New corporate model for soccer clubs established in Brazil

​A new law has created a corporate entity specifically for Brazilian soccer clubs (the Sociedade Anônima do Futebol – SAF), providing rules concerning governance, financing and requirements for forming these entities. It also establishes the Social and Educational Development Program (PDE).

The new legislation stems from a long-running debate in Brazil on the professionalization of soccer, an industry that sees significant sums of money moved and circulated every year. As most Brazilian soccer clubs are currently run as non-profit associations, the new law aims to harness and foster the industry’s strong potential for growth.

Background

In 1993, ‘Zico’s Law’ (named after a famous Brazilian soccer player) was enacted to establish general regulations for sport in Brazil and facilitate a transition towards a more professionalized industry. It was the first piece of legislation that opened the possibility of sports entities to set up for-profit companies as part of their operations, provided these were for sports-related purposes.

A second law (‘Pelé’s Law’) was enacted in 1998 to update and replace Zico’s Law, though it maintained most of its existing provisions. Pelé’s Law sought to revolutionize the regulation of soccer in the country by allowing clubs to transform themselves into for-profit companies. By 2019, 83 of the 874 Brazilian soccer clubs in existence – about 9% – were operating in this manner.

The newly established SAF model has its origins in a 2016 bill sanctioned on August 6, 2021, as Law No. 14,193/2021 – known as the Soccer Corporate Law. The provisions established in this latest law seek to form a properly structured environment that favors the growth of the soccer industry.

Establishing SAFs

There are three ways a SAF can be formed: (i) the original club or legal entity can be directly transformed into a SAF; (ii) the original club can transfer its assets and soccer department to a SAF in a corporate spin-off; or (iii) natural persons, legal entities or investment funds may establish a brand new SAF.

In the first two of these options, the SAF would be derived from an existing club, and as such, they offer viable alternatives to clubs associations interested in modifying their structure. In these cases, the SAF would assume the club’s right to participate in competitions under the same conditions. They would also take on the rights, duties and contracts linked to professional soccer activities — particularly those related to intellectual property, in the context of soccer-related business.

As the third option regards creating SAFs without a direct relationship with existing soccer clubs, it offers an alternative for parties interested in entering the market.

Key rules for SAFs’s structure

In line with good corporate governance practices, SAFs must comply with a series of rules concerning corporate structure, administration, debt management, asset protection and disclousore information reporting.

SAFs are obligated to issue class A common shares exclusively to the original clubs or legal entities that founded them. These shares confer certain special rights on their titleholders, including veto power over important issues such as changing the SAF’s name and symbols, or moving its headquarters to another municipality.

Founding clubs or legal entities may also have similar rights in relation to secondary matters if the class A shares they hold make up a certain percentage of the SAFs total share capital. Such matters include (i) selling or transferring real estate or intellectual property rights vested in the formation of capital stock; (ii) corporate reorganizations; (iii) corporate winding up; (iv) settlements (v) complete corporate dissolution; and (vi) participation in regional or national soccer leagues.

The shares the original club or legal entity holds in the SAF can be paid for without the authorization of creditors or other interested parties. Payment can take the form of transferred assets, including names, brands, emblems, symbols, property, equity and fixed assets.

Liability

The Soccer Corporate Law introduces provisions ensuring SAFs will not be held liable for any of the original club or legal entity’s obligations, except for those in line with its specific corporate purpose. Thus, any outstanding obligations in existence prior to forming a SAF remain the responsibility of the original club or legal entity.

The law also provides that the SAF’s assets and revenue must not be constrained while it complies with its social and financial obligations, ensuring that SAFs are able to forecast revenues more easily.

The law has also established a type of debt security known as a ‘debenture-fut’. The use of these securities is restricted specifically to SAFs, who may issue them to help finance their operations. Therefore, any funds raised through these debentures-fut must be allocated to developing the SAF’s operations or used for covering debts and expenses.

SAFs and social initiatives

The Soccer Corporate Law requires SAFs to run and invest in certain social initiatives linked to the new Social and Educational Development Program (PDE), which seeks to harness the monumental power of soccer in Brazil to benefit a range of social issues. In partnership with public education institutions, the PDE fosters the development of education through soccer and soccer through education.

Investments may be directed towards initiatives for constructing or renovating public schools, maintaining the upkeep of soccer fields, feeding students, and purchasing soccer equipment and other materials. As part of the program, SAFs must also offer female students opportunities to ensure girls have adequate access to sport, thus promoting women’s soccer.

Tax provisions

Although the Soccer Corporate Law’s bill originally contained articles to regulate a tax framework known as the Specific Taxation System for Soccer (TES), these provisions were eventually vetoed. The sanctioned form of the law provides that clubs or legal entities with outstanding tax debts when forming a SAF may submit a transaction proposal under the terms of the applicable legislation — as long as they are not already participating in federal government refinancing programs.

The Brazilian President also vetoed other significant provisions in the bill before it was signed into law. These regarded provisions for financing SAFs, tax benefits linked to investing in debentures-fut, the possibility of SAFs issuing any type of bond or security and the authorization to raise conditional funding.

All rules related to creating the TES were also vetoed. Although it would not have been in place permanently had it been implemented, it would have simplified the tax framework for SAFs and reduced the tax rate applicable to them. Indeed, these factors had been identified as a significant incentive for soccer clubs to switch to the new framework.

The provisions vetoed by the President are currently being considered by the Brazilian Congress, which has seen a growing push towards favoring the original version of the bill. Overturning the vetoes will require at least 257 votes in the House of Representatives and 41 votes in the Senate. The outcome of the vote is hotly anticipated, as it will likely have a significant impact on whether clubs adopt this new corporate model.

For further information on the SAF corporate model, please contact Mattos Filho’s Insurance, Reinsurance & Private Pensions, Technology, Innovation & Digital Business and Labor, Employment & Executive Compensation practice areas.