Pure speculation

An influx of investment is changing football in South America, explain Peter Hudson and Veronica Goyzueta, but it's not necessarily benefitting the clubs on the receiving end

While the conversion of football into big business has raised the hackles of many British supporters, there are few such misgivings in Latin America. The footballing public is largely indifferent, or else open to any change that might improve the stricken finances of their clubs.

Meanwhile, talk to those who are running and financing Argentine or Brazilian clubs and the name of Manchester United will soon be mentioned admiringly. It is not however the skills of Giggs and Beckham which inspires the Latin football world, nor the excitement of the club’s latest doomed adventure in Europe. What sets pulses racing is United’s share price and trading statements, which show healthy profits and no debts.

In contrast, analysts reckon that the debts of Brazil’s 24 leading sides add up to over US$400 million. That means no money to buy or hold onto star players, which in turn means low attendances and poor TV contracts. That this state of affairs prevails in Brazil, one of the world’s most passionate footballing cultures, is clear evidence of years of poor administration.

“We are living a dichotomy between the best football in the world in terms of talent and the  worst in organisation,” grumbles Luiz Roberto Demarco, a partner in Banco Opportunity, a local bank that is looking to invest in football. Argentina has not suffered the same degree of mismanagement, but the clubs still have their own mountain of debt, with some observers estimating the total at around US$200 million. While a whole range of clubs have faced problems paying their players’ wages, the smaller ones are stretched to even pay the electricity and water bills.

In the face of problems like these, businessmen bearing promises to turn the clubs into the local equivalent of Manchester United are being welcomed with open arms. In Brazil, Pelé, in his role as sports minister, has overcome the resistance of the shady characters in the Brazilian Football Federation and the “Pelé Law” looks to force the clubs to turn themselves into limited companies within two years. The argument goes that the resulting influx of investors will radically shake up the administration of the clubs and end the situation were nobody was legally responsible for their debts.

Certainly the investors seem interested in a range of business opportunities offered by the game. While newly business-savvy clubs are negotiating ever larger TV and sponsorship deals, they are also starting to explore other nearly-virgin business opportunities, like franchising.

Banco Opportunity is just one of a string of Brazilian banks convinced that these largely unexploited business areas make the clubs an enticing prospect. It probably has the deepest pockets though, declaring that it has US$400 million to set up in business with the clubs. Its only investment to date, however, has been US$6 million, to associate with Esporte Clube Bahia, twice Brazilian champions, though not one of the traditional giants. Bahia has put up its premises, players and brand, which are valued at roughly the same amount as the Opportunity’s cash, although the bank takes 51 per cent of the shares in the new company.

“The proposal was about modernisation and professionalism,” says Marcelo Guimarães, Bahia’s president, and was approved unanimously by its board. “The club hopes to earn the same as the Europeans. Bahia will become a large club with valuable shares.”

In Argentina, there is still no club that has gone as far as the Brazilians. But several leading clubs are becoming more businesslike under the management of a new breed of president, even if some of them, like Mauricio Macri of Boca Juniors and Fernando Miele of San Lorenzo, are demagogues alongside which even Ken Bates would look elegant and charming.

The trend should continue with the approval of a new sports law, drafted by Fernando Galmarini, now a government member of the chamber of deputies, but previously a striker for a string of Second Division clubs. The bill, which could be passed this year, includes measures to encourage the clubs to convert themselves into limited companies.

But if anyone can persuade the Brazilians and Argentines that money can’t buy you happiness, the Mexicans would seem the likeliest candidates. Most Mexican clubs are already run as companies and Televisa, the leading TV company, owns three of the biggest clubs in Mexico City, as well as TV rights for several others.

Observers lament that this gives Televisa far too much power. The company regularly arranges transfers to give the country’s most popular team, America, the best shot at the championship and yet higher TV ratings. Last year a series of transfers between Televisa-owned teams saw players shunted to America from Necaxa – until then the dominant club in the country. At the end of the year, Necaxa’s coach was appointed to head the national team, in a move widely seen as engineered by Televisa’s football boss Alejandro Burillo. “In six months they dismantled the best side in Mexico,” complains one fan.

While the influx of money has allowed Mexican sides to hang onto many of their best players, it has also changed the nature of the game in other ways. “Everyone talks about ‘clubs’,” says Heriberto Vazquez Muñoz, sports editor of El Economista, a local daily, “but in Mexico football clubs don’t exist. They are football businesses, managed by people who know much more about business than football.”

That prospect alarms Nestor Vicente, a left-wing candidate in the 1989 Argentine presidential contest and also vice president of Huracan, a middling Buenos Aires club. “A football club is an emotion. In Latin America it is a form of identification, an identity. It is one of our few surviving passions. If it is converted into a business, it runs the risk of being cheapened.”

Many Argentine clubs were formed by British railway workers in the last century and performed an important role in the community. The elimination of this aspect of the clubs’ identity is one of the chief criticisms of the current sports bill. But Galmarini, who drafted the bill, is unrepentant. “Today there are many clubs that are not in a position to perform their social and welfare functions. They can scarcely perform even in a strictly sporting sense.”

Under the new order, many of these clubs are surplus to requirements. In Brazil there are 501 clubs, 291 of them in the higher divisions, and many will have to merge or die. For the bankers, directors and consultants, this is precisely one of the benefits of the Pelé law, because the game simply cannot support that many clubs.

And while the smaller clubs disappear, all but the largest will have problems competing. In Argentina, the two largest, Boca Juniors and River Plate, will become increasingly dominant. The latter, for instance, has an annual budget of around $60 million, around ten times that of Huracan. And the gap is growing.

“Revenue is becoming ever more polarised,” observes Gaston Casasnovas, who manages Boca’s merch-andising arm. “That allows the big clubs to improve their teams. It is very unlikely that a team like Argentinos Juniors [Copa Libertadores winners  in 1985] could ever win the championship.” Vicente is thus resigned to a bleak future for Huracan. “In the case of the immense majority of the clubs, we are the poor observers at the party of the rich.”

Nevertheless, Galmarini reckons this is the only way Latin American clubs can survive in a market where they are increasingly in direct competition with the Europeans. “Argentina is unable to compete with international capital. Before they came for a player when he was 25, now they’re taking them when they are 15.”

And they are also robbing local spectators. “The new world of communications lets people watch Barcelona, Real Madrid or the NBA in the comfort of their own homes.” With this internationalisation of football, Galmarini aims to amend his bill to allow the entry of foreign capital, with an eye to companies like Nike, which is apparently keen to organise regional tournaments. “International capital is increasingly going to enter sport, particularly football.” Whether local fans will thank them for it is another question.

From WSC 135 May 1998. What was happening this month