Turmoil in the Lion’s Den Revised 10/09/2019

Authors: João Carlos Marques Silva, Ph.D. and José Azevedo Pereira, Ph.D.

Case Index

Synopsis ...... 1 Sporting Clube de Portugal ...... 2 Bruno de Carvalho (BdC) is elected president ...... 2 The great deeds of BdC ...... 3 First criticism towards SCP’s inner structure ...... 3 The Reelection and Confirmation ...... 4 From bad leadership to an institutional crisis...... 4 Attack of the Academia Sporting ...... 65 Portuguese Cup Final ...... 6 Internal Conflicts ...... 7 Player’s Unilateral Termination ...... 7 Holding on to power until the end ...... 7 Election for a new president ...... 8 What future for Bruno de Carvalho? ...... 8 SCP’s Management and Finances ...... 109 Sporting SAD – Public Limited Company...... 109 The Banks and the VMOCs - Mandatory Convertible Securities ...... 1110 Financial Statements ...... 1211 Sporting Group ...... 1514 References ...... 1615 Annex A – Supplemental Case Figures ...... i Annex B – SCP’s Official Support Groups ...... iv Juventude Leonina ...... iv Torcida Verde ...... iv Diretivo Ultras XXI ...... iv Brigada Ultras Sporting ...... iv Annex C – Possible Football Winnings ...... v Annex D – Case Questions ...... vii Annex E - About the authors ...... viii

Synopsis

Founded in 1906, Sporting Clube de Portugal (SCP; internationally known as “Sporting Lisbon”) was one of the 3 biggest sports clubs in Portugal, with over 160.000 registered fans and over 3,5 million supporters in Portugal alone (many more supporters could be accounted for internationally, especially among Portuguese former colonies). Although SCP was one of the most eclectic high performance clubs in the world with teams competing at top level in many sport modalities, it was the men’s senior football team that accounted for most of the club’s income and liabilities.

This case portrays the events that followed SCP’s main football team lackluster performance during the last stretch of the 2017/18 season, namely in the Europa League and the Portuguese League. There had been a great deal of investment in the main football team and its coach (the president’s personal bet) since season 2015/16, but the results were lacking, both in the football field and financially. The atmosphere soon started to become tense, and the amount of criticism and disbelief rose to such an extent that even SCP’s president started posting public criticisms towards the football team’s main players in his Facebook account, accusing them of lack of attitude and effort.

The defeat at the last game of the league was the final straw to some fanatics, that planned and executed an attack on SCP’s academy, when the football team was preparing for the final of the Portuguese Cup. The attack was executed by roughly 50 people with hooded faces, that invaded the academy, talked down the football players, having come to terms with some of them, hitting them with belts and other objects. The attack on the SCP’s players was perceived as indirectly incited by SCP’s president, and soon a significant portion of the public opinion was that the players had the right to cease their contracts with just cause, pushing SCP into a very gloomy situation.

Since SCP’s main assets were its main football team’s players, was this to be SCP’s end? What should SCP (led by its president, Bruno de Carvalho) do? Was it too late for any action?

Keywords: bad leadership, football, media, hooligans, bankruptcy

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Sporting Clube de Portugal

Sporting Clube de Portugal (SCP, known internationally as Sporting Lisbon), is an international sports club based in Lisbon, Portugal, created on 1 July 1906, originally focusing on football, tennis and fencing. The club grew throughout the years, introducing new sport sections, having a total of 55 different sport sections (15 of those linked to handicapped sport). Since its foundation, SCP had won over 22.000 titles, including 28 European trophies in 4 different sports: track and field (19), handball (2), roller-skate hockey (6) and football (1) - it was the 3rd European club with most titles, behind FC Barcelona and Real Madrid, and the biggest in Portugal.

Although the club had1 55 active sport sections, with several titles in many of these sport sections, the men’s senior football was unarguably the section with highest visibility, since this was the main sport in Portugal (and Europe), whose budget made all other sports seem as secondary or tertiary. Thus, even though SCP was the sports club with the greater number of sporting titles in Portugal, in men’s senior football, SCP was only the third major power, trailing Benfica and FC Porto, both of which were great and well known European football clubs, each with 2 wins in Europe’s most important football competition, Champions’ League (SCP had never won such competition). Besides being a consistent contender towards the Portuguese competitions (its last Portuguese championship title was in the 2001/02 season), SCP was also seen as being a club dedicated to the grooming of great football players, such as Paulo Futre, Luis Figo (best of the world 2001) and the greatest of all time2, Cristiano Ronaldo (best of the world in 2008, 2013, 2014, 2016 and 2017).

Since SCP has a lion in its shield, SCP fans and players were often referred to as “lions” or “leonine”, as a reference to the teams’ motto of never giving up and putting up a fight as a lion would. In fact, SCP was defined by four words: Effort, Dedication, Devotion and Glory. SCP’s adversaries, on the other hand, called SCP fans as “lizards”, due to SCP’s green attire, in the spirit of healthy sport picardy.

