline began when Colombia’s government seized Gacha’s stake in the club after he was killed during a shootout with soldiers at his ranch. In 1988, Gacha was named along with fellow Medellin cartel boss Pablo Escobar to Forbes Magazine’s annual list of billionaires.
Following Gacha’s death, Millonarios’s debt grew until the company filed for bankruptcy in 2004. The debt stood at 24 billion pesos last year, Silva said.
The offering by Millonarios would make Colombia only the second country in Latin America with listed soccer teams after Chile, where the holding companies that own Colo-Colo, Universidad de Chile and Universidad Catolica all trade on the Santiago stock exchange.
Colombian companies are seeking to raise about 8 trillion pesos through a record seven share sales this year as the country’s stock exchange merges with Peru’s and Chile’s in Latin America’s first international bourse combination, Juan Pablo Cordoba, head of the Bogota bourse, said Aug. 3.
The government forecasts the economy will expand 6 percent this year, the most since 2007.
Millonarios’ turnaround was orchestrated by Arango, who in 1995 received a masters degree in public administration from Cambridge, Massachusetts-based Harvard and served as an aide to former President Alvaro Uribe.
When Arango took control of the team at the government’s urging, Millonarios was on the verge of being relegated to Colombia’s second division and faced liquidation for failing to pay debts.
“The team had very big economic problems after being managed quite informally,” said Arango, who previously turned around failing mining and textile companies including Medellin- based clothing exporter Coltejer SA. (COLTEJ)
Coltejer, which came out of bankruptcy in 2008, has advanced 26 percent this year, making it the second-biggest gainer on the Bogota´s IGBC Index. The benchmark index has declined 18 percent in 2011 in local currency terms, the second- best performance among the region’s six biggest exchanges.
Other Colombian clubs remain mired in legal and financial problems because of suspected links to the nation’s cocaine trade, which supplies about 90 percent of the narcotic consumed in the U.S., according to the State Department.
In 2003, the U.S. Treasury Department seized assets in the U.S. belonging to soccer club America de Cali for ties to members of the family that once controlled the drug trade from the namesake southern Colombian city.
Last year, Cali’s government led an effort to create a new company, Nuevo America SA, with U.S.-approved shareholders to take control of the team and distance it from the alleged drug ties of its previous owner, said Mauricio Velez, Nuevo America’s manager. Velez wouldn’t comment on the alleged links to the Cali cartel.
Prosecutors are investigating Millonarios’ cross-town rival, Independiente Santa Fe, and have appealed a March ruling that absolved the former head and employees of Independiente Medellin on charges of taking drug profits, Pedro Verdugo, head of the money laundering unit at the federal prosecutor’s office, said in an interview at his Bogota office.
Jorge Osorio, head of Independiente Medellin, did not respond to telephone calls and e-mails seeking comment.
Cesar Pastrana, the president of Santa Fe, denied the drug links, adding that no charges have been brought against the team. Still, Bavaria SA, the Colombian unit of SABMiller Plc (SBMRY), pulled its sponsorship of the club last year after the probe was launched, he said in a phone interview. Santa Fe plans to emulate Millonarios’ business acumen by forming a company to list shares, he said.
“Those being investigated for alleged drug ties have nothing to do with this team and are neither shareholders nor directors,” Pastrana said. “Still, we lost Bavaria’s support and it’s been tough to find a new sponsor of that magnitude.”
As authorities clamp down on illicit sources of financing, ticket sales have declined, leaving some clubs unable to pay player salaries on time.
Tickets sold in 2010 fell 30 percent from the year before to 2.1 million as cash-strapped clubs fielded inexperienced squads, violence in the stands kept fans at home and teams renovated stadiums ahead of FIFA’s under-20 World Cup, which began July 29, Novelo said.
Cleaning up Colombian soccer’s finances may be easier than erasing the sport’s image as a vanity investment for the nation’s kingpins.
That reputation comes from events such as cartel boss Escobar’s burial with the flag of Medellin-based Atletico Nacional draped over his coffin in 1993 or the killing, at the peak of the country’s drug-related violence, of defender Andres Escobar after he knocked the ball into his own goal during the 1994 World Cup.
The new law signed by Santos in May requires teams to file financial reports twice a year stating the origins of their shareholders’ funds.
“Our sports will not be sneakily financed by delinquents,” Santos, a fan of Santa Fe, said at the signing ceremony. “It will not be, we won’t allow it.”
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