by Douglas Monaco*
A likely, eminent mixing of football sponsorship with club politics frightens some and leads others to, tentatively, pull legitimacy from a late XX century example. Clarification is in order.
Concerns about Palmeiras and Crefisa/FAM
On these early days of 2017, one theme has drawn the attention of Brazilian football followers in general and Palmeiras supporters in particular: the recent growth in prominence of Crefisa/FAM both in their role as sponsors of the team and in their political aspirations within the club.
The sponsorship contract is about to be renewed: a rumoured R$ 80-100 million (US$ 25-31) per year for the next two years, with additional bonuses for titles. If numbers are correct, it is by far the most valued sponsorship contract in today’s Brazilian football scene.
In the political realm, it is a given fact that the sponsor’s owner – Mrs. Pereira – is running for a seat in the club’s Deliberative Council with, some say, the ultimate goal to one day become club president.
This likely enmeshing of sponsorship with sharing in the club’s governance has made some – supporters, members etc. – worry because, as it stands today, there is no clarity about the configuration such a mixture of roles would end up having.
Another contentious point is the uncertainty about Mrs. Pereira having or not complied with all membership requisites to run for the Council, let alone to aspire becoming the president. Membership time needed to run for council is 8 years and then another 8 years as counsellor to be an eligible presidency candidate.
So, was she to be successful in these elections, her political involvement would be marred both by controversy in its functioning and by a possible breach of the club’s bylaws in its beginning.
Not good omens.
Some try to assuage these concerns, primarily eyeing the growth in cash injection that the renewed sponsorship contract would bring – however politically fuelled. They do so by citing the Parmalat Era as a precedent in this kind of arrangement in the club; a precedent that would legitimize the current situation.
In their 1992-2000 Partnership, Parmalat not only contributed millions of US dollars but was also involved in Palmeiras’ management. Why not allow Crefisa/FAM the same freedom now? the argument goes.
This article does not seek to question nor validate any current or future arrangement: after all, we do not know what it will look like if, and when, it comes into existence. This is simply an attempt to provide an accurate point of comparison. Those wanting to validate the present by quoting the past, must have a clear picture of what the past looked like.
Description of the Partnership
Below, the general characteristics of the Palmeiras/Parmalat partnership:
1. Per the contract, Parmalat paid Palmeiras a monthly standard sponsorship fee and, simultaneously it bought highly qualified players and made them available to the club, without charging for it.
2. When these players were to be sold, Palmeiras had the right to a percentage in the profit – 20% – as a “showcase fee”.
3. The basic advertising spaces granted by Palmeiras were connected to the football team and, for some time, to the volleyball team: the company’s brand was printed alone in the chest-side of these sports’ uniforms.
4. There were also advertising spaces in the stadium: during a lengthy period, Parmalat’s brand was the only one in the placards around the pitch. Later, other brands were re-allowed.
5. The agreement also established co-management of the football department. Decisions about organizing, planning, directing and controlling of the football department were always to be shared among participants of the club and of the company, two each.
6. The figures were astronomical for the Brazilian market that, at the beginning of the Partnership, was still suffering hyperinflation:
- The “standard sponsorship” raised a relatively reasonable monthly income to Palmeiras: 750,000 cruzeiros (the Brazilian currency at that time)
- The player signings were outstanding: in 1992, Sorato, Cuca, Maurilio, Zinho and Mazinho; in 1993, Roberto Carlos, Antonio Carlos, Edilson, Edmundo and Cleber; in 1994, Rincon, Rivaldo, Alex Alves and Paulo Isidoro; in 1995, Cafu, Mancuso, Muller, Nilson, Djalminha and Luisão; in 1996, Junior, Sandro, Viola and the return of Rincon; in 1997, Oseas, Euller, Alex and the return of Zinho; in 1998, Arce, Paulo Nunes and Junior Baiano; in 1999, the return of Cesar Sampaio and of Evair, Asprilla… it’s a lengthy list of excellent players.