Bruno de Carvalho (BdC) is elected president Formatted: Portuguese (Portugal)

Bruno de Carvalho had been vice-president of SCP’s roller-hockey and roller-skating section, was the founder of the website “Centenário Sporting”, was an active member of “Leões de Portugal” (SCP group named “Lions of Portugal”) and a football coach for little kids in SCP’s schools. He was also a former member of the SCP main support group “Juventude Leonina” between 1985 and 1990, having also joined another support group, Torcida Verde, in the recent years.

BdC link to the club and its support groups motivated him to run for the club’s presidency in March 2011, but although he had many supporters, ended up losing to his adversary, Godinho Lopes. After the results were known, many supporters who were on the side of Bruno de Carvalho reacted with indignation and began to stir up trouble (many of these supporters were from the support groups, namely 16-30 y.o. boys and men). On a very tense night, Bruno de Carvalho calmed his supporters with a tranquilizing speech. After two years of a very troubled presidency of Godinho Lopes, Bruno de Carvalho ran once again for the presidency in March 2013 and won with the support of more than half of the total votes. Thus, began a new era in Sporting. In his farewell message, Godinho Lopes asked

1 Situation in November 2018 2 Alongside Leonel Messi, though SCP fans, naturally had no doubt that Ronaldo was better!

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Bruno de Carvalho for "unity and quality", putting to past some tough statements made by BdC and his supporters during both campaigns. The great deeds of BdC

Bruno de Carvalho was a devoted fan, mainly as a consequence of having belonged to SCP’s football support groups, whose strong ties were still present. There was a great deal of support from the fans towards the president, and that was clearly seen in game nights.

As president, he liked to attend the main games of all types of sports, and was present in all football matches of the main team – in fact, he always wanted to sit in the bench, with the substitute players and coach, to “feel” the game up close (since BdC had a coach’s degree, there were talks of some occasional friction between him and the staff/main coach in the bench, though things seemed to run smoothly in overall).

Financially, BdC was responsible for renegotiating the TV rights, guaranteeing 500M€ over the course of 12 years, a great deal that was in line with the deals struck with Benfica and FC Porto (NOS 2018). From 2013 to 2018, SCP’s assets doubled to 287M€, with BdC managing to invest in SCP’s different sports modalities (other than football), and in a new pavilion for most of these modalities (Pavilhão João Rocha) – these investments culminated in Sporting winning many national competitions in 2018, including the Portuguese championships of handball, volleyball, cross-country, indoor track, futsal, roller hockey, table tennis, am+ong others. Things seemed to run very well, and BdC was often praised by everyone at the time, including the media and sport commentators. First criticism towards SCP’s inner structure Months after taking office, the president’s taunts against rival clubs were constant, but in a latin country such as Portugal, this was commonplace, and something expected/ demanded by most fans.

However, BdC began losing his glitter when he started to include SCP’s inner structure amidst his criticisms. He first started by criticizing his predecessors; former directors Godinho Lopes, José Eduardo Bettencourt, Luís Duque, Nobre Guedes, Carlos Freitas, Filipe Soares Franco and Dias da Cunha, for example, were targeted several times in the criticisms of Bruno de Carvalho, forcing them to answer before the justice courts. Although this caused some dissatisfaction among SCP supporters, the damage was contained, since these were “things of the past”.

From the past there was a shift towards the present when, in November 2013, BdC publicly posted on Facebook an open critic, after a heavy defeat of the main football team against Chaves3 and a landslide defeat of the B team against Atletico3 . BdC critized both teams in his post by stating: "Both the main team and the B team offered SCP fans bad performances that did not dignify our club and our jersey". This was the first time that BdC began to publicly criticize the current state of SCP and was not taken well by most supporters.

The relationship between Bruno de Carvalho and the main football team’s coach Marco Silva deteriorated after the public criticism and, although SCP won the Portuguese Cup in June 2015, the Portuguese coach was fired among great controversy. One of the most controversial points in the guilty note given by Bruno de Carvalho to Marco Silva in order to justify his sacking had to do with the dress code: Marco Silva didn’t use Sporting's official attire in one of the cup qualifier games.

3 Portuguese teams playing in lower league levels.

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To replace Marco Silva, Bruno de Carvalho prepared a surprise and hired the coach Jorge Jesus from SCP’s main rival, Benfica, causing yet again great controversy and a huge upset in the rival team. Many SCP fans also disapproved the way the former coach was sacked (the negotiations with Jorge Jesus had been long, and thus Marco Silva’s fate was already decided long before the season’s end), saying that kind of behaviour was not consistent with the SCP’s way. Jorge Jesus received a huge salary of around 5M€ per year (highly criticized by the fans, especially those that recognized Marco Silva’s merit), making him one of the highest paid football coaches in Europe.

