Porto SAD is drowning in the financial championship of the Big Three

Porto SAD are sinking into the financial league of the top three clubs in Portuguese football, according to an analysis of the accounts for the 2022/2023 season conducted by Maxyield – Clube dos Pequenos Acionistas.

“All SADs exhibit liquidity difficulties, offering passive, although quite differentiated, working funds, treasury management conditions and fulfillment of their obligations, with the Porto SAD situation being particularly serious,” according to the study seen by JE.

“The liquidity obtained from athletes’ transactions has been crucial in avoiding shortfalls in the treasury. Furthermore, both Porto Sad and Sporting Sad have a low level of equity, which has resulted in a loss of half of their capital.”

Porto Sade, led by Porto’s historic president Jorge Nuno Pinto da Costa, was the only one among the big three to record losses last season: $47.6 million, after achieving profits in the previous two seasons.

Sporting SAD – led by Frederico Varandas – achieved profits amounting to about 25 million in the last two seasons, while Benfica SAD – headed by Rui Costa – recorded a slight profit, after two previous seasons with losses.

One of the biggest challenges facing the three SADs is the end of the bank financing tap. “The banking sector’s discouragement of the football industry and successive annual bond loans to repay previous loans and cover new treasury needs are signs of the exhaustion of the current SAD financing model, where loans represent 50% of SAD’s total assets. 3 SAD in a context of lack of financial independence (Porto SAD and Sporting SAD ) or poor financial independence (Benfica SAD).”

1- Liquidity and working capital

In terms of liquidity, FC Porto has the most negative working capital (-165 million euros, an increase of 30 million euros compared to the previous season), followed by Sporting (-78 million, a decrease of 14 million euros year-on-year). ) and from Benfica (-48 million, down 4 million).

Comparing the 20/21 season to the 2022/23 season, FC Porto saw its working capital increase by €37 million in three seasons, with Benfica and Sporting having a larger margin in their working capital: €47 million and €77 million respectively.

“All SADs exhibit liquidity difficulties, exposing negative working funds, which restricts treasury management and prevents the fulfillment of short-term obligations and liabilities, due to insufficient working capital. Consolidation of current liabilities and/or increasing permanent capital is essential to return to a balanced position “Financially.”

“The situation is completely different both in terms of quantities and in terms of development,” Maxield highlights. Clube do Porto – Futebol, SAD stands out negatively due to the quantity and successive deterioration at the end of sports seasons.”

2- Private capital

FC Porto is the SAD with the most negative equity capital (-176 million euros), covered by Article 35 of the Trade Associations Law, “whose situation must be corrected, since its size will pose new financing problems”. Plans and management processes”, can be read in the document.

Next comes Sporting SAD, which has a slightly positive capital (9 million), and is also covered by Article 35.

Benfica SAD has positive capital (113 million), “plus” the value of its capital (115 million).

3 – Negative

Without exception, the top players in national football have increased their commitments in the last three seasons, amounting to approximately 1,290 million euros as of June 30, 2023, with current liabilities reaching 48% of total commitments.

Looking just at the last two seasons, Benfica recorded an increase in total commitments of 20 million to €444 million; FC Porto recorded an increase of two million, reaching 532 million; Sporting recorded a decrease from 27 million to 309 million.

“In contrast to Sporting SAD, the other two companies are increasing current liabilities and their weight in total liabilities, which makes changing the financing structure urgent. Porto SAD has liabilities larger than its assets, with a related impact on its deteriorating financial independence (C.Own/Assets) “, according to the document.

4- Loans

This item includes interest-bearing financial debts, which include bank credit, bond loans, leases, and ratings.

In the three SADs, this item amounts to 620 million euros, or 48% of total liabilities.

Porto tops the ranking with loans worth 303 million euros, followed by Benfica (169 million) and Sporting (147 million).

“Here too there is a significant imbalance, with emphasis on Porto Sade, which absorbs 49% of the offset financial debts of the three Sade countries, with consequent implications for financial charges,” highlights Maxilde, with the value of loans rising by 23%. A million in an afternoon.

Sporting and Benfica recorded decreases in financing commitments: minus 19 million and minus 2 million respectively.

“Bonds have taken an increasingly higher proportion, given the significant decline in financing through bank credit, and the use of successive annual bond loans with high associated costs, to repay overdue obligations and cover additional Treasury needs, does not appear to be a strong option.” basis for maintaining an adequate financial structure in the medium and long term, and is showing signs of exhaustion,” according to Clube dos Pequenos Acionistas, which points out that “the inhibition of the banking sector in relation to the football industry is also worth highlighting.”

5- Revenue structure

Analyzing operating income (revenue generated from commercial exploitation – television, UEFA competitions, ticketing, advertising, sponsorship, promotion and various sporting profits – and net income obtained from athlete deals), FC Porto scored the lowest among the three clubs. Grand.

In the 22/23 season, Porto recorded 180 million euros in operating revenue (47 million less compared to the same period last year). Followed by Sporting SAD (210 million, plus 38 million) and Benfica SAD (259 million, plus 48 million).

In match revenues, Benfica leads with 34 million, followed by Sporting (19.6 million) and Porto (11 million).

In commercial revenues (advertising, sponsorship, promotion and miscellaneous sports revenues), FC Porto leads with 46 million, followed by Benfica (37 million) and Sporting (25 million).

In TV revenue, Benfica leads with 49 million, followed by FC Porto with 43 million and Sporting with 28 million.

In revenues from European Football Association competitions, Benfica tops the rankings with 74 million, followed by Porto with 62 million and Sporting with 39 million.

Together, UEFA’s television and competition revenues accounted for 45% of the clubs’ total revenues.

In sports transactions, Sporting leads in 22/23 with an investment of 85 million, followed by Benfica with 64 million and FC Porto with 14 million. These revenues have averaged 30% in the last three seasons of total revenues.

In the 22/23 season, gaming and commercial revenues accounted for 27% of total revenues.

6- Administrative practices

Looking at management practices, Maxield highlights that “the composition of the Boards of Directors (CA) and Supervisory Boards (CF) is to a large extent an exact copy of the management structures of the clubs. In the composition of the Board of Directors, there is no attention to proper representation of the shareholder structure and participation in management.” .

“At the level of corporate activities, there are weaknesses in control, especially with regard to auditing and internal control. Standard business management best practices are not used Companies Management. “There is no concern about remuneration under the appropriate circumstances of the shareholder structure,” the report adds.

Finally, Maxield emphasizes that “Football is a sport that arouses great emotions that feed the emotional behavior of club members or fans. Sports managers are also influenced by these emotions, which are likely to determine decision-making processes and motivate organizational behaviour, without rationality in terms of administration“.

“This environment requires more and more leaders with strong maturity and leadership experience in difficult contexts, to be able to balance the rationality of management with the feelings shared between fans and the general public. This aspect is increasingly striking in the football industry, and recent examples leave no room for doubt, Especially in the international sports rights market and in financial ratios that are increasingly subject to red lines.