Government decision may pose credit challenge to football clubs
The government's decision of allowing a football club to negotiate TV rights for a home match may make credit more difficult for the clubs. Some banks are already more restrictive to the sector, sources say.
It is common in Brazil for clubs to get advances from banks and funds on part of their receivables generated by contracts for broadcast of matches. Every year, clubs offer R$300 million to R$500 million of their TV rights as collateral that ensures them lower interest rates on loans, according to Itaú BBA, which follows the sector.
Globo, network that holds rights to broadcast the most important tournaments, usually doesn't endorse these loans. But in practice banks and funds run the credit risk of the TV network, considered low, and not of the clubs, higher. Globo belongs to the same media group that owns Valor Econômico.
Provisional measure (MP) 984, which the government issued in June, scrambled this logic because there is less certainty of where a match will be broadcast. The right will be exclusively of the home team.
For a banker who works with credit to football, "the clubs are the ones to suffer," because they will lose the possibility of getting advances on funds with high-quality risk."With the MP, there is a certain discomfort among banks because you don't know how this market will be," says César Grafietti, consultant of sport finance at Itaú BBA, bank that publishes a yearly study on Brazilian football clubs, but doesn't provide advances on receivables to them.
In general, small and medium-sized banks are the ones that extend more loans to football clubs. The largest lenders operate little in this segment.
Mr. Grafietti says clubs get advances on TV rights to adjust their cash flows, often squeezed because of the concentration of revenues in the second half. He estimates total payments for TV rights amount to R$2.1 billion per year, and account for 40% of the total revenue of the clubs. Of those, the part that effectively can be advanced is R$1 billion, since part of the payments is made according to the performance and may not exist, for example, in case of relegation. This means between 30% and 50% are advanced per year.
Advances for this year's rights have already been made, but the new situation may pose a challenge for clubs in the 2021 season, he says. "There is legal insecurity," he points out. "Creditors took off their feet."
The uncertainty gained a new chapter on Thursday, when Globo decided to rescind the...
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