In early 2017, Bruno de Carvalho targeted the players once more. This time, after a draw in Chaves, the president accused the players of being "some pimps" and of "only thinking in money" in the locker room. A Portuguese newspaper, Correio da Manhã, wrote at the time that the tension was great in the beach resort that hosted SCP and that the players had rebelled against Bruno de Carvalho. Squad captains Rui Patricio and Adrien were the first to react by showing that they did not tolerate such insinuations. The Reelection and Confirmation In March 2017, Bruno de Carvalho was re-elected. This time, by a wide margin: 86% of the members who went to the polls chose the controversial leader. "As of today, I am the president of all SCP fans, and this is the most important," said Bruno de Carvalho in his victory speech, hoping to unite the whole Sporting family. However, in January 2018, it was the fans that targeted the president in the social media, due to the president’s exuberant festivities after SCP’s conquest of the League Cup, Sporting’s first victory in the competition, and first trophy in the football season 2017-2018 – the fans claimed that the team was playing poorly and that would never win the championship that way, and asked the president to hold his celebrations for the championship and not some “second-rate trophy”. BdC reacted in his own style, accusing the fans of stirring up problems and invoked the next general meeting for the SCP members to decide what they wanted for the club’s future.

Shortly after, in February 2018, the general meeting was held, and BdC brought a proposal to approve new statutes for the club giving more powers to its president. There was a heated debated alongside many insults from the members towards BdC. Consequently, Bruno de Carvalho threatened to resign and left the meeting. Following the incident, the president used Facebook to leave a sigh: "Sadly, alone and evermore unhappy, without realizing what happened to me; I feel so much ingratitude that makes me want to leave". Two days later, at a controversial press conference, the president announced a new general assembly and made an ultimatum: either the new statutes he proposed were passed with more than 75% of the votes or he would resign.

After BdC’s bold move, and without any internal solution to replace the president (after all, BdC had done a good job up until that point, despite having a bad temper) the statutes ended up being approved with almost 90% of the votes. In his victory speech, Bruno de Carvalho announced that he was going to abandon Facebook and criticized the media for persecuting him – this statement led to a very heated situation between journalists and fans outside the pavilion where the assembly was held, with many fans insulting and threatening the members of the press.

From bad leadership to an institutional crisis In the 5th of April 2018, SCP lost its Quarter-final 1st leg Europa Cup game against Atlético Madrid, in Madrid, with a score of 2-0. The President BdC stayed in Lisbon, since his wife was expecting a daughter to be born around that time. BdC was known to live the football games with great passion, and that night, following SCP’s defeat, went to his Facebook account and publicly criticized several players for not giving their best in the match.

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The next day, two of the more important players posted in their social pages a response to their president, criticizing him for his attitude. This response was soon shared by most players in SCP’s football team, thus creating an open dispute between the president and the players. Most of the fans and supporters were divided regarding their opinion; some argued that the president wrote what needed to be said; others argued that all problems should be solved inside the group and not in public, siding with the players. The coach’s position was also sided with the players; SCP football team had been having bad results and the president was suggesting that hiring this coach perhaps had been a mistake, especially considering that his salary was the highest in the Portuguese League. The president immediately suspended the players that had supported the text criticizing him, but soon dismissed such suspension after being faced with lots of public criticism from the fans and supporters.

In the 7th April, the president was “booed” for the first time in SCP’s stadium, with many fans showing him white handkerchiefs, representing they wanted him to leave. This was a big blow to the president, that up until then always had great receptions at the stadium (as previously mentioned, he usually liked to seat in the bench, next to the players and coach, and was cheered when entering the pitch). Even after SCP’s win over Paços de Ferreira for the Portuguese League, the players celebrated among themselves and the coach, leaving the president isolated, sitting alone in the bench. In the middle of the victory celebrations, there was also some chanting from the fans against the President. BdC was clearly heart-broken and alone – he even asked for medical assistance to help him leave the pitch, leaving the field in arms of medical officers.

It was now clear that things were wrong and had to be resolved; but the president, holding true to his combative nature, kept saying that he was the one in charge, and that all of his employees had to listen to him, reminding everyone that he recently had 90% of support from Sporting’s registered fans.

In the 5th May 2018, Sporting played Benfica at home, in a very important match for the championship. The president was seen talking to the leader of Juve Leo (SCP’s most important fan group), Mustafá, and soon after the game began, the whole of the Juve Leo group started throwing torches and smoke pots towards SCP’s goal posts, in such a way that the match had to be stopped. There was a conviction that this might have been retaliation against SCP’s international goalkeeper, Rui Patrício, who was the leader of the player’s revolt. The president quickly dismissed the accident, but the prevailing idea was that the smoke had been “ordered” by the president, reminding the players that BdC had the favour of the support groups.

