Currently, the vast majority of such entities are characterized as an association, non-profit football club entities, and there can be no distribution of profits between members. With the transition to SAF model the dividends distributions is now permitted.
The proposed change is currently happening, and attracts investors, since the entity is able to distribute profits and is stimulated by the tax reduction. These are distinguished from those of a company in the early years and with the centralized regime of executions with payment plan for lenders of existing liabilities up to six renewable years for another four years. In this article, we will deal with the company model of this transition to soccer team-company as an SAF.
According to data released in the Brazilian press, at the end of December 2021, Cruzeiro Esporte Clube announced the sale of 90% of the shares of SAF Cruzeiro, for BRL 400 million, to a former soccer player of the Brazilian National team and owner of the Real Valladolid Club of Fútbol, Spain, Ronaldo Nazário. This amount refers only to the amount that will be contributed in the SAF and does not refer to the total, considering the liabilities assumed.
At the beginning of January 2022, Botafogo de Futebol e Regatas announced the sale of 90% of SAF Botafogo shares, also for BRL 400 million to the American businessman and owner of Crystal Palace Football Club, England, John Textor.
In view of these transactions, some questions arise as:
The first item to be reviewed is the composition of the assets that will be part of SAF and the liabilities that will be assumed. In addition to professional football, many football clubs entities have a sporting headquarters with membership programs, a stadium, a training center, professional teams from other modalities, basic categories, among other assets.
Another point to be taken into consideration is the participation to be negotiated. In more mature markets, such as Europe, there are transaction models, in which the sale of 100% of the shares was held, as is the case of Chelsea Football Club, sale of controlling interests, as is the case of Paris Saint-Germain Football Club, and the sale of non-controlling interests as is the case with Football Club Bayern Munich.
The main valuation approaches used to measure the value of a business are:
Income approach, based on future cash flow projection, is one of the main approaches used by appraisers to measure the value of a business, as it captures the value of tangible and intangible assets (brand, supporters) in cash flow. This methodology takes into account the projection of revenue, costs, expenses, taxes, capex, depreciation and working capital, over a period of years and the result of these projected flows, are brought to present value for a discount rate that reflects the business risk.
In this article, the approach will be related to revenue, costs, expenses, and investments that should be reviewed and included in the composition of projected business cash flows being transacted.
The first challenge is from reliable data. Usually in a transaction process, one of the stages is due diligence, process of evaluating potential risks and accounting, financial, tax and labor contingencies, and then try to measure the impact of the main revenue, cost, expenses, and investment drivers that impact the business value.
Starting by the revenue composition, the study is important for reviewing and including all revenues from the negotiated asset, among them:
Championships played vs. Access or Descent: The Championships (Regional, Brazilian, Brazil Cup, South American, Libertadores, Worldwide) have distinct awards per phase and placement that the team ends competition. In the case of teams that are in Serie B of the Brazilian championship, with good conditions to move to Series A and, consequently, if they are accredited to stage other competitions, the impact on revenue is relevant. The same applies to the soccer teams that are ranked in the Brazilian Series A and qualify to compete in international competitions. All these positioning scenarios in the championships, access and descent should be considered in the study.
Transmission Rights: revenue with the sale of the transmission rights of games on the open TV, closed TV and other platforms. Depending on the financial difficulty of the football clubs, some anticipate this revenue. Important to see the reflection in Valuation.
Ticket Office: Revenue with the sale of tickets, detailed by competition and place.
Partner Supporter: Revenue from annual fees paid by fans to become members.
Sponsorships: Revenue with sponsorships in football cotton jerseys or other exhibitions that generate funds for the club.
Licensed Products, Football Cotton Jerseys: royalties for sale of licensed products, soccer schools or football cotton jerseys.
Transaction with players: Revenue with sale or loan of players.
Arena: In the case of football clubs with own stadium, naming rights revenue, sale of products, VIP area, events, concerts, among others. It is important to review whether the asset that generates this revenue is included in the SAF composition.
With regard to costs, expenses, and Capex it is important to include in the analysis:
Personal Expenditure: Salaries, charges, benefits, and image right of athletes, technical committee, and all stakeholders in the business.
Match Expenses: All expenses related to a football match, playing in its own stadium or that of third parties;
Travel and Accommodation Expenses: All travel and accommodation expenses, which are not funded by federations or confederations;
General and Administrative Expenses: All expenses with overhead and administrative expenses, which are directly related to the business;
Transaction with players: Expenses with the purchase or loan of players and commissions paid to the agents;
Investments (CAPEX): Amounts focused on purchase/ maintenance of fixed assets, real estate, and property and equipment. Pay attention to whether the investments are related to the assets that were included in the SAF. In the case of construction of an asset, check the future impacts on revenue and expenses lines from this new asset (e.g., new training center X additional expenses).
A good understanding of the composition of assets and liabilities that make up an SAF, with their respective reviews and sensitivities of the items of revenue, costs, expenses, taxes, depreciation, capex and working capital, which are part of the projected cash flow of SAF, in addition to of the discount rate and the peculiarities of the football club and the segment, are essential for assertively capturing and reflecting the business value.
