In August 2021, Brazil enacted the Brazilian Football Corporations Act, a crucial development for the football industry in the country. This legislation facilitated the transformation of several football clubs from civil associations into football corporations, starting a new era for Brazilian football. In recent years, influential groups and individuals such as the City Football Group, 777 Partners, John Textor, Ronaldo 'Fenômeno', and others have become shareholders in Brazilian clubs, further shaping the industry's landscape. This work provides an overview of the main features of Brazilian Football Corporations and how the business environment in Brazilian football has evolved since the law's enactment in 2021. The aim of the work is to empower stakeholders to navigate the complexities of football corporations in Brazil and identify potential business development opportunities.

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The soccer corporations in Brazil: evolution and perspectives

In August 2021, Brazil enacted the Act 14,193/2021, also known as the "Brazilian Football Corporations Act", a crucial development for the football industry in the country. This legislation facilitated the transformation of several football clubs from civil associations into football corporations, marking the dawn of a new era for Brazilian football. According to public data available from the Brazilian Public Mercantile Registry database, over 65 clubs nationwide have embraced this model so far. Among them, influential groups and individuals such as the City Football Group, 777 Partners, John Textor, Ronaldo 'Fenômeno', and others have become shareholders in Brazilian clubs, further shaping the industry's landscape.

Despite the new legislation, it is crucial to emphasize that Brazilian football clubs are not universally required to adopt this specific format. Since previous versions of sports regulations in Brazil (such as the Pelé Act – Act 9,615/1998), clubs in Brazil have retained the autonomy to decide their organizational structure. So, what has led to the surge in the creation or transformation of football clubs into football corporations in Brazil? What are the specificities of such a model in comparison with the previous ones that create such incentives?

The Brazilian Football Corporation (in Portuguese, "Sociedades Anônimas do Futebol") is a corporate entity solely dedicated to the professional practice of football (and only football), mandatorily encompassing both male and female categories. Beyond its primary focus, the corporation may venture into other football-related activities, including capitalizing on intellectual property assets tied to the sport and managing football-associated real estate properties, like stadiums and training centers.

As provided in the Brazilian Football Corporations Act, there are four primary methods to establish a football corporation in Brazil: (i) transforming an existing club into a football corporation; (ii) segregating the football department from an existing club and subsequently transferring its football-centric assets to the football corporation; (iii) establishing a new entity independent of any existing club; or (iv) having the original club subscribe to all the shares of the football corporation’s share capital and paying it with football-related assets. From these different models, it remains clear that a football corporation can be created (a) from scratch or (b) through the use of an existing club.

When dealing with football corporations created through preexisting football clubs, the Brazilian Football Corporations Act created specific governance guidelines, in addition to those set out by the legislation applicable to corporations in Brazil. A unique characteristic within this framework is the perpetual 'affirmative vote' granted to the original club on vital decisions to be taken within the football corporation, such as changes to the club's name, adjustments to foundational identifiers – including symbols, anthems, and colors – and the relocation of the headquarters to a different city. The intent behind this structure is to safeguard the club's long-standing traditions, granting the original institution the power to resist major alterations that conflict with its history after the establishment of a football corporation.

In an era marked by intense debates surrounding the multi-club ownership paradigm, the Brazilian Football Corporations Act also introduces safeguards against potential conflicts of interest. Notably, the legislation forbids the controlling shareholder in a football corporation from holding or acquiring, directly or indirectly, any stake in any other Brazilian football corporation. Moreover, if a shareholder, without holding a controlling interest, owns at least 10% of a football corporation in Brazil and also holds equity in another, such shareholder is barred from participating in the general meetings or management of both entities.