In the 13th May 2018, SCP needed to beat Maritimo away, to end the Portuguese League in second place, ensuring a play-off spot in the European Champions League (that would imply a huge financial cash inflow in the next season). The President issued statements highlighting the importance of the match towards next season’s budget, and publicly exhorting the players to be at their very best. Unfortunately, SCP was very passive throughout the game and lost the match in the last minute 2-1, putting an end to the possibility of getting hold of the Champion’s League millions. There was a huge protest from the fans, both at the stadium and the airport, with some members of the official support groups threatening players for their pale exhibition (Warning 2018). In the next day, the president summoned players and the coach for an emergency meeting – there was still a match to be played; the Portuguese Cup final, against a modest team that barely managed to guarantee its stay in the main Portuguese league. No one knows exactly what transpired from the meeting; there were news that the president intended to suspend the coach and gave the players a very hard speech, but such news were readily dismissed by the president himself – one thing was certain; the relationship between the president and the football team was very tense.

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Attack of the Academia Sporting The 15th of May 2018 was a dark day in SCP’s history. Around 50 hooligans invaded SCP’s training grounds (Academia Sporting, in Alcochete) right before the team’s first practice for the Portuguese Cup final. Several players and staff members were beaten with belts and other objects, the player’s changing room was completely thrashed, and a small fire was started near the training grounds. The aggressors readily fled after the alarm began to sound, with most of them being caught by the local police (the security detail in Academia Sporting called the police but offered no resistance to prevent the attack).

The president’s initial reaction to the attack was described as “insincere” by some players, implying that he may had orchestrated the whole thing – the president readily called the incident as horrendous and denied any involvement, urging the police authorities to arrest whoever was responsible; he was however unfortunate with the choice of some words and ideas, stating that crime and violence was something that existed and had to be dealt with in our daily lives, and that it had been tiresome receiving so many calls from the staff’s and players’ relatives. BdC was readily accused of ordering the attack, or at least of promoting it, by many unsatisfied SCP supporters. Portuguese Cup Final The Portuguese Cup Final was to be held at Portugal’s national stadium in the 20th May 2018. The finalists were Sporting and Desportivo das Aves, a team that barely made the cut to ensure it remained in the main Portuguese league. Due to the attacks, the players refused to return to Academia Sporting; not only was the dressing room thrashed, but the players themselves didn’t have any psychological stability to focus on practice. The police took statements from the players and staff long into the night of the attack, and most players were hinting that they wouldn’t play for SCP anymore.

In the next day it was decided that SCP would play the Portuguese Cup final, even though they didn’t have the necessary physical and psychological conditions to do so, due to their professionalism – however, most players were already considering leaving the club. Later, SCP’s coach announced that there would be no practice sessions before the final – the players had to recover psychologically, and since it was the end of the season, perhaps rest wasn’t such a bad thing.

The rest of the week was spent with news of players receiving anonymous threats and hiring security guards for themselves and family. There were many pre-announced intentions to terminate their contracts with just cause from the football players as soon as the Cup final was played, and the fans were very worried with all the situation. BdC tried to reach the players via phone, but most had blocked him out. Portugal’s president, Marcelo Rebelo de Sousa, was still not sure he would attend the game next to BdC, leaving the country in doubt until the last day – by this time, it was the whole country that was with its back turned to BdC.

In the day of the final, the president opted not to be present to calm things down (there was however a Facebook message of support towards the players, wishing them luck and saying that their president was present in heart and soul), thus “allowing” for Portugal’s president to be present. SCP was supposed to be represented by the president of the General Assembly Commission (GAC), but since there were already some public altercations between BdC and the president of the GAC (see ahead, internal conflicts), there was no ticket awarded for him. The president of the GAC managed to get a sit in the tribune however, but as a representative of the Portuguese Fireman’s League, of which he presided – but officially, Sporting wasn’t institutionally represented in this very important final game!

The match was lost 2-1 to Aves, with Sporting only scoring 5 minutes before the end. There was a feeling among the fans of great disappointment; in normal conditions it should have been an easy

6/16 match – the football season had officially ended for Sporting (at least they won the League Cup, in January 2018), but many more bad news were to be expected... The big question on everyone’s mind was: “Is the egocentric president finally going to resign and let SCP’s turmoil come to an end?”. Internal Conflicts There was great pressure for the president to resign and call for re-elections. The members of the GAC announced their resignation, though they would remain in office until a new General Assembly was elected. Several members of the Fiscal Council and Management also resigned from their positions.

On the 24th May, a general assembly, with the purpose of firing the president (who was unwilling to resign) was called for, scheduled for the 23rd of June - the still-president of the GAC, Jaime Marta Soares (JMS), was officially at war with the club’s president (the president said that JMS had just launched an atomic bomb inside the club). The GAC also created the necessary mechanisms (committees) to ensure a transition phase until the elections. In retaliation, the president announced the destitution of the GAC and created himself a transitory GAC commission (this was later proven to be illegal, something that had been constantly reiterated by the “original” GAC) – during sometime, SCP now had two opposing GACs and the chaos was set! The transitory GAC dismissed the destitute assembly of 23th June, and called for two ordinary assemblies, scheduled for 17 June and 21 July 2018. Player’s Unilateral Termination Sporting was in the both national and international news’ spotlight and, soon after the attack, before the Portuguese Cup final, rival teams’ spokespersons started inciting SCP’s players to terminate their contracts invoking just cause due to the attack on the academy and “psychological harassment” from SCP’s president. Several TV shows had lawyers giving interviews, claiming that there was substance for just cause, even though Sporting was also a victim of the attacks – opinions were divided, with the main argument being that the president was the “moral author” of the crimes, and that it was unsafe for the players to remain in Sporting.

