Brazilian Soccer Clubs May Face Relegation Under New Debt Plan

Brazilian soccer clubs owe about 3 billion reais ($1.4 billion) in unpaid taxes, and may face point deductions or relegation should they fail to meet conditions of a proposed new agreement to help ease the debts.

Funds from sponsors and broadcasters have boosted the revenue of teams in the Campeonato Brasileiro, the country’s top division. Still, years of mismanagement have led the government to intervene in a country where soccer is by far the most-popular sport, and where the 2014 World Cup will be staged.

The “government recognizes the situation that some of the Brazilian soccer clubs have been through recently,” the sports ministry said in an e-mailed statement yesterday. “For this reason, aiming to strengthen these clubs, the government is creating a debt-renegotiation project.”

The government didn’t provide complete details on its proposals to waive some of the debt in return for management reform. The plan is part of a bill that requires parliamentary approval.

Rio de Janeiro-based Flamengo, Brazil’s most-popular soccer team, has the highest debt, which club President Eduardo Bandeira de Mello said in an interview has reached 750 million reais, with more than half owed in unpaid federal taxes.

Supporters of the member-owned team in December elected a new board headed by Bandeira de Mello, a former economist at Brazil’s development bank BNDES who campaigned on a ticket of fixing the club’s finances.

Another Rio club, Botafogo, which last year signed four-time European Cup winner Clarence Seedorf, and Fluminense, last year’s championship winner, owe a combined billion reais, according to Amir Somoggi, a consultant to several top division clubs.

Financial Assistance

The government’s proposals are currently being discussed with soccer teams.

“It is not about forgiveness or amnesty,” the sports ministry said, explaining clubs must agree to a series of reforms in exchange for any financial assistance. These include changes to the way they’re managed, and a promise to invest a proportion of their income into helping the country develop athletes for the Olympic and Paralympic Games in Rio in 2016.

Flamengo, which runs several sports teams, earlier this year cut its elite swimming, judo and gymnastic teams to save costs.

On May 16, Sports Minister Aldo Rebelo said some of the country’s teams were in “dire straits.”

“It’s a challenge,” he said. “We want to improve the financial health of our clubs by allowing them to be professional with a management more engaged in obtaining revenue in order to avoid such a high level of indebtedness.”

UEFA Regulations

The sports ministry said that should the bill pass, clubs that don’t meet their commitments may face penalties similar to those being planned by European soccer’s governing body UEFA under its new financial control regulations.

Board members would be required to pay fines for breaching regulations and their clubs would face points deductions. The worst offenders would be demoted to a lower league.

“In case of infringement, the relegation of the club may occur,” the sports ministry statement said.

To contact the reporters on this story: Tariq Panja in Rio de Janeiro at tpanja@bloomberg.net

To contact the editor responsible for this story: Christopher Elser at celser@bloomberg.net.

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