Equity Research on Brazilian Football Teams: SAFs Implementation and Governance

Equity Research BTG Pactual Football Banco BTG Pactual SA Carlos Sequeira CFA carlossequeirabtgpactualcom 1 646 924 2479 Eduardo Rosman eduardorosmanbtgpactualcom 55 11 3383 2772 Sector Note May 2022 SAFs tailormade solution for Brazils football teams Brazilian Football ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 16 Banco BTG Pactual SA does and seeks to do business with companies covered in its research reports As a result investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report Investors should consider this report as only a single factor in making their investment decision Any US person receiving this report and wishing to effect any transaction in a security discussed in this report should do so with BTG Pactual US Capital LLC at 2122934600 601 Lexington Avenue 57th Floor New York NY 10022 Equity Research Carlos Sequeira CFA New York BTG Pactual US Capital LLC carlossequeirabtgpactualcom 1 646 924 2479 Eduardo Rosman Brazil Banco BTG Pactual SA eduardorosmanbtgpactualcom 55 11 3383 2772 SAFs tailormade solution for Brazils football teams New legislation creates legal framework for Football Corporations SAFs In our second report discussing the football sector in Brazil we will focus on how Brazilian teams can become football corporations Law 14193 enacted in August 2021 created tailormade conditions for football teams to become football corporations SAFs This means clubs can operate as enterprises attracting investors to their businesses improve their governance and elaborate debt restructuring plans Opportunity for debt reduction and better governance onfield performance Teams can choose different paths to become SAFs While each alternative has its proscons the one that may resonate best with local teams is dissolving the original football department and splitting the SAFs ownership between the original club and new investors In doing so clubs can keep their original nonprofit institution and own a stake in the SAF The team and the SAF must agree on which assets and liabilities will be transferred to the SAF and must contractually agree on intellectual property rights and usage conditions of sports facilities if they arent transferred to the SAF Clear rules to tackle clubs liabilities The SAF must issue class A shares to be divided between the football corporation and the original club The club must own at least 10 of total shares in a golden share format where sensitive decisions must be approved by the club For the club to pay off any debts existed prior to the creation of the SAF 20 of the SAFs recurring revenues and 50 of dividends earnedpaid by the SAF must be used for debt repayment Teams will have 610 years to repay their debts Better corporate governance requirements and a new tax model Teams that decide to become SAFs need to follow a series of requirements including a better management structure and improved governance practices Some of these requirements are mandatory and part of the new legislation while others are encouraged The new legislation also includes a specific taxation model which differs from the taxation rules applied to companies in general the SAF tax rate is a unified 5 rate first 5 years over the corporations gross revenues explayers transfers down to 4 after year 5 but including players transfers SAF is already a reality A group of football teams has already approved implementing the new model while others declared their interest in becoming football corporations in 2022 Implementation of SAFs will not only improve clubs business models but also has the potential to disrupt the segment attracting investments to the industry and enhancing the performance and competitiveness of Brazilian teams BTG Pactual Global Research Latin America SectorNote 02 May 2022 Brazilian Football Brazilian Football 02 May 2022 page 2 Contents Football Corporations 3 SAF is a corporate model designed for football clubs 5 Dissolution of football department and transfer of ownership 5 Transforming the original nonprofit organization into a SAF 6 Initiatives from legal entities and investment funds 6 Governance practices under the SAF model 7 Other encouraged governance practices 8 Debt restructuring alternatives 10 Bankruptcy protection is also an alternative 10 A better taxation model 11 Implementing the SAF model isnt easy 12 Troubled teams may move first but others may follow 13 Brazils football sector is already changing 14 Cruzeiro Esporte Clube 14 Botafogo de Futebol e Regatas 14 Club de Regatas Vasco da Gama 14 Cuiabá Esporte Clube 15 This is only the beginning 15 Brazilian Football 02 May 2022 page 3 Football Corporations In our second report discussing the football sector in Brazil our previous one discussed the importance of football leagues we will focus on how Brazilian teams can become football corporations and what it means Law 14193 enacted in August 2021 created tailormade conditions for clubs to become corporations SAFs which means they can operate as enterprises attracting investors to their businesses improve governance and elaborate debt restructuring plans To do so there are three alternatives that a team can choose from i Dissolving clubs football department and creating a SAF in which both the investor and the team itself are shareholders ii Changing their title from a nonprofit organization to a SAF iii Initiatives from legal entities and investment funds While each alternative has its pros and cons most teams in Brazil may opt to dissolve their football department which could offer an easier path to a balance sheet cleanup In table 