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HOW THE CLUB-COMPANY PL CAN HELP PROMOTE FOOTBALL IN BRAZIL

October 23, 2020

By Leonardo Neri

The Federal Senate will analyze Bill (PL) nº 5.082/16, which provides for the possibility of Brazilian football clubs becoming business corporations through certain benefits that the current legislation does not contain.

The purpose of the corporate club is to help associations that are heavily in debt. Nowadays, in Brazil, most football clubs are classified as non-profit civil associations. The PL allows clubs to become limited and joint-stock companies, with the aim of making profits, and also to be incorporated by other companies. There are also benefits in the area of debt refinancing plans, involving the tax area.

There is also a much-discussed right for the corporate club in the Bill, which would be the automatic request for judicial recovery. In this case, after having a debt restructuring plan approved, the team is protected for at least six months from judicial seizure actions. During this period, the club could continue to play in the competitions, without any impediment from the courts.

The consolidation of the Bill into law and the adherence of the present civil associations to the club-company model would allow for better organization of the management of sports entities in Brazil, in order to attract new investments within such a promising segment and very little explored by international investors, who are eager for a tangible legal and structural model to expand their businesses and obtain profits. In addition, the Bill provides that club directors must act with extreme transparency in illustrating the entity's financial data, under penalty of being punished.

In the company club, those who invest could buy shares or stocks in stock exchange. It is currently not possible to acquire shares in non-profit associations.

The bill also states that teams would pay fewer taxes than traditional companies, but the amount would still be higher than what is currently paid by a non-profit club. To encourage clubs to join, larger non-profit entities could start paying some taxes.

Furthermore, to avoid burdening the associations with labor issues, players who earn more than R$10,000 would have their own legislation. These rules would be based on image rights and subsequent regulation discriminating individual rights by segment.

Currently, the biggest challenges faced by clubs are: i) profit; ii) public engagement; and iii) good results on the field. This will require investing in new training centers, professionals in the field and, of course, potential players. To achieve this, it is essential to access new ways of raising funds, such as listing the entities on the stock exchange.

This market has specificities that must be taken into account by investors, especially foreigners who are unfamiliar with our legal model. In Brazil, a risk of investing in stocks of clubs, for example, is that the performance of the clubs would depend on the results on the field, which would bring volatility to the value of the share (paper).

However, the big European clubs are not as dependent on results as they are here, since they have a global brand and a loyal fan base around the world. Therefore, investing in their shares could be seen as a more conservative option. These clubs can spend much more on player transfers to keep their fan base motivated and the results on the pitch. This would be a level that, under the new legal model of business in Brazil, could motivate our clubs, through greater investment in branding on a global level.

This communication, which we believe may be of interest to our customers and friends of the company, is intended for general information only. It is not a complete analysis of the matters presented and should not be considered legal advice. In some jurisdictions, this may be considered lawyer advertising. Please see the company's privacy notice for more details.

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