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Soccer meets economics

Soccer and development banking found some common ground at the Inter-American Development Bank’s first-ever seminar on sports and development, held in Washington, D.C., in May.

The event featured an impressive lineup, starting with Edson Arantes do Nascimento, or Pelé, as the world’s greatest soccer player is universally known. Backing up the former captain of the Brazilian national team was one of the world’s most famous soccer fans, former U.S. secretary of state Henry Kissinger.

Other speakers included the presidents of the football confederations of South America, North America, and the Caribbean; U.S. Major League Soccer Commissioner Don Garber; and top executives from international sports marketing firms that have helped turn soccer into a huge business in the industrialized world.

“Soccer is a sport with multiple dimensions,” IDB President Enrique V. Iglesias told the participants. “It offers opportunities because of its economic return, but it also is a sport whose popularity transcends class, race, religion, gender and educational background boundaries. “This is why soccer is an important instrument for regional development and integration,” Iglesias said.

According to participants at the IDB seminar, soccer in Latin America has been a victim of the region’s political instability, financial crises and social tensions. While South American countries have won the World Cup as many times as Europeans have, they have derived only minimal economic advantage from their excellence in this field.

Participants mentioned that Latin America can do much to make soccer a more profitable business. Pelé, for example, sees potential for turning soccer into a major industry, largely by following the playbooks written over the past decade by the professional leagues in Europe and the United States.

But Pelé, who rose from grinding poverty to become one of the world’s best-paid athletes and later Brazil’s sports minister, also highlighted the potential of sports to promote social as well as economic development.

“In the United States, the sports industry generates about four percent of GDP. In Latin America, it barely represents one percent of output. If we could get to two percent, we could create a lot of jobs and opportunities,” he said.

However, Pelé added, while Latin America is quick to embrace changes in areas such as technology, it continues to regard soccer as a pastime ruled by raw passion rather than reasoned planning. Latin American soccer clubs are usually run as nonprofit organizations. Major teams may give great performances on the field, but the clubs are constantly courting bankruptcy. Traditionally, the sport’s officials tended to stave off financial ruin by selling off their best players to richer teams in other countries. In the worst cases, the teams become involved in shady or even illegal financial dealings.

One of Pelé’s main goals while he was sports minister was to professionalize soccer club management in Brazil. “If you have professionals running the sport as a business, it is much easier to stamp out corruption. Professional managers are held accountable, and they must account for every penny,” he said.

According to Pelé, Latin America’s soccer federations are not much better run than the individual teams. Even seemingly straightforward duties such as setting a reasonable schedule of matches can turn out to be a daunting task in some countries.

Nevertheless, there are some encouraging signs of change. A few Brazilian clubs have started to choose the business model followed by major European teams. Flamengo of Rio de Janeiro has signed a management contract with ISL, a Swiss sports marketing company, and Corinthians of São Paulo has brought in two U.S. firms as partners, The Muller Sports Group and the private investment company Hicks, Muse, Tate & Furst.

By signing up partners with deep pockets to run the financial side, clubs can concentrate on what they do best: training teams to win. Meanwhile, business-savvy entrepreneurs can negotiate lucrative contracts with broadcasters, advertisers, sponsors and companies interested in merchandising licenses.

However, the sports business model may not generate phenomenal results in every single country. Heinz Schurtenberger, CEO of Switzerland’s ISL, noted that in his own country top professional soccer players earn but a fraction of the princely sums their colleagues command in the British, Italian, or Spanish leagues.

How does the IDB fit into this picture? At the close of the conference, Iglesias said the Bank would have to draft its own game plan before it can start playing a larger role. However, he noted that soccer seemed like a natural fit in the myriad of social programs the IDB is promoting throughout the region, especially in the programs for at-risk children and youth it helps to finance in more than 30 cities.

In partnership with clubs and other civil society organizations, these programs could be expanded to include sports, which, as Pelé underscored, can be one of the best strategies to keep kids out of trouble.

On the business side, Iglesias noted that the IDB supports for-profit ventures through its own private sector department and the Inter-American Investment Corporation, as well as in its lending through national development banks in the region. These could be potential sources of financing for professionally managed clubs.

Soccer authorities were quick to pick up on the Bank’s interest. The first request came from Costa Rica’s Football Federation, which would like the IDB to support the creation of a regional soccer training center in San José.

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