1 we show the pros and cons of alternatives i and ii Table 1 SAF alternatives Source Win the Game BTG Pactual Brief recap Implementing SAFs isnt the first attempt in Brazil to make football teams more of an actual business In 1993 we saw the enactment of Lei Zico named after famous football player Zico who sponsored the bill when nonprofit organizations had the option to become corporations But due to intense State intervention in this initiative privatesector investors ended up moving away from the segment In 1998 Lei Pelé no translation required forced teams to migrate from nonprofit organizations to business partnerships or at least to hire commercial institutions to Change from nonprofit organization to SAF Dissolution of Football Department All rights and assets from the club are transferred to SAF SAF is not responsible for all obligations consitituted by the team but only for those transfered to it contractually SAF doesnt have to pay for use of intellectual property rights or use of the clubs image If the debt reduction plan approved by the time the SAF is created is delivered by the club then the club will not be subject to any legal constraints SAF is responsible for all obligations constituted by the team SAFs administrators are responsible for liabilities and payments transferred to SAF Higher tax burden Higher tax burden The club can top up the SAFs equity by transferring assets to the corporation although no assets used as collateral in prior loans can be transferred If 60 of the debt is not paid in the first 6 years investors in the SAF become responsible for the remaining debt repayment together with the club Pros Cons Brazilian Football 02 May 2022 page 4 manage their businesses In the next 2 years teams complained about the mandatory nature of the new legislation and Congress changed the law to make migration optional Two decades later we are seeing another attempt to turn clubs into companies but via a betterstructured project that considers the reality of the local football sector and offers tools to renegotiate debts and improve governance and onfield performance Even before Law 14193 was enacted several teams already adopted enterprise models Today over 130 clubs 13 of all professional registered teams in Brazil are corporations either a micro enterprise a limited company or a general corporation according to Brazils Football Federation CBF The difference between Brazil and other more advanced markets is the fact that here most of these teams neither play in the first division nor are large clubs In Europe we see lots of big franchises operating as corporations If we analyze all Brazilian clubs that adopted enterprise models so far almost 80 of them are entitled limited liability companies while only 15 are qualified to play in the first division of local championships Chart 1 Breakdown of clubs by type Chart 2 Breakdown of clubs by division Source Teams Win the Game BTG Pactual Source Teams Win the Game BTG Pactual Brazilian Football 02 May 2022 page 5 SAF is a corporate model designed for football clubs The creation of SAFs corporate models specifically designed for football clubs should be a key step towards a structural sector transformation It can help teams recover financially in case of high indebtedness and enhance the performance and competitiveness of smaller clubs that would benefit from more investment The new SAF model should be particularly attractive to i Teams that need to recover their financial health Once it becomes a SAF the team can more easily restructure its debt improve its governance and receive new investments ii Small teams focused on training and transferring young athletes With capital inflows and investments these clubs can enhance players performance and increase revenues Below we explore each alternative that teams can choose to become SAFs Dissolution of football department and transfer of ownership The alternative that may best suit clubs is dissolving the original football department and splitting the clubs ownership between the previous institution and new investors By doing so clubs can maintain their original nonprofit institution or legal entity and own a stake in the SAF And while all obligations with federations leagues CBF and contractual relations will be the SAFs responsibility after its creation the team and the SAF can agree on which assets and liabilities will be transferred to the SAF There are some complexities mostly related to assets and liabilities and contracts for usage of assets that are not being transferred and that are key to the SAFs operations The club and the SAF must agree on intellectual property rights They must also contractually agree on the terms for using sports facilities stadia arenas training centers etc if they are not transferred to the SAF Assets and liabilities may also be permanently transferred to the SAF or not Rules for dissolving football departments The SAF must issue class A shares to be divided between the football corporation and the original club The club must own at least 10 of total shares in a golden share format where sensitive decisions must be approved by the club before being implemented regardless of its number of shares This mechanism is like the one implemented in some publicprivate companies in Brazil Investing in a SAF involves a crucial obligation In order for the club to pay off the debt existing prior to the creation of the SAF 20 of the SAFs recurring revenues ex players transfers and 50 of dividends earnedpaid by the SAF must be used for debt repayment When becoming a SAF the institution must comply with several governance requirements such