Why is S.L.Benfica listed as a public company?

Benfica-Inter Milan. Champions League. Home game. Stadium roaring and shaking. Not using a hyperbole here, the stadium was really shaking as thousands of feet jumped and pounded the concrete. I was at one of the top corners of the stadium, full view of the spectacle of lights and shouts. Benfica played marvelously. Its players ran as if stung by angry bees, the ball passed effortlessly between the players and Inter Milan. The mighty italian powerhouse was in retreat. Sometime during the first half, I remember the italians scoring a goal and the stadium nearly collapsing. ‘Filhos da puta!’. Those sneaky defensive cold-blooded italians… Scoring a goal like that.

I don’t remember much afterwards (the game was 5-8 years ago) besides the fans. How they shouted, how they felt the game, how they came early to eat, drink and talk by the stadium. That was a mass of people willing to pay to support a team. As a business there isn’t much more to ask for in its customers. This level of commitment can maintain a club going well for years. Then again, investing in a football club isn’t the same as investing in a recycling company.

To keep its customers happy and coming for more, the club needs to perform well, and this is where it doesn’t make sense for clubs to be public. A supporter wants Benfica to win. Just for a slightly improved chance of winning, the fans want the club to buy a highly priced Argentinian, even though he might have little regard for the shirt and probably won’t make Benfica a profit. An investor will also want Benfica to win, but not if for that it needs to rob the bank. Benfica could assign high prizes for each player in case it wins the Champions League, despite the club’s prize money might not be worth it. “Ah, Comandante, but Benfica doesn’t care for the Champions League’s prize money. It cares about full stadiums and nice TV deals”.

Benfica’s major shareholder is Benfica SAD, which answers to Benfica’s president, which is elected by the associates. That’s a huge gap between investing in Benfica and seeing it being investor-oriented.

Now some numbers about Benfica’s 2013 operation. It lost ~10M€ comparable to ~11M€ for 2012. It’s improving. Improving like the Titanic could have improved if someone had a bucket.

Revenue declined ~3% annually and costs increased ~11%. Benfica made ~41M€ in selling players compared to ~28M€ a year ago. Long term debt is a staggering ~115M€ compared to 2012’s ~96M€, an annual increase in debt of ~20%. All this debt leads to an unpleasant killer called interest. Benfica is right now struggling underneath ~17M€ in annual interest. This is mind-numbing when compared to Benfica’s market cap of 21,5M€.

Remember how keeping supporters coming back to the stadium was of vital importance for Benfica? In 2013, the subsidiary responsible for the stadium, Benfica Estádio, declared a loss of ~3,3M€. Ticket revenue fell ~10%, annual tickets fell ~8,7% and advertising fell ~0,6%. All-around ugly.

Two final notes. Benfica is in the final process of monetizing an investment in Benfica TV. A subsidiary owner of Benfica’s TV rights, which were until a few years ago negotiated with Olivedesportos. It has 220+ thousand paying viewers of Benfica’s content. For now, it had a 2013 profit of 36.192€. Operational profit was ~4,8M€. See the huge difference? Me too.

Another bit of information I came up with and present it to you. Benfica sliced some players in 2013, as in it sold parts of some players to funds. Remembering that Benfica made a huge chunk of its operational revenue from selling players, this might be worrisome. FIFA forbids third-party participation in players economic rights (link in portuguese). For me, this is too far-fetched. The only investment potential I see here is in Benfica TV, the subsidiary.

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