New corporate model for football clubs established in Brazil

Introduction
Background
Establishing SAFs
Key rules for SAF structures
Liability
SAFs and social initiatives
Tax provisions

Introduction

A new law has created a corporate entity model – known as an "anonymous football society" (SAF) – for Brazilian football clubs and provided rules concerning governance, financing and requirements for forming these entities. It also establishes the social and educational development programme (PDE).

The new legislation stems from a long-running debate in Brazil on the professionalisation of football, an industry that sees significant sums of money moved and circulated every year. As most Brazilian football 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 football player) was enacted to establish general regulations for sport in Brazil and facilitate a transition towards a more professionalised industry. It was the first piece of legislation that opened up the possibility of sports entities to set up for-profit companies as part of their operations, provided that 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 revolutionise the regulation of football in the country by allowing clubs to transform themselves into for-profit companies. By 2019, 83 of the 874 Brazilian football clubs in existence (about 9%) were operating in this manner.

The newly established SAF model has its origins in a 2016 bill passed on 6 August 2021, 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 favours the growth of the football industry.

Establishing SAFs

There are three ways an SAF can be formed:

• the original club or legal entity can be directly transformed into an SAF;
• the original club can transfer its assets and football department to an SAF in a corporate spin-off; or
• natural persons, legal entities or investment funds may establish a new SAF.

In the first two of these options, the SAF would be derived from an existing club and, as such, would offer a viable alternative to club 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 football activities — particularly those related to intellectual property in the context of football-related business.

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

Key rules for SAF structures

In line with good corporate governance practices, SAFs must comply with a series of rules concerning corporate structure, administration, debt management, asset protection and disclosure 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:

• selling or transferring real estate or IP rights vested in the formation of capital stock;
• corporate reorganisations;
• corporate winding up;
• settlements;
• complete corporate dissolution; and
• participation in regional or national football leagues.

The shares the original club or legal entity holds in the SAF can be paid for without the authorisation 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 an 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 "debênture-fut". The use of these securities is restricted specifically to SAFs, which may issue them to help finance their operations. Therefore, any funds raised through debêntures-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 PDE, which seeks to harness the monumental power of football in Brazil to benefit a range of social issues. In partnership with public education institutions, the PDE fosters the development of education through football, and football through education.

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

Tax provisions

Although the Soccer Corporate Law's bill originally contained articles to regulate a tax framework known as the "specific taxation system for football" (TES), these provisions were eventually vetoed. The passed form of the law provides that, when forming an SAF, clubs or legal entities with outstanding tax debts 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 debêntures-fut, the possibility of SAFs issuing any type of bond or security, and the authorisation 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 football clubs to switch to the new framework.

The provisions vetoed by the president are currently being considered by Congress, which has seen a growing push towards favouring 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 will adopt this new corporate model.

For further information on this topic please contact Camila Calais, Lisa Worcman or Sólon Cunha Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email ([email protected], [email protected] or [email protected]). The Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados website can be found at www.mattosfilho.com.br.