Santos in crisis

Unable to pay their players and with no revenue coming in, could this be the end of Santos as we know it?

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This is the third in a series of previews of the 2015 Brazilian football season. The first, covering the league’s chronic calendar problems and looking at the prospects of Cruzeiro and Atlético Mineiro, can be found here. The second, detailing the restructuring effort currently being made at Palmeiras, can be found here.

On the evening of the 14^th April 1912, somewhere in the Atlantic Ocean, the RMS Titanic struck an iceberg and sank. At the same time, in the Brazilian port city of Santos, a group of sportsmen gathered at their local athletics club to create a new football team – Santos Futebol Clube. They would go on to become one of the most important clubs in football history, helping to spread the sport worldwide during the 1960s and 70s.

Santos, however, have hit hard times. They are mired in a financial crisis that is undoubtedly the most severe in their long and proud history. Over a century after setting sail, the club are running a genuine risk of capsizing.

Nearly all major clubs in Brazil are in a ludicrous amount of debt. There are several explanations for this, but most stem from the fact clubs in Brazil are not businesses with shareholders, they are social clubs, where presidents are elected every two years by members. This system removes any personal responsibility that regular chief executives have, leading to irresponsible financial management and widespread short-termism.

For the past seven years, BDO Consulting have conducted an annual survey to calculate exactly how much Brazilian clubs owe. In their last study, covering the 2013 season, Flamengo retained the unwanted crown of being the most indebted club in Brazil, with a total bill of nearly R$ 760 million (around £190m). Santos, owing a comparatively modest R$ 297m, would appear to be some way away from Flamengo. However, the rubro-negro from Rio de Janeiro are the most popular club in the country, with a fan base countable in the tens of millions; Santos, on the other hand, do not have the structure to make a recovery any time soon.

Though they are one of the best-known Brazilian teams around the world, at home Santos are considered a small- to medium-sized club. The city of Santos is not particularly large, with a population comparable to that of Edinburgh, and it lies only 77km from the vast metropolitan area of São Paulo, which is over 40 times larger than Santos.

São Paulo’s three giant clubs: Corinthians, São Paulo FC and Palmeiras, are such institutions that there is little space left for Santos. Even in their own city, with less than half a million inhabitants, it is common to see people walking around with the shirts of either one of the state capital’s trio de ferro (iron trio).

Santos’ stadium, the Estádio Urbano Caldeira (commonly known as Vila Belmiro), is a charming but cramped venue, with its capacity of 16,798 making it the smallest in Brazil’s top flight. Not only is it undersized, it is rarely over half-full. Brazilian football has a problem with low attendances, one that hits clubs such as Santos harder than anyone else.

In the 2014 national championship, Santos’ average attendance at home matches was a paltry 8,560. Unsurprisingly, of all 20 top-flight clubs, Santos made the least profit from match-day income last year: an insignificant R$ 813k (just over £200k). To compare, rivals Corinthians raised almost R$ 17m of match-day profit over the same time period.

Then there is the television money. Under the current broadcasting rights agreement, Brazilian clubs receive an annual payment that varies from club to club according to their popularity: those who draw the bigger audiences command more money. Therefore, the country’s two largest teams, Flamengo and Corinthians, each receive R$ 110m per year from television behemoths Rede Globo. São Paulo and Palmeiras collect R$ 80m and R$ 70m respectively, while Santos get R$ 40m.

With a smaller fan base, less TV money and a tiny stadium, Santos have always been at a disadvantage when compared to their big-city neighbours. Crucially, they have always been aware of this and have conducted their business accordingly. Like many other South American clubs, Santos stay afloat by producing and selling talented young footballers.

In 2002, the last time Santos found themselves in financial trouble, they decided to promote a number of their youth players to the first team, notably Diego, Robinho and Elano. The youngsters were so effective that they ended up winning the national championship of that year, and the eventual sales of the trio helped the club regain financial stability.