- The average cost per signing varied between 700k and 3.5 million US dollars. Zino and Roberto Carlos cost around 700 thousand each, Antonio Carlos 1.4 million, Edilson 1.3 million, Edmundo 1.8 million, Rivaldo 2.5 million, Cafu 3.5 million (plus a fine imposed by a restrictive clause SPFC added to Cafu’s sale contract that forbade him to sign with Palmeiras for at least 1 year), Djalminha and Luisão cost together 5,5 million, Paulo Nunes a little above 3 million etc.
7. The results were remarkable: 3 State League wins, 2 National League wins, 2 Rio-São Paulo cups, 1 Brazil Cup, 1 Mercosur Cup, 1 Libertadores Cup; 10 titles in 8 years!
Analysis and theoretical foundations
Beyond the facts and figures, it is important to retrieve the meaning of the agreement for the Partners, i.e. which benefit they derived from the relationship.
For Parmalat, Palmeiras meant:
1. Quick visibility: a conventional sponsorship contract – one in which no players are lent by the sponsor to the sponsored – would have brought a degree of exposure significantly lower than the incandescent visibility the Partnership generated at the time. The media agency then in charge of tracking citations, said the number of spontaneous media was equivalent to 20 times paid ads in the same media outlets.
2. Brand positioning: the Parmalat logo and its attributes were perceived in a qualified way by the consumers’ market in general and also by media companies.
3. Impact on general growth of the company: the massive growth in Parmalat’s buying of milk in the primary market and the acquisition of factories were viable due to the rapidly increased visibility and brand positioning experienced by the company.
4. Impact on sales: milk and dairy products had tremendous expansion in sales.
5. Football as a profit centre: sometime down the line, the transactions with players generated net cash for the company. Sources at the time stated that parts of this net cash were reinvested in the Partnership.
For Palmeiras, Parmalat meant:
1. Human resources: quality players that Palmeiras could only dream of signing in those days.
2. Direct income: the sponsorship fee plus the showcase fee.
3. Impact of the other income sources: tickets, TV broadcasting and general football income were enhanced due to the technical level reached by the team – proportional to Palmeiras’ tradition – and made possible by the Partnership.
4. Managerial capacity: Parmalat’s expertise in managing sports was much more qualified than Palmeiras’ at the time. In the context of the Partnership, that competence was made available to the club.
5. Football administration was segregated from other activities in the club: the Partnership allowed the segregation and that alone mitigated the impact of the club’s politics on the management of the football team.
6. The presence of a blockholder:
- In business, it is generally accepted that a blockholder is seen as a potentially positive factor in corporate governance.
- The colloquial expression that portrays this situation says “the eyes of the master fattens his cattle”.
- For club football, a blockholder is not a usual character because managers have a mandate and even the highest-level directors are not “owners of the club” (though some seem to believe they are….).
- The system of co-management emulated the blockholder situation, thus making the decisions more aligned to football’s utmost purpose: convincingly wining.
This reciprocity in gains between the partners is recognized by the Economics of Contracts – a research line – as a bilateral dependency, a situation in which partners, by means of a contract, can extract continuous gains in a relationship without the need to a formal integration between the parties.
As seen above, the Palmeiras/Parmalat Partnership was constituted by a series of explicit rights and obligations between the parties, kept intact their legal constitution, had solid theoretical foundations, and produced concrete results for both participants.
Any comparison between that Partnership and the current situation involving Palmeiras and Crefisa/FAM must depart from the above-mentioned characteristics.
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*Douglas Monaco is 57 years old, Brazilian, and the biological child of an Italian man and a Brazilian women. Early in life, Erasmo was adopted by a family of Italian descent: becoming a passionate palmeirense was definitely his destiny. Holding two university degrees (Economics and Administration), he works as project auditor for a Dutch humanitarian entity.
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This text is a slightly modified version of the one originally posted, in Portuguese, at the Verdazzo! website.
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