The player’s representatives saw in this an opportunity to cash in and presented ultimatums to SCP; either to be sold to other clubs at a cheaper price or risk facing unilateral terminations. This attitude did not fare well with the hot-blooded president, that talked down to these representatives, demanding fair values to be brought to the negotiating table. The last straw came after the deal to transfer one of SCP’s most mediatic player and team captain, the national goalkeeper Rui Patricio, to an English team (Wolverhampton) was cancelled in the last minute by the president, that argued that, although the value was as agreed, either the terms of payment had to be changed (Wolverhampton wanted to pay in instalments) or the value had to be higher (to compensate for lost interest), else there was no deal – and in the end there was no deal. Rui Patricio was furious and told his representative to go ahead with the unilateral termination the next day. In his termination letter, Patricio speaks of psychological and physical violence, stating that he feared for his life – blaming the president for a hostile environment and the lack of security detail in the Academia Sporting.

Following Patricio’s decision, several other players also opted for the unilateral termination, namely Podence, William, Gelson, Bruno Fernandes, Bas Dost, Battaglia, Rafael Leão and Rúben Ribeiro. The future of SCP was very dark, since without these players/ assets, the club was bankrupt! Holding on to power until the end In June 13th 2018, the (official) GAC suspended the Directive Council (including the president) “effective immediately”, but the president, that insisted that the GAC was illegitimate, having being replaced by “his” transitory GAC commission, refused to oblige. However, a few days later, the court considered BdC’s convoked General Assemblies illegal and recognized Jaime Marta Soares as the

7/16 rightful president of the GAC, confirming the destitute assembly of 23th June – the president’s days were numbered.

On the destitute assembly, after a couple of days of name calling and turmoil between the president and Jaime Marta Soares, the president and his team were sacked by 71,36% of favourable votes – Bruno de Carvalho was the first president to be sacked in SCP. The destitute assembly was crowded, with the registered fans wanting to express their say – there were still some feverous fans supporting the president, but for most of his former supporters, the situation had gone too far.

The president showed up in the assembly, even after saying that he wouldn’t. Since he was suspended, he wasn’t allowed to vote, but he demanded to do so, went on and voted! The day was marked by the president’s Facebook posts (he published 24 posts before going to the assembly, and a couple more afterwards, expressing his disappointment), that were constantly being repeated by the TV news broadcast. The now ex-president’s posts were incoherent; he said he didn’t want to go to the assembly and went, then that he would leave SCP forever and wouldn’t contest the assembly, then that he was going to fight for his Sporting,… all of this amidst several insults to everyone that contributed for the assembly to take place. One could see that the former president was out of his mind, or at least, out of himself. SCP was now in the hands of an also former president, Sousa Cintra, that would control things and prepare next season until a new president was elected. Election for a new president Although initially BdC said he wouldn’t run for elections, he ended up changing his mind and participating; elections were scheduled for the 8th September 2018. There was a big controversy on whether BdC could run or not, but it was soon deemed that he couldn’t, due to being suspended. There was still an episode where BdC suggested to use a figurehead for his candidacy that lasted a couple of days, with Erik Kurgy as head of the list, but also this attempt was stopped. There was a need for stability that BdC wasn’t unable to concede, with constant and successful attempts to gain the media’s spotlight. The transitionary president, Sousa Cintra, was trying to bring some of the players that had terminated their contract back, but it was difficult if he couldn’t provide the guarantee the BdC would no longer be in charge in a foreseeable future.

After many debates between the candidates for the presidency, it was a relief to see that the focus shifted from BdC to the ideas each candidate brought to the table. This election had 6 candidates, and in the end, it was the former SCP medical chief (that quit after the attacks in the Academia) that won, Frederico Varandas (Varandas 2018). The stage was set for a new beginning, and there was much to do. What future for Bruno de Carvalho? Bruno de Carvalho had managed to have the whole of Portugal against him (the media coverage of the whole case was massive and suffocating); even most of his more faithful fans recognized that he had gone too far. Even if he wasn’t directly responsible for the attack in the Academia Sporting (it’s hard to imagine that he would sanction such action), there were few doubts on his moral participation in the matter (he had been taunting the players directly and indirectly4 since April). However, the “transitory” GAC was the last straw for most supporters, since the consensus was that he should have accepted the destitute assembly from the start, and have his say there, without embarking in a situation that put SCP in the laughing stock of its rivals, and into a shameful situation for its supporters.

4 Through the staff and support groups

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What should Bruno de Carvalho do now?

