Scoring Profits?Foreigners hope to earn billions by tapping into Brazil's soccer mania. LAST YEAR, AFTER DALLAS-BASED BUYout firm Hicks Hicks , Edward 1780-1849. American painter of primitive works, notably The Peaceable Kingdom, of which nearly 100 versions exist. , Muse Tate & Furst took over business dealings for popular Brazilian soccer team Corinthians, some 20 million fans of the Sao Paulo squad couldn't help but wonder what would come of it. Corinthians, after all, was Brazil's soccer champion in 1998 and 1999. Meanwhile, other foreign investors are eager to see if the deal can turn a profit. Hicks, Muse was wading into relatively untested waters. Its hefty investment--more than an estimated US$60 million in just the first year of a 10-year contract, though Hicks, Muse refused to disclose the total amount--was only the third such transaction of its kind. And the two precedents, in 1998, had been much less costly. The three deals became possible with passage of the "Pele" Law of March 1998, a measure drafted by and named for Brazil's legendary athlete and former secretary of sports. Designed to attract private capital and professional management to the soccer teams, the law fundamentally changed Brazil's soccer money management and opened the door to foreign investors. Since its passage, investors--mostly foreign--have agreed to pour hundreds of millions of dollars into seven of the top 20 first division teams. The teams need the money. Since the 1930s, teams were owned by social clubs run by fans. Their unpaid, elected leaders turned most of the teams into money pits. By 1999, the top 20 teams had accumulated $400 million in debt, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Soccer Investor, a London sports investment research firm. Most of the clubs had been paying down that debt by selling the transfer rights to some of their best players to foreign teams. In 1998, for instance, the Sao Paulo soccer club sold player Denilson--who, like most Brazilian players, go by one name only--to Betis of Spain for a whopping $32 million. One year later, no fewer than 658 Brazilian professionals were sold to foreign entities. Designed in part to staunch the talent hemorrhage, the Pele Law gave all the social clubs that control athletic teams two years to incorporate as for-profit entities. Hicks, Muse was quick to spot the opportunity Its directors are banking on the growth potential of the top-ranking leisure activity in this country of 170 million inhabitants
The game is based loosely on the concepts from SameGame. . Good for business, bad for fans? To be sure, that potential hasn't been obvious so far: revenue from all sports--dominated by soccer--accounts for only 0.5% of Brazil's Gross Domestic Product, compared to 3.6% of GDP GDP (guanosine diphosphate): see guanine. for sports in the United States Sports in the United States are an important part of the national culture. However, the sporting culture of the U.S. is different from that of many other countries, especially those in Europe. Compared to any other nation, Americans prefer a unique set of sports. , according to Sirotsky & Associados, a Rio de Janeiro Rio de Janeiro, city, Brazil Rio de Janeiro (rē`ō də zhänā`rō, Port. rē`  thĭ zhənĕē`r consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a feeconsulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a . However, Sirotsky predicts Brazilian sports revenues could triple to 1.5% of GDP in five years. "It's hard to imagine a better sector in which to invest in Brazil," says Hicks, Muse partner Charles Tate. "If you add up all the fans of professional baseball, basketball, football and hockey in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , that number is lower than the number of Brazilians who are soccer fans." Sirotsky estimates that 106 million Brazilians--64% of the population--regularly follow the game. Hicks, Muse directors felt so sure of their instincts that, six months after their investment in Corinthians, they took over the business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets of Cruzeiro cru·zei·ro n. pl. cru·zei·ros A unit of currency formerly used in Brazil. [Portuguese, from cruz, cross (from the figure on the coin), from Latin crux.] , a first division team from the east-central city of Belo Horizonte Belo Horizonte (bəl' rēzôN`tĭ) [Port.,=beautiful horizon], city (1996 pop. 2,091,770), capital of Minas Gerais state, E Brazil. . It's still too early to judge the Cruzeiro move, but Hicks, Muse says the cash it has poured into Corinthians, through the company's PanAmerican Sports Teams portfolio, has been well spent. Foreign investment may be bringing in money, but it's not delighting all fans. Corinthians won a world soccer federation (FIFA FIFA International Association Football Federation [French Fédération Internationale de Football Association] FIFA n abbr (= Fédération Internationale de Football Association) → FIFA f ) tournament in January 2000, one month after clinching its second-straight national championship. Those two triumphs were largely possible thanks to Hick, Muse making a first-year $26 million investment in players to retain Vampeta, Edilson, Marcelinho Carioca and Bincon, four of the team's best players. But, after the FIFA cup win, Hicks, Muse