From a financial standpoint, in a strategic move to foster innovative fundraising avenues for football corporations in Brazil, the legislation also introduced a tailored financial instrument named 'football debentures'. The objective behind this legislative measure was to create a unique financing structure for Brazilian football corporations, enriched with specific features, such as rules regarding the periodicity and minimum amount of remuneration to be paid to the owners of such debentures. Although the preliminary draft of the legislation suggested a distinct tax framework for this financial instrument, the final version of the bill saw this unique tax structure vetoed. This action consequently diminished the appeal and competitive advantage of 'football debentures' when compared with other financial models enshrined in the Brazilian Corporations Act (Act 6,404/1976) and related legislation. Nonetheless, the football corporations themselves were benefited with a simplified tax regime known under Brazilian law as the Specific Taxation Regime for Football (or Regime de Tributação Específica do Futebol – TEF, in Portuguese), which streamlines the collection of various taxes for football corporations into a single document and establishes special tax rates for clubs that adhere to the model, creating an extra incentive to the adoption of such structure.

Regarding succession and liabilities, the Brazilian Football Corporations Act has established specific provisions to manage the flow of obligations between the original clubs and the football corporations. Under its guidelines: (i) football corporations can continue participating in tournaments in place of the original clubs without facing any sports-related disadvantages; (ii) these corporations are considered successors in contractual relationships with professional athletes previously entered into by the original club; (iii) the football corporation shall not be liable for the debts and obligations of the original club, except for those explicitly assigned to them; and (iv) in all administrative matters, the football corporation is recognised as the direct successor to the original club.

The third point is particularly groundbreaking within the Brazilian context, as historically, many Brazilian football clubs have struggled with significant debts. By instituting this provision, the Brazilian legislation provides a mechanism to protect the newly formed football corporations from past financial burdens, injecting new life into the football industry and potentially ensuring the survival of traditional Brazilian clubs. Nevertheless, it is imperative to highlight that this legal structure could result in delays or complications concerning payments to the original clubs’ creditors since the clubs retain their debts while their primary revenue-generating assets associated with football are fully transferred to the football corporation. In this sense, to manage these financial burdens, the Brazilian Football Corporations Act presents two distinct paths for the original club: (i) a court-supervised reorganization, as provided for in the Brazilian Bankruptcy Act (Law 11,101/2005), and (ii) the 'Centralized Execution Regime', a procedure that, while somewhat similar to insolvency, is tailored specifically for clubs that transition their football operations to a football corporation and which operates like a creditors' assembly where all credit executions against a club, as well as its revenues, are centralized under a single jurisdiction overseen by a Brazilian court.

This kind of sport-specific mechanism to solve debts, whether applicable to one or multiple sports, is somewhat unique to Brazil. Most other countries generally adhere to their standard bankruptcy and insolvency frameworks. Brazil's tailored approach appears to be a counterbalance to: (i) the significant advantages offered to Brazilian football corporations (given they are exempt from inheriting the debts of the original clubs), and (ii) the challenges faced by the original clubs, burdened with debts and stripped of key revenue-generating assets.

Undoubtedly, the new framework introduced by the Brazilian Football Corporations Act has attracted significant interest from investors in Brazilian clubs, in some cases quite literally rescuing them from overwhelming debts. This has led to increased capital availability for investment and sophistication of the Brazilian football structure. In the recently published FIFA Global Transfer Report 2023, an interesting trend highlighted in the ranking of clubs that spent the most in the CONMEBOL region is that out of the 6 Brazilian clubs listed in the top 10, 4 are clubs that have recently transformed into football corporations or utilize a similar structure. This demonstrates that the model has indeed resulted in greater investment availability for some of the clubs that adopted it.

However, challenges and avenues for improvement persist in Brazil. An uncertain aspect, for example, is the exemption granted to Brazilian football corporations from inheriting the debts and liabilities of their predecessor clubs. This provision stands in clear contrast not only with other legal systems but even with Brazilian legal principles and should not be misused as a gateway to normalize defaulting, especially considering the historic financial struggles of Brazilian football clubs. How this provision will be perceived by both Brazilian domestic courts and international sporting bodies, like FIFA and CAS remains a matter of keen interest. In this sense, it is crucial that the safeguards and mechanisms incorporated in the Brazilian Football Corporations Act, such as the Centralized Execution Regime, operate effectively. Their primary goal should be to rejuvenate the football industry as a whole, fostering growth but without neglecting club creditors, who have been innocent spectators to the historical mismanagement that led Brazilian clubs to their current financial precipice. The future holds the answer, while the present offers compelling opportunities for fresh investments in Brazilian football.