as creating administrative and audit boards more on this later Brazilian Football 02 May 2022 page 6 This model was chosen for the already established SAFs of Cruzeiro and Botafogo Transforming the original nonprofit organization into a SAF A club can also become a SAF by changing its status from a nonprofit organization to a football corporation This change must follow the clubs bylaws In general clubs must approve this via their Board of Directors No regulatory approvals are needed By doing this the original institution will cease to exist and all its assets and liabilities will be transferred to the SAF All obligations with federations leagues the CBF and contractual relations will also be the SAFs responsibility after its creation Just like the previous institution the SAF will be allowed to participate in tournaments cups and championships following the same conditions that applied to the nonprofit organization It is the new managements duty to guarantee that this transition happens smoothly and without any negative impacts for the team Initiatives from legal entities and investment funds The third and last option to create a SAF is based on initiatives from legal entities and investment funds which basically means a SAF can be created without the existence of a previously established team In that sense the football corporation and the sports entity will be created at the same time Its important to highlight that the process of becoming a SAF must respect the local championships calendar In other words a club is only allowed to change its status to a football corporation during specific time frames of the year This year for instance this time frame is schedule to happen in November Brazilian Football 02 May 2022 page 7 Governance practices under the SAF model Teams that decide to become SAFs must follow several requirements including a better management structure and improved governance practices Some of these requirements are mandatory and part of the new legislation while others are encouraged and may enhance clubs performance by improving the organization SAF legislation blocks any shareholder with 10 or more of any SAF from participating directly or indirectly in any other football corporations governance decisions If this happens the shareholder loses voting rights and will not be allowed to participate in the daily administration of the corporation A SAF can also veto the participation of a shareholder who is involved in another SAFs administration To ensure a more wellestablished governance committee football corporations must have a Board of Directors and Audit Board To be part of either of these committees individuals cannot be i a member of management or monitoring bodies of other SAFs ii a member of management or monitoring bodies in the SAF including sporting administration entities iii a professional athlete with an active contract iv a football coach with an active contract with the club or the SAF or v an active football referee Board of Directors and Audit Board the corporations bylaws establish the requirements to elect members All members associated with any governance committee while being a stakeholder in the SAF cannot receive any kind of remuneration for their position Shareholders who are associated with management and monitoring entities are not electable to the BoD or the Audit Board Members of both these entities must be exclusively dedicated to running the football corporation To guarantee transparent governance practices there are rules related to shareholder information Any legal entity with a stake of 5 or more in the SAF must identify the final benefactor of this investment The same applies to investment funds which must inform the SAF of all shareholders with over 10 ownership quotas Data sharing football corporations with less than R78mn annual gross revenue can publish all mandatory financial and legal information electronically The content must be available for 10 years A SAF website must also contain i shareholder structure info ii bylaws and minutes of shareholder meetings iii members and brief biography of BoD and audit board and iv social initiative reports such as social and educational development programs If the club is under bankruptcy protection or unified renegotiation of debts the details on all creditors must be updated monthly on the SAFs website A key aspect of SAF governance practices is the fact that its administrators are personally responsible for all requirements which doesnt happen with noncorporation clubs This helps guarantee that good governance practices will be followed Brazilian Football 02 May 2022 page 8 Table 2 SAF governance practices Source Win the Game BTG Pactual Other encouraged governance practices Besides the rules set out by law some other practices can also be adopted in the SAF model to guarantee the best governance model possible Below we list 10 practices 1 Even if the club is the only shareholder of a SAF at least 50 of the Board of Directors should be formed by independent members 2 All financial statements should be submitted to an external independent auditor registered at CVM Brazilian SEC 3 SAFs should create internal audit committee to monitor if governance practices are being followed 4 Creation of Ethics and Compliance Program is encouraged to guide employees in their daily decisions and actions 5 Advisory committees should be created to help Board discussions 6 Standardize accounting methods to ensure clearer more precise financial statements 7 For SAFs with over R78mn gross revenue all press releases must be submitted to an official local entity To improve transparency