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SCP’s Management and Finances Sporting’s management structure and financial position is analysed in this section. The leadership style of BdC was completely off and was going to impact negatively SCP’s finances, but everyone agreed that he had done a good job in terms of management and finances before going off-rail. Here, we will look at the SAD structure, discuss the VMOCs5 (BdC was much praised for the VMOCs, but few people knew what this was all about) and, most importantly, investigate SCP’s financial statements. Sporting SAD – Public Limited Company Sporting SAD was created in the 28th October 1997, having been admitted to Lisbon’s public stock exchange the following year. After its creation, SCP obtained the necessary funding to build its new stadium and training center, Academia Sporting (ForumSCP 1999)

In 2010, the SAD’s social capital was decreased from 42M€ to 21M€, with all shares being reduced from 2€ to 1€ (SAD Reduction 2010), to cover costs. Afterwards, in 2011, it proceeded to a capital increase of 18M€, reaching a face value of equity (social capital) of 39M€. In 2014, the SAD’s social capital increased by 28M€, through the incorporation of “Sporting Patrimonio e Marketing” in the SAD, with a value of 8M€, and through an emission of 20M shares at 1€ each to settle a debt with Holdimo (SAD_28 2014). This way, the owner of Holdimo, Álvaro Sobrinho, was now the SAD’s biggest individual shareholder.

In 2018, the Sporting SAD had 67M shares, each with a nominal value of 1€. Sporting held a total of 63,92% of the shares (corresponding to roughly 42,8M shares), holding 26,66% directly and 37,26 indirectly (mainly through Sporting SGPS, of which Sporting held at 100%). The holding Holdimo held 29,85% (equivalent to 20M shares) and Olivedesportos SGPS held 3,19% (equivalent to roughly 2.1M shares). The rest of the shares were dispersed through the open market.

The evolution of the share price from 2011 to 2017 is portrayed in Figure 1.

5 Mandatorily Convertible Securities

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Figure 1 – SCP SAD’s nominal rate evolution until November 2017 (extracted from www.bolsapt.com) The Banks and the VMOCs - Mandatory Convertible Securities In the financial restructuring of 2010, still under the presidency of José Eduardo Bettencourt, SCP’s SAD (Sociedade Anónima Desportiva – Sports Public Limited Company) negotiated the debt it had with the banks (BES and BCP) through the issuance of Mandatorily Convertible Securities: the VMOCs (in Portuguese) (VMOC 2010). These VMOC represented 55M shares with a nominal value of 1€ each, and each title stated that SCP had until January 2016 to repay them, else they would be converted into shares, and the banks would become shareholders (the actual VMOC registered value in the SAD’s books was 47,925M€; it is assumed that this was the actual value that was paid by the banks). If the banks converted the VMOCs into shares, the total number of shares (and social capital) would increase, diluting the percentage stake all other shareholders had in the SAD.

In 2014, both banks (BCP and Novo Banco – BES had gone bankrupt in late 2014, and a new bank, Novo Banco, was created out of BES’s “good” assets), agreed to settle an additional debt of 80M€ with more VMOCs, also corresponding to 80M shares (56M by BCP and 24M by Novo Banco), raising the total they had to receive from SCP to 127,925M€ plus interest which, for both deals, was of 3,5%. There was also a reserved spot for a new investor, that would purchase 18M shares for 18M€ in an equity increase operation (the new investor would get 21,2% of the SAD) - according to (CM_18M_2018), Novo Banco assumed the responsibility of finding this new investor and in the meanwhile, put forward the 18M€ as a loan towards the SAD, at the annual rate of 1%; when this new investor was found, the 18M€ would be retrieved by Novo Banco, and a new equity increase would take place. Unfortunately, no new investor was found6, and Novo Banco had to keep its loan at 1%.

In May 2015, Sporting’s SAD issued a bond loan of 30M€ (6M bond tickets of 5€ each), with an annual interest rate of 6,25%. The bond’s maturity was due in May 2018. In January 2016, SCP persuaded the banks to extend the due date on the initial VMOCs of 47,925M€ to be fully paid in 2026 (same due date as the posterior 80M VMOCs), raising the annual interest from 3,5% to 4%, only to be paid if the SAD had a positive net profit for the corresponding year (!). This deal had such consequences that a petition against this extension was discussed in the Portuguese Parliament, though with no consequence. In March 2018 there were talks of a 3rd VMOC emission of 55M€, but it never got accomplished... one of the main reasons for this failure was SCP’s start of its institutional crisis.

In May 2018, the president BdC managed to renegotiate with the banks a new buy-back deal for the VMOCs, allowing SCP to buy the VMOCs at 30c each instead of 1€ - this being, SCP’s debt associated with the VMOCs was reduced from 127,925M€ to 38,3775M€, at the cost of the banks (and the Portuguese society, since Novo Banco’s imparities were being indirectly compensated for by Fundo de Resolução and all other Portuguese banks7). With this deal (said by many to be BdC’s greatest deed in SCP) SCP had the obligation to buy back 17,5 M€ in VMOCs by 2019 and purchase the rest until the VMOC’s maturity date of 2026. At the same time, the 30M€ bonds of May 2015 were due, but the SAD was able to postpone the bond’s maturity by 6 months (to 26 November 2018). The original plan of issuing a new bond loan to cover the one that was due (though the SAD said that it could be more than 30M€ if there was enough demand) had to be postponed, officially due to the club’s instability and possible low demand, unless the rates were substantially raised – there were also rumors that some of the main investors had warned the SAD that they weren’t interested in renewing their loan

6 Situation in November 2018 7 This is a substantially more complicated situation, fully explained in another business case by the same authors, named “Novo Banco – What good out of a bad bank?”