Robinho (L) and Diego, the “Vila boys”, proved in 2002 that in Brazilian football, you can win things with kids. Photograph: Ari Ferreira

In the late 2000s however, Brazil’s economy was booming and there were sponsors and investors aplenty, prompting Brazilian clubs to start spending money. Santos, with Neymar on their books, saw what they thought was a golden opportunity and decided to abandon their usual business model. They won the Copa Libertadores of 2011 and spent a fortune holding on to Neymar despite interest from Europe’s giants.

However, the subsequent success that Santos had banked on was very short-lived. In 2012, Neymar spent an inordinate amount of time out of the country playing for the national team, managing to miss over half of the Brazilian championship season. Without their key player, Santos struggled and finished the year in mid-table, missing out on continental qualification.

Neymar eventually signed for Barcelona in May of 2013 in what was meant to be Santos’ big pay day. However, of the €57.1m paid by Barcelona for the player, only €17m went to Santos. A sizable chunk of money for a Brazilian club, but hardly sufficient to cover the massive investment made to keep him at the club during 2012. That same year, Brazil’s economy began to slow down, bursting domestic football’s financial bubble. Sponsorships and investments disappeared and Santos’ future was thrust into uncertainty.

Their situation became so desperate that without a main sponsor and next to no match-day revenue, the entire R$ 40m Santos were due to receive later this month for 2015’s television rights was already spent in September of last year. The club asked Rede Globo for an advance in order for them to pay their wage bill.

Since then, the club have failed to pay players for the months of October, November and December, with Christmas bonuses (equivalent of one month’s wages, prescribed by Brazilian law) also going unpaid. Several of Santos’ key players have taken the club to court, as three months of unpaid salaries is considered grounds for contract termination.

One of the suing players in question is centre-forward Leandro Damião, whose transfer to the club in early 2014 could yet turn out to be a deathblow. Santos have yet to pay for Damião, having struck a deal with investors Doyen Sports to bring the striker to Vila Belmiro. Doyen paid R$ 42m to Internacional, Damião’s former club, for ownership of his contract, passing on his rights to Santos.

The plan was for the player to attract a move to Europe for a fee larger than R$ 42m, with Santos retaining any profit made. In practice, the transfer failed miserably. In 44 games for the club, he scored only 11 goals and fell out of favour with the fans. He was loaned out to Cruzeiro earlier this month.

In normal circumstances, it would be very difficult for Santos to get out of this deal without making a significant loss. With this court case, however, the club stand to lose an incredible amount of money. If the judge rules in favour of Damião, he will no longer be a Santos player, the club will be unable to make anything back on his transfer, they will owe Doyen Sports the entire R$ 42m fee as well as paying Damião the remainder of his contract and a sizable sum in compensation.

The paradox is that amid this woeful financial situation that only looks to be getting worse, Santos are aware that they still need to build a competitive football squad in order to stay in Brazil’s top division. They may have lost the spine of their first team to the courts: goalkeeper Aranha, veteran centre-back Edu Dracena, full-back Eugenio Mena, defensive midfielder Arouca and Leandro Damião, without receiving any compensation for their transfers, but what they really cannot afford is to be relegated.

Big clubs who have been relegated recently, Palmeiras and Vasco da Gama, received plenty of television and media coverage in the second division, they still did fairly well with their gate receipts and had enough quality to come straight back up. With Santos, this is less likely, they would run the risk of staying there.

However, it seems they will have enough quality to survive for this season at least. The current administration, elected in January when the damage was already done, have scoured the market for some affordable signings. Three players have come in on loans that involved no extra fees for the club: Grêmio centre-back Werley and wingers Marquinhos Gabriel and Chiquinho, while Fluminense midfielder Edwin Valencia, former AC Milan forward Ricardo Oliveira and returning favourite Elano have all joined on short-term deals.

Ignoring the severity of Santos’ situation would be unwise. Brazilian clubs have an air of invincibility surrounding them, regarding themselves as too big to fail. For the most part, this is true, even if a club such as Flamengo were to see their debts double over the next 12 months, they would be unlikely to run any palpable risk of collapse. Santos, however, are not in that tier. They are taking on water, some of the crew have jumped ship. Hopefully it’s not too late to keep them from sinking.

Next time: They say you should never return to a club where you have already had success, obviously no-one told Tite. After becoming world champions in his first spell, where can he take Corinthians second time around?