they are also encouraged to disclose the same data on the SAF website Governance Practices Shareholders with 10 or more shares of any SAF cannot participate directly or indirectly in any other football corporations governance decisions Football corporations must have a Board of Directors and Audit Board All members associated with any governance committee while being a stakeholder in the SAF cannot receive any kind of remuneration for their position Shareholders who are associated with management and monitoring entities are not electable to the BoD or the Audit Board Any legal entity with a stake of 5 or more in the SAF must identify the final benefactor of this investment The same applies to investment funds which must inform the SAF of all shareholders with over 10 ownership quotas Football corporations with less than R78mn annual gross revenue can publish all mandatory financial and legal information electronically The content must be available for 10 years SAFs websites must also contain i shareholder structure info ii bylaws and minutes of shareholder meetings iii members and brief biography of BoD and audit board and iv social initiative reports SAFs administrators are personally responsible for all requirements Brazilian Football 02 May 2022 page 9 8 Create a professional hiring policy with description of squad and staff 9 Budget for athletes and staffs wages and the acquisition of economic rights 10 Clear due diligence process Know Your Client KYC practices may also help the SAF ascertain the source of money inflows Brazilian Football 02 May 2022 page 10 Debt restructuring alternatives High debt is likely the 1 reason why clubs may consider becoming football corporations so it is key to highlight what happens in terms of debt amortization when they adopt the SAF model By dissolving its football department and creating a SAF the club is responsible for paying all liabilities precreation of the football corporation 20 of revenues generated by the SAF must be directed to debt repayment as well as 50 of dividends paid by the SAF This system is known as unified renegotiation of debts All debts are corrected by the Selic rate and the team agrees to pay all its creditors using revenues generated by the SAF as well as its own revenues In the unified renegotiation of debts regime the club has 6 years to pay its outstanding debt If by the end of year 6 the club pays off at least 60 of the debt the process can be extended for another 4 years totaling a 10year debt payment plan From years 710 the SAF can reduce to 15 from 20 the revenues directed to debt repayment It is important to highlight though that if 60 of the debt is not paid in the first 6 years investors in the SAF become responsible for the remaining debt repayment together with the club If after year 10 there is still outstanding debt the club can request a financial haircut and reduce the face value of the unpaid debt If laid out in the SAFs bylaws and agreed by the creditors part or all the debt can be paid with shares of the football corporation or bonds issued by the club Bankruptcy protection is also an alternative Another alternative teams can choose to pay off their debt is by filing for bankruptcy protection law nº1110105 This option doesnt require a football corporation to be implemented but a bankruptcy court must approve the plan By filing for bankruptcy protection teams can maintain their operations The restructured debt is amortized using the clubs income and all relationships with suppliers and partners are maintained As part of bankruptcy protection a restructuring plan including an economic viability analysis and financial reports must be approved by the bankruptcy court If the plan is not approved by the court or by its creditors the team may be forced into civil insolvency The same can happen if during the implementation of an approved plan the team fails to comply with any of the actions described in the plan Brazilian Football 02 May 2022 page 11 Table 3 Debt restructuring alternatives Source Win the Game BTG Pactual A better taxation model SAF legislation also includes a new specific taxation model that differs from the taxation rules applied to companies in general In the SAF model in the first 5 years after their creation the corporate tax rate is a unified 5 rate over the corporations gross revenues including revenues from prize money and club membership programs Revenues from player transfers are not added to the gross revenue tax base in these first 5 years which is a huge benefit for teams mainly given the reality of Brazils transfer market From year 6 on the unified effective tax rate drops to 4 and revenues from player transfers are accounted in the taxation base Compared to companies tax system SAFs benefit from lower rates and a much simpler taxation system Local companies usually pay income tax IRPJ and social contribution CSLL on profits average 34 and PISCOFINS on revenues 365 Considering what clubs pay as nonprofit organizations the SAF taxation model has higher rates due to the fact that clubs as nonprofit organizations dont pay IRPJ CSLL and COFINS and are only taxed a 1 PIS rate over sales Table 4 Taxation models Source Win the Game BTG Pactual Unified Renegotiation of Debt Bankruptcy Protection Unified renegotiation of debts labor and civil in such a way that SAFs revenues are transferred to the lender The club must sign a standstill agreement which facilitates scheduled payments and interest or principal on outstanding debt 20 of SAFs revenues and 50 of its divideds must be used to pay debts Debt payment plan to be adopted is not preestablished and may vary from