Rodrigo Mattos – Investors are waving billions to clubs for power in league talks

A billion-dollar proposal by two financial groups (one American and the other Brazilian) provides for a contribution to 26 clubs in the Liga Forte Futebol in exchange for mechanisms that give them control over the negotiation of TV rights in Brazil. The investor power would be granted until at least the end of the year if the teams accepted the initial offer.

This scenario (if it were to materialize) would lead to two possible paths: 1) a negotiation between investors of the Libra and Liga Forte Futebol groups to settle the commercial part of the League. 2) the impossibility of building a League for the Brazilian. The Mubadala fund, in agreement with Libra, understands that it is not possible to manage the League with other investors.

The blog has accessed the terms of the offer of the US fund Serengeti Asset and the Brazilian LCP Gestora de Rercusos Ltda, based in Curitiba and São Paulo, for the Liga Forte Futebol. The final contract is still under negotiation and could undergo changes: the scenario outlined here is the one that currently exists. But the idea is to present a definitive proposal to the 26 clubs of the Liga Forte Futebol in the next few days.

Negotiations for the Brazilian championship have been dragging on for a year and a half, with a rift between the clubs. The LFF represents 26 teams, nine of which are from Série A, including teams such as Inter Milan, Fluminense, Fortaleza and Atlético-MG. Libra has 17 teams, 11 of which are from the First Division, which brings together Flamengo, Corinthians, Palmeiras, São Paulo, Cruzeiro, among others.

The split between the two groups is due to disagreements between the clubs on revenue sharing criteria for a future league. Libra has adopted a 45% peer rule, 25% rewards, and 30% fan articles. The LFF, on the other hand, defends the division of 50% even and 25% for the other two items. There are still disagreements about what will be taken into account in the calculation of variable items, with differing ideas from the two groups.

Libra has an exclusive negotiation with the Mubadala fund, of Abu Dhabi, with a proposal of 4.750 billion reais for 20% of the entire Liga do Brasileiro for 50 years. It is a fund with a capital of almost 300 billion dollars which would take over the commercial negotiation of the Brazilian.

The offer of Serengeti and Life Capital Partners Gestora de Recursos (LCP) to the LFF teams is divided into two hypotheses: 1) BRL 4.850 billion for the rights of the entire Liga do Brasileiro 2) BRL 2.185 billion overall for the rights of the teams of the Liga Forte Futebol. This value would be reduced if less than 26 teams signed up – the minimum is 22 teams or the amount will be invalid.

The Serengeti fund and LCP are not disclosing their assets. Serengeti claims on its website that it invests in companies with revenues of $10 million and $50 million, and one of the US fund websites lists its assets at $1.3 billion. The managers of LCP are former executives of 3G Capital, Wilson Lara, Carlos Gamboa and João Leitão. The money is to be raised by Serengeti and LCP Capital with third parties, according to the blog’s findings.

According to the proposal, in the event of conciliation between the Libra and LFF groups, there would be full payment of the amount in three instalments, 50% of which upon signing of the final contract. Otherwise, if there is no deal with Libra, the Liga Forte Futebol clubs would have until April 30 to accept the R$ 2.185 billion proposal just for their television rights. If the teams do not close the deal, investors would have from May 1 to 12/31 to complete the transaction.

There is the possibility of changing these deadlines in the ongoing negotiation according to the sources involved in the contract.

If the clubs accept, a company would be created to control the TV rights of the LFF or single League clubs, with 80% of the clubs and 20% of the investors. But, under the terms of the proposal, the commercial management would have greater control over the investors: they could appoint and remove the CEO and the commercial team. The clubs, however, would have seats on the Council. This is still under negotiation.

Under the terms of the agreement, the clubs grant the investors (Serengeti and LCP Corretora) “the irrevocable option to participate in any transaction involving the rights of the LFF, i.e. the commercial and television rights relating to Serie A and B”. Therefore, a club in the Liga Forte Futebol could no longer dialogue with Libra without informing investors. The direct conversation between the clubs would end. This clause appears as non-binding, i.e. it is not mandatory before a definitive signature.

As a penalty for non-compliance with this mechanism, clubs would have to pay a fine corresponding to 10% of the total investment envisaged for the entire championship. This would mean a fine of BRL 485 million for failing to respect the investor’s right to act in the LFF teams rights settlement.

These contractual conditions are subject to change. But, within the LFF, there is consensus that investors will have stakes and weight at the table for any sort of negotiation to form a single trading league with Libra.

There is an understanding within the LFF that this gives the entity more negotiating power in relation to Libra. It is leverage as the group was at a disadvantage after the Libra-Mubadala deal. For the LFF, this makes the negotiation more balanced.

The problem is that Libra and the Mubadala fund understand that a model with other investors is not feasible, especially if they had commercial control over the sale of rights – the Abu Dhabi group would have this right through the agreement with Libra. Additionally, Serengeti and LCP investors are upfront at least 50% of their investment in the League in the event of a deal. At Libra the assessment is that the rights of their clubs, with the largest audience, represent at least 70% of the League. The investors’ proposal to the LFF is seen as hostile.

That is, with an investor on both sides having control over the rights to the clubs, it is possible that a single league would become unfeasible. However, it is not the panorama inside the Liga Forte Futebol. In the group it is understood that the agreement would be facilitated because investors will not want to lose money.

In the proposal of Seregenti and LCP Corretora, proxies are still envisaged in favor of investors. For example, there is a block that prevents clubs from selling another percentage of their rights to third parties for ten years (Lock up). Investors, on the other hand, have no resale lock. These terms are also under negotiation and may be changed.

The final proposal should be finalized and submitted to the LFF club commission in the coming days. An assembly of the 26 teams of the Liga Forte Futebol should be convened there to find out if they accept the terms of the offer and adhere to the document. It is possible that this will happen as early as next week.

In such case, investors will make a lower initial deposit as a show of good faith. The negotiated amount was R$ 350,000 per club. Only after the definitive signing of an agreement, which could take place by April 30, the clubs would receive the payment of 50% of the amount offered by the investors. In this case, it would be R$1.092 billion to be divided among 26 LFF clubs.

Both Liga Forte Futebol, investor group Seringeti and LCP Corretora declined to comment due to the confidentiality of the offer.

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