An audit, consulting, and diligence guide to troubled Football Clubs

Everything you need to know to avoid requesting something unworkable without practical results.

STEP BY STEP: INVESTIGATIONS – PART 1

As a little more than three years of career started in auditing, I was appointed early to conduct investigative work. At that time, from Big6, we had no more than two effective practices in Brazilian firms: auditing and tax consultancy. The consulting practices had set up separate companies.

As a result, auditors did everything, and with that, I started to specialize in the investigative and diligence area. I talk a little more about this in my other Substack account (m4rcio.substack.com).

At the end of the 2000s, a football club in Rio de Janeiro had just gone through a troubled electoral process, and the new management wanted to do a detailed review of the previous management acts and find out their real debt.

Within the context of risk assessment at Big4, the opportunity ended up addressing the practice of corporate investigations, in which I occupied the highest position as a senior manager, assisted by a team of professionals. After all, one of those incredible coincidences that life provides you, after all, few people who had previous experience with clubs ended up joining the useful with the least risky.

In addition to this aspect of risk management for the Firm’s exposure, there was an operational issue.

The target club atmosphere was highly aggressive, with complaints of burning documents, various threats, internet groups, and organized supporters. Only the crazy corporate investigators would have the guts and the know-how to handle it.

The investigative part over more than six months was limited to finding information and documents. We never got to the point, in that project, of investigating potentially unlawful acts by former management. It was a herculean effort to construct a picture of the club’s financial situation. When the draft report’s delivery happens, the management’s internal political compositions had already been changed for the third time.

After a few years, the old manager even got elected again.

I’m not messing you up with all this blah blah blah. I’m trying to put you all on the same page to contextualize the importance of investigations.

If investigations had been conducted at that time, the management who returned to power through elections would probably have been disabled somehow.

Now let’s get back to the thread!

The club did the due diligence, outlined a restructuring strategy, sought to build a leaner structure, improved controls, and wanted to clean up its finances. It is a noble macro-objective but with an expiration date. Usually, elections are held every three years in Brazilian clubs.

Nowadays, political players are on a permanent campaign, mainly using social networks to stand and rival those elected.

The existing political structure in Brazilian clubs is directly related to spending, usually outside football. In more severe cases of promiscuity and mismanagement, in indirect expenses of the core business, such as commissions, fees, participation in rights, outsourcing contracts, and professional services in general.

Consultancies are terrified of touching this wound forcefully. After all, they make contracts and generate revenue by relating commercially with Brazilian clubs’ associative models. They limit themselves to making a criticism suggestive of professionalization, suggest company football, and are satisfied when a club creates governance conditions that show some kind of professionalism.

The political dispute within associative models in clubs in Brazil is motivated by financial interests. Turning a blind eye to this and believing in unconditional love and self-denial is unrivaled ingenuity. And these interests do not always materialize legally, apart from some notoriously reckless acts that go unpunished for n reason.

There is no sense in reorganizing clubs financially and administratively to lose everything in an election between 3 and 6 years. Suppose it is impossible to extinguish the associative model. In that case, it is necessary to remove the harmful elements and the managers who caused losses from these clubs’ associates.

Investigations are the only way.