Palmeiras and Flamengo have a financial gap that is difficult to break

Palmeiras and Flamengo are in ‘another league’ in relation to other Brazilian clubs in financial terms. This is what the report by consultancy Convocados and XP Investimentos points out about the 2021 balance sheets — this scenario has repeated previous years. The explanation is that the two clubs are able to generate more revenue from TV, advertising and players, in addition to better managing incomes to avoid debt.

The report surveyed the accounts of 26 clubs in the Brazilian Series A and B. The year was atypical for concentrating revenues two years in a row.

There was a total revenue of the clubs of R$ 6.6 billion. Of this total, almost a third of the income was from Flamengo (R$ 1.053 billion) and Palmeiras (R$ 911 million). That is, together, they totaled almost R$ 2 billion.

“Palmeiras and Flamengo are at a very different level from the rest. They are practically in another league”, says the study’s chief economist, Cesar Grafietti. “A very large gap has been created and it is very difficult to close if there is no reinforcement of revenue from these other clubs that come from below”.

Among other items, Palmeiras and Flamengo lead in television revenues. In this case, the alviverde team was ahead in 2021 because of the sports results, two Libertadores titles and one of the Copa do Brasil – generate awards included in the TV contracts. The team from Rio also had positive results (Brazilian and Libertadores runner-up) and has an advantageous pay-per-view contract.

But it wasn’t just television. Flamengo is the club with the highest advertising revenue with a total of R$230 million, followed by Palmeiras with R$190 million.

One of the possible explanations is that the sponsors of the two clubs are more remembered by fans than by other teams. There is a tendency that the more partners, the less they are remembered. At Palmeiras, 100% of the fans remember the three sponsors, especially Crefisa.

Flamengo has the second percentage of memory between 80% and 90%, despite having 10 sponsors. Result, together with Corinthians, the two clubs were responsible for 63% of the growth with marketing income in 2021.

“It creates a detachment that forces a need for clubs that are after to run and solve the revenue issue or fall behind,” explained Grafietti.

Flamengo and Palmeiras are also at the top of those that earn from sales of athletes. In the 2021 ranking, the carioca team is the first, and the alviverde, the third. Gremio came in second.

More than that, Flamengo is also on the list of clubs that earn a lot from athletes and keep their debt low, with little growth. That is, they take advantage of the extra income to invest or keep their accounts under control. In five years, its debt grew by R$32 million, with revenue of almost R$900 million from athletes. “Debts in sharp decline, largely due to the excellent cash position at the end of the year, of R$ 152 million”, says the report.

Palmeiras had a higher debt growth (R$ 184 million) in five years, but also has a downward trajectory last year. The club used its extra income from Libertadores and athletes to reduce its net debt by R$51 million. “Strong Debt reduction, with post-pandemic Operational position adjustments. This made it possible to reframe the Leverage position, now more comfortable. Lower investments in 2021, which also contributed to Debt reduction”, says the report.

“These are clubs that are not using the money in the right way. If it is generating good money from the sale of athletes and still generating debt, it is a point of concern”, specialist in sports marketing, Rafael Plastina, also a participant in the study.

Despite the financial advantage of the two clubs, those responsible for the study do not see a sporting hegemony of the two clubs in Brazilian football. So much so that Atlético-MG ended up with two titles in the 2021 season, and Flamengo without any major cup.

“It (income concentration) would be harmful if the two won everything in ten years. We see that Atlético-MG has already won. It is still not harmful. If there was a project, in which the two were very well structured, today, Palmeira Yeah. Flamengo looked (structured), and fluctuated. It would be harmful if that were the case, to win a lot, but it’s not”, analyzed César Grafietti.

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