11/16 before all the club’s turmoil had been resolved. To reinforce the matter, in June 2018, the Portuguese Securities Market Commission didn’t approve SCP’s attempt at a bond loan of 15M€, to be paid in 2,5 years at an annual rate of 6%. The reason for this was the instability that SCP was under. Financial Statements SCP’s SAD financial statements are portrayed in Figure 2 and Figure 3. Both figures were adapted from (SCP_Quote 2018). Note that there is a big difference to Sporting’s official information in the balance sheet of its yearly management reports, due to Sporting’s accounting of the VMOCs (or marketable securities mandatorily convertible, as stated) as equity instead of “convertible debt”. With this accounting, SCP’s representatives speak of equity of 5,62M€ and -24,95M€ for June 2017 and June 2016 respectively, instead of the values -122,31M€ and -152,88M€ in (SCP_Quote 2018). However, the deal that Sporting struck with the banks to buy back the VMOCs (at a 30% of par value) by 2026, not only obliges SCP to account this as a liability, but also reduces the amount of the VMOCs by 70% - which reflects in a negative equity for June 2018 (even if the SAD was to insist in maintaining its accounting methodology).

Looking at Figure 2, the positive net income was mainly due to the sale of several key football players, raising the non-operating income to 94,152 M€. The year of 2018 still wasn’t officialised, mainly due to the uncertainty caused by the player’s unilateral terminations, and the massive impact it would have on SCP’s books – the new president’s main initial struggle would be to prevent the unilateral terminations, and “avoid” SCP’s bankruptcy (though this was already a reality, looking at the books..). To complement the financial information, but trying to avoid the issue of the Sporting Group’s other ventures (the constituents of the group are mentioned in Figure 4), we present a summary of the group’s consolidated balance sheet in Figure 5 (though since this is extracted from Sporting’s reports, the VMOCs’ value are included in the SAD’s equity and not in its liabilities, having a direct influence in the group’s consolidated balance).

In (Unilateral 2018), a study of the impact of the player’s unilateral termination is made. The whole of the football players was valued at 78,6M€ in March 2018, but this value only took into account the values paid to players bought and attributed a residual value to players that stemmed from SCP’s schools, that sometimes could be sold for substantial amounts (remember Cristiano Ronaldo, sold for 15M€ in 2003?). So being, of the players that terminated their contract, only 4 had substantial values, summing it all up to 15,5M€. If the players were awarded reason, SCP would have to pay them an extra 36,7M€ of salaries until the end of their contracts (Salaries 2018). However, according to the market, the true value of the players that terminated their contract would be something around 115M€, according to the values in Transfermarkt (and not the termination values in the player’s contracts, which Sporting claimed to be the value it would sue the players for).

A curious note from the yet unreleased book values of 2018 was that, although Sporting was champion in many modalities (sports other than football) in 2018, it still had a deficit of around 5M€ from the modalities’ sector; in (Modalities 2018), it is stated that the yearly salaries of the modalities’ athletes were about 10M€, which were added to indirect costs of 13M€ with staff and maintenance of the new pavilion João Rocha (total of 23M€ in costs); however, the revenues from marketing and merchandising were roughly 7M€, and ticket sales didn’t surpass 1M€.

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.

2017 2016 2015 2014 2013

Sales/Revenue 61,403.0 56,100.0 44,703.0 29,613.0 27,722.0 Cost of Goods Sold (COGS) incl. 105,756.0 82,164.0 54,595.0 46,867.0 79,098.0 D&A COGS excluding D&A 82,658.0 68,454.0 40,189.0 37,776.0 58,666.0 Depreciation & Amortization Expense 23,098.0 13,710.0 14,406.0 9,091.0 20,432.0 Depreciation 1,683.0 1,344.0 3,590.0 1,062.0 - Amortization of Intangibles 21,415.0 12,366.0 10,816.0 8,029.0 19,363.0 Gross Income (44,353.0) (26,064.0) (9,892.0) (17,254.0) (51,376.0) SG&A Expense 3,697.0 2,617.0 5,545.0 2,800.0 3,078.0 Other Operating Expense 309.0 722.0 793.0 179.0 3,316.0 EBIT (48,359.0) (29,403.0) (16,230.0) (20,233.0) (57,770.0) Unusual Expense 1,765.0 17,299.0 1,138.0 (1.0) - Non Operating Income/Expense 94,152.0 21,078.0 44,570.0 24,350.0 19,597.0 Non-Operating Interest Income - - 927.0 2,341.0 2,253.0 Interest Expense 8,831.0 6,487.0 5,779.0 5,971.0 7,656.0 Pretax Income 35,197.0 (32,111.0) 22,350.0 488.0 (43,576.0) Income Tax 4,660.0 (206.0) 3,017.0 120.0 240.0 Net Income 30,537.0 (31,905.0) 19,333.0 368.0 (43,816.0) EPS (Basic) 0.46 (0.48) 0.34 0.01 (1.12) Basic Shares Outstanding 67,000.0 67,000.0 57,666.7 39,000.0 39,000.0 EPS (Diluted) 0.15 (0.16) 0.12 0.00 (0.47) Diluted Shares Outstanding 202,000.0 202,000.0 159,333.3 94,000.0 94,000.0