one team to another Lenders payment plan lasts 6 years and can be extended for another 4 years totaling 10 years Can be established with different terms and periods and may also feature a debt grace pediod Requires an economic viability analysis of the plan with a financial economic report to be studied by a judge Tax over Nonprofit football clubs Football corporations Average company COFINS Revenues Exempt 3 PIS Revenues 1 tax 065 IRPJ Profit Exempt 15 to 25 CSLL Profit Exempt 9 Unified 5 tax rate for the first 5 years and 4 from the 6th year onward Brazilian Football 02 May 2022 page 12 Implementing the SAF model isnt easy The creation of SAFs can help some clubs restructure their dire financial situation improve performance and revenue generation But implementing a football corporation model is not easy There are many challenges and the success of the initiative depends on each clubs reality politics interests scenario and goals There are several challenges in successfully migrating to the SAF model Firstly SAFs must have professional management teams If for whatever reason including politics management remains the same chances are that nothing will change New empowered management teams will be in a much better position to propose and implement huge changes in these clubs approach If structural changes arent made the club may transition from a disorganized nonprofit institution to a disorganized SAF It is also important for investors to consider the economic aspects and geographical opportunities available in each transaction Each team has its own reality and opportunities and business strategies need to be based on this uniqueness Financial results are not the only aspect to analyze Understanding the financial situation of a business is key and can drastically change the results of an investment but the sporting side of the business must also be considered In that sense a larger fan base doesnt necessarily translate into higher revenues The key is understanding how to monetize and create engagement from your fans A team with a small crowd and a good engagement strategy can produce more revenues than a much larger team that doesnt fully explore its potential charts 3 and 4 Chart 3 Total revenues Rmn vs of fans mn 2019 Chart 4 Total revenues Rmn vs of fans mn 2020 Source Teams Win the Game IBGE BTG Pactual Source Teams Win the Game IBGE BTG Pactual Atlético revenues excluding R258mn from sale of Diamond Mall Revenues in 2020 were lower than in 2019 due to Covid19 impacts in some lines which were only recognized in 2021 950 426 382 642 215 289 427 441 400 354 214 190 265 39 121 98 43 30 17 13 9 9 9 6 6 4 2 2 2 2 2 2 Total Revenue Rmn of fans mn 669 474 359 532 192 123 426 281 240 404 166 131 194 53 86 103 43 30 17 13 9 9 9 6 6 4 2 2 2 2 2 2 Total Revenue Rmn of fans mn Brazilian Football 02 May 2022 page 13 Troubled teams may move first but others may follow Not all clubs in Brazil will or want to become a corporation Take two of the most valuable clubs globally Real Madrid and Barcelona neither is a football corporation Clubs generating profits and well positioned in the football scenario in terms of investments infrastructure and performance will probably not be the first ones to adopt a SAF model there are exceptions like Atlético Mineiro which is studying options and analyzing investment proposals to become a SAF soon This transformation will occur in three phases each targeting a different group 1 The first phase of implementing SAFs may focus on teams in a difficult financial situation for whom the football corporation model can be considered a salvation and is probably more urgent than for other teams With tax benefits debt restructuring alternatives and enhanced governance models these clubs can really benefit from a SAF model 2 The second phase may involve midtier teams seeking investments and capital inflows to enhance onfield performance squads infrastructure and results For these teams the combination of SAFs and the creation of a football league could be transformational 3 The third and last group of teams we might see adopting the football corporation model is toptierfirst division clubs These clubs may not feel the need to move anytime soon However as other teams that have migrated improve and become more competitive these more successful teams may feel pressured to follow suit to attract more investments Top clubs may also decide to become a SAF to facilitate an IPO Manchester United 2012 and Juventus 2001 are two examples and are the listed clubs with the highest market cap in Europe Another key topic and relatively common in Europe is the purchase of clubs by large investment funds and even billionaires the latter often choose to buy sports teams as a branding strategy not necessarily focused on the best investment alternative Football fans in Brazil must also be aware of the real implications of building a stronger industry and aligning their expectations with the countrys reality SAFs are an alternative for teams mainly those with financial difficulties But what has become relatively common is fans celebrating the implementation of their clubs SAFs as if the creation of a football corporation will make them contenders for the main titles Brazilian Football 02 May 2022 page 14 Brazils football sector is already changing Enactment of Law 14193 led Brazils football industry to change rapidly Several clubs already approved the new model América Mineiro Botafogo Coritiba Cuiabá and Cruzeiro and others stated their interest in becoming football corporations in 2022 SAFs are not only a legal change for teams in Brazil They are also an opportunity