sold transfer rights to two of the star players, netting $12 million. Another player was lured away to a competing Sao Paulo club. Corinthians has not won any major tournaments since. Carlos Roberto de Mello, Corinthians' vice president for finances, says Hicks, Muse waited too long to reinvest re·in·vest tr.v. re·in·vest·ed, re·in·vest·ing, re·in·vests To invest (capital or earnings) again, especially to invest (income from securities or funds) in additional shares. the profits from the trades. "That hurt Corinthians' performance and irritated ir·ri·tate v. ir·ri·tat·ed, ir·ri·tat·ing, ir·ri·tates v.tr. 1. To rouse to impatience or anger; annoy: a loud bossy voice that irritates listeners. fans used to a better playing team," he says. He warns that the strategy may cut into future team profits if Hicks, Muse doesn't get busy building the team up again. But Hicks, Muse's Pan-American Sports Teams President Richard Law Richard Law may refer to:
Name game. Law sees Corinthians and Cruzeiro as more than teams. He sees them as brand names with money-making potential. For instance, Hicks, Muse's portfolio firm bought, for an undisclosed amount, the right to market each club's public exposure. That includes television exhibition rights, product licenses and sponsorship rights. The deal also gives the investment group gate receipts and ad revenues from billboards surrounding the field. In return, Hicks, Muse will bankroll bank·roll n. 1. A roll of paper money. 2. Informal One's ready cash. tr.v. bank·rolled, bank·roll·ing, bank·rolls Informal the teams' soccer programs, player salaries and travel expenses for 10 years. Corinthians managers say the investment group's expenditures will total $35 million a year; for Cruzeiro, it may run $20 million. To help pay the bills, Hicks Muse's portfolio firm has signed a $12 million, two-year deal with Pepsi. The soft drink's name will appear on Corinthians' jerseys. Team players show up in Pepsi marketing campaigns and television ads. Hicks, Muse also allied with a Brazilian partner to establish a licensing company. The venture seeks to halve halve tr.v. halved, halv·ing, halves 1. To divide (something) into two equal portions or parts. 2. To lessen or reduce by half: halved the recipe to serve two. 3. the number of Corinthians licensees and improve the quality of products bearing the team's name. Retail sales of some 200 products now bring in $12 million a year, up from $2 million before the takeover. The licensees keep the bulk of the retail sales, giving an undisclosed percentage to Hicks, Muse. Marketing rights should guarantee a profit for Hicks, Muse by next year, even without the cash from player trades, Law says. The Hicks, Muse capital infusion Capital infusion Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. also makes it likely that players will be paid on time, regardless of the team's lackluster record. And those athletes stand to receive additional perks perk 1 v. perked, perk·ing, perks v.intr. 1. To stick up or jut out: dogs' ears that perk. 2. To carry oneself in a lively and jaunty manner. : As part of a separate deal, Hicks, Muse plans to build the club a new training center in early 2001 and a new 45,000-seat stadium in the next few years. Good for the players. "The Hicks, Muse investment in Corinthians gives players a sense of stability," says mid-fielder Ricardinho, one of the team's stars. "Sure, our performance this year hasn't equaled that of 1998-1999 because of a loss of players, but I see this as a temporary and transitional moment." Cruzeiro Vice President Alvimar Perrella de Oliveira Costa is grateful for the foreign investment. He says it stopped the team's habit of selling transfer rights of top players to keep its books balanced. Cruzeiro has, in fact, sold some top player rights recently but, unlike Corinthians, it has also acquired some stars. The team's performance has not declined. Hicks, Muse directors view the investments as part of a broader, regional strategy. A similar deal reportedly in the works with River Plate, a top club in Argentina, but Law won't confirm that. He also won't say if the Hicks, Muse portfolio firm is planning further investment in Brazilian teams. Law does note that sweeping changes to the Pele Law enacted by the Brazilian Congress last July won't influence investment strategy. One change in the law prevents soccer investors from owning or controlling more than one team. But Law says the legislation isn't retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a and Hicks, Muse technically doesn't control its two teams, so the investments in Corinthians and Cruzeiro are not affected. Strikingly, legislators boldly reversed the main feature of the Pele Law, making it no longer mandatory for clubs to incorporate as for-profit entities. All that's left of the original Pele proposal are relatively minor requirements such as how much players may benefit from the sale of their own trades. Despite the legislative action, Law says growing private sector interest in Brazilian soccer won't wane. "The passion that Brazilians have for soccer creates a huge potential market," he says. "As long as there is such a market, there will be investors anxious to tap into it." |
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