Related-Party Business: The Need to Address the Issue Within the SAF (and Football Clubs) - Part II

Since this column began almost ten years ago, few topics have generated as much interest as last week's, which is once again addressed here.

The interest, however, according to messages received by the author, reveals, as has been the case in debates about SAF, a negative (or prejudiced) connotation.

In short, it is frequently pointed out that a deal between related parties of the SAF's controlling shareholder and SAF itself signals yet another (alleged) anomaly in the system, to the detriment of the club, usually a minority shareholder in SAF, which does not benefit from such a deal.

In other words, it is assumed that in addition to the appropriation of wealth (or assets) by a third party, which somehow directly or indirectly benefits the SAF's controlling shareholder, the club is also harmed by not participating in the negotiated profit.

This view is fundamentally mistaken—and, at the same time, a pessimistic or biased bias regarding the SAF Law and SAF itself.

The phenomenon—or practice—of related-party transactions was not inaugurated with the enactment of the aforementioned law, much less within the scope of any SAF. Quite the contrary.

A related party, as pointed out in the text published last week, is the "individual or legal entity that is related to a given entity, whether a business corporation, a non-profit association, or another type (i.e., in principle, a SAF or a club);" and a related-party transaction consists of the "transfer of resources, services, or obligations between a reporting entity and a related party, regardless of whether a price is charged in return."

Therefore, assuming that both the nonprofit club and the SAF are, for classification purposes, the reporting entities—or rather, the entities that generate opportunities and contract or provide products or services that may have a related party as a counterparty—it is within the club, generally speaking, that the environment for misconduct is most fertile due to the absence of repressive legislation, the lack of self-regulatory standards, and, from a practical standpoint, the ineffectiveness of statutory instruments (when they exist).

Clubs have been part of the social fabric since the 19th century; the introduction of the SAF into the system—with a strengthened governance structure—has not yet completed five years. And business dealings of the nature studied here have been part of club life since the model's founding.

It is not uncommon, in fact, for statutory club presidents to be subjected, after the end of their terms, to disciplinary proceedings, culminating in some type of sanction, invariably associated with reckless management and related conduct. However, as far as we know, there have been no charges, trials, or convictions for acts covered by the concept of related-party business dealings.

Furthermore, remember that, in the context of a non-profit association, which has no owner and the power of command and resource allocation is imputed, through a political process, to a member (or a small group of members), who exercises it without financial compensation or equity risk, the incentive to extract value is incomparably greater than that existing in the context of a SAF.

Considering a hypothetical SAF whose capital is distributed between the investor, with 90%, and the club, with 10%, for each transaction with a related party carried out without due justification and the necessary fair compensation, the investor benefits, in theory, from only 10% of the total, since 90%, if converted into profit, would be allocated to him.

When the situation occurs within the club, for every real misappropriated, in transactions improperly verified by the control systems, the entire misappropriation will benefit a third party, a related party, to the detriment of the club, which is harmed by the whole (and not by proportionality).

Furthermore, the SAF has a specific objective, namely football, while the non-profit association, in most cases, in addition to a series of other purposes, such as the development of amateur sports, also organizes social events, some or all of which can be used for undesirable purposes.

The crisis facing most clubs, even more unjustifiable in certain situations due to the size of their fan bases and revenues, invokes a problem that predates the SAF Law and the SAF, which are both a (possible) solution and a late victim of corrosive associationism.

At the SAF level, dilemmas emerge and can be addressed from various perspectives, such as contractual or regulatory, and potential violators, even based on the existing legal framework, are subject to a structure of accountability provided for in corporate law.

Here, then, is the difference in perspective: with SAF, paths are envisioned to reinforce systemic health, unlike the secular and hermetic associativism, which is endowed, not coincidentally, with instruments of self-protection and the protection of individuals, to the detriment of the collective.