for highly indebted clubs to restructurereduce debts enhance management and improve liquidity allowing them to make better investments in infrastructure squad and technology whilst improving onfield performance and revenue generation potential Below we discuss which teams became a SAF or are in the process of becoming one Table 5 Football corporations in Brazil Source Win the Game BTG Pactual Cruzeiro Esporte Clube In December 2021 Cruzeiro was one of the first Brazilian teams to become a SAF by dismembering its football department With estimated gross debt of R1bn and stuck in the second division since 2019 Cruzeiro saw the SAF model as a great alternative to recover financially and onfield World famous explayer Ronaldo owner of Real Valladolid bought 90 of Cruzeiros SAF shares in a R400mn deal R50mn upfront and R350mn in additional revenue to be generated at the SAF With this new structure Cruzeiro plans to pay 60 of its debt in the next 6 years and if successful pay off the rest in the following 4 years The price paid will be used to preserve the health of the clubs recurring operations meaning more investments may be needed to improve the teams competitiveness and thus onfield performance Botafogo de Futebol e Regatas One month after Cruzeiro Botafogo signed a deal with US investor John Textor to sell 90 of its recently implemented SAF for R400mn Like Cruzeiro Botafogo was relegated in 2020 before being promoted in 2022 and has R1bn debt The contract implies an upfront payment of R50mn to the club while the other R350mn will be invested in the SAF The amount will be invested in a 3year period R100mn paid on deal signing day R100mn a year in years 23 and R50mn at the threeyear mark Textor involved in other football ventures as an investor in Belgium club RWD Molenbeek and coowner of Crystal Palace plans to use his business knowhow and techbased approach to help Botafogo recover financially and grow as a sports club Team Division Headquarters Stadium Capacity Status Corporate Taxpayer América Mineiro A Belo Horizonte Minas Gerais MG Independência 23018 SAF 43574008000174 Botafogo A Rio de Janeiro Rio de Janeiro RJ Nilton Santos 44661 SAF 44705141000185 Coritiba A Curitiba Paraná PR Couto Pereira 40502 SAF 45240156000188 Cuiabá A Cuiabá Mato Grosso MT Arena Pantanal 44097 SAF 04847144000139 Cruzeiro B Belo Horizonte Minas Gerais MG Mineirão 61846 SAF 44490706000154 Figueirense C Florianópolis Santa Catarina SC Orlando Scarpelli 19584 SAF 44701689000157 Gama D Brasília Distrito Federal DF Bezerrão 20310 SAF 44696966000180 State Brazilian Football 02 May 2022 page 15 Club de Regatas Vasco da Gama In February 2022 Vasco da Gama signed an MoU with Miamibased alternative investment firm 777 Partners to receive a R700mn investment for 70 of the clubs SAF In 2022 Vasco will play in the second division for the third time in five years With an estimated debt of R700mn the agreement calls for a R70mn upfront payment to be deducted from the overall R700mn investment when the deal closes 777 Partners also owns Genoa and has a minority stake in Sevilla The investment firm is interested in buying other franchises Vasco agreed to rent its São Januário stadium to the SAF for the next 50 years extendable for another 50 Vasco also recently raised the possibility of an additional R100mn investment after the third year of 777 Partners investments with the money coming from the sale of 10 of its shares to the public Cuiabá Esporte Clube As one of the pioneers in adopting a SAF model Cuiabá which was already a corporation changed its status to SAF in December 2021 With this new model the club hopes to benefit from better conditions including tax and fiscal benefits After a positive result in 2021 Cuiabá is now reinvesting in its operations for the first time in years The team plans to improve its transparency adopting the governance and management requirements of football corporations Despite the new SAF status the club intends to remain a family business controlled by the Dresch family since 2009 This is only the beginning SAFs can help teams pay their debts and mainly enhance management and onfield performance by boosting liquidity and using investor knowhow to strengthen clubs business models generating more revenues Four major moves happened in the football sector in just four months and we expect to see many more in the years ahead Implementation of SAFs will not only improve clubs business models but also has the potential to disrupt the segment attracting investments to the industry and enhancing the performance and competitiveness of Brazilian clubs helping them grow their value and revenue generation whilst strongly expanding the domestic sports industry Table 6 SAFs Rmn Source Teams Win the Game BTG Pactual Rmn 2020 Cruzeiro Botafogo Cuiabá Vasco Total Gross Revenues 120 135 23 182 Total Recurring Revenues 100 94 23 148 Total Costs 201 120 20 141 Total Net Debt 662 717 1 725 Investments 34 9 1 29 State Minas Gerais Rio de Janeiro Mato Grosso Rio de Janeiro Stadium Capacity 000 61846 44661 44097 21680 Brazilian Football 02 May 2022 page 16 Required Disclosures This report has been prepared by Banco BTG Pactual SA The figures contained in performance charts refer to the past past performance is not a reliable indicator of future results BTG Pactual Rating Definition Coverage 1 IB Services 2 Buy Expected total return 10 above the companys sector average 68 54 Neutral Expected total return between 10 and 10 the companys sector average 30 32 Sell Expected total return 10 below the companys sector average 2 17 1 Percentage of 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