Figure 2 – SCP SAD’s income statements. Fiscal year is July-June. Values in EUR Thousands.

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2017 2016 2015 2014 2013 Assets Cash & Short Term Investments 6,306.0 3,324.0 10,595.0 1,942.0 1,256.0 Total Accounts Receivable 81,289.0 16,773.0 31,583.0 21,955.0 18,110.0 Accounts Receivables, Net 56,559.0 11,625.0 22,738.0 19,283.0 12,638.0 Accounts Receivables, Gross 73,141.0 26,479.0 37,651.0 26,888.0 19,263.0 Bad Debt/Doubtful Accounts (16,582.0) (14,854.0) (14,913.0) (7,605.0) (6,625.0) Other Receivables 24,730.0 5,148.0 8,845.0 2,672.0 5,472.0 Inventories 1,019.0 1,095.0 958.0 - - Other Current Assets 2,598.0 6,082.0 966.0 1,180.0 1,011.0 Prepaid Expenses 1,685.0 660.0 966.0 1,180.0 796.0 Miscellaneous Current Assets 913.0 5,422.0 - - 215.0 Total Current Assets 91,212.0 27,274.0 44,102.0 25,077.0 20,377.0 Net Property, Plant & Equipment 21,083.0 20,285.0 20,452.0 20,607.0 21,732.0 Property, Plant & Equipment - Gross 32,730.0 30,249.0 29,073.0 25,627.0 25,727.0 Buildings 25,155.0 23,058.0 22,299.0 21,710.0 21,710.0 Land & Improvements 1,379.0 1,379.0 1,379.0 1,379.0 1,379.0 Machinery & Equipment 2,059.0 2,044.0 1,990.0 1,769.0 1,769.0 Construction in Progress 248.0 208.0 - - 92.0 Transportation Equipment 364.0 364.0 364.0 328.0 358.0 Other Property, Plant & Equipment 3,525.0 3,196.0 3,041.0 441.0 419.0 Accumulated Depreciation 11,647.0 9,964.0 8,621.0 5,020.0 3,995.0 Buildings 6,566.0 5,279.0 4,348.0 3,233.0 2,412.0 Machinery & Equipment 1,787.0 1,596.0 1,388.0 1,061.0 873.0 Transportation Equipment 364.0 364.0 364.0 328.0 323.0 Other Property, Plant & Equipment 2,930.0 2,725.0 2,521.0 398.0 387.0 Long-Term Note Receivable 3,619.0 1,315.0 5,424.0 76,250.0 69,105.0 Intangible Assets 200,120.0 175,465.0 165,564.0 24,818.0 28,250.0 Other Assets 463.0 - - - - Total Assets 316,497.0 224,339.0 235,542.0 146,752.0 139,464.0 Liabilities & Shareholders' Equity ST Debt & Current Portion LT Debt 91,106.0 43,936.0 49,709.0 149,057.0 101,398.0 Short Term Debt 90,494.0 43,330.0 49,109.0 147,735.0 59,749.0 Current Portion of Long Term Debt 612.0 606.0 600.0 1,322.0 41,649.0 Accounts Payable 41,111.0 16,144.0 13,231.0 16,195.0 24,374.0 Income Tax Payable 2,097.0 1,443.0 755.0 617.0 1,117.0 Other Current Liabilities 56,214.0 44,994.0 31,718.0 16,008.0 16,911.0 Accrued Payroll 6,178.0 6,032.0 2,350.0 435.0 2,241.0 Miscellaneous Current Liabilities 50,036.0 38,962.0 29,368.0 15,573.0 14,670.0 Total Current Liabilities 190,528.0 106,517.0 95,413.0 181,877.0 143,800.0 Long-Term Debt 164,190.0 216,044.0 208,269.0 79,605.0 104,383.0 Long-Term Debt excl. Capitalized Leases 156,066.0 207,612.0 199,585.0 76,533.0 100,421.0 Non-Convertible Debt 28,141.0 79,687.0 71,660.0 28,608.0 52,496.0 Convertible Debt 127,925.0 127,925.0 127,925.0 47,925.0 47,925.0 Capitalized Lease Obligations 8,124.0 8,432.0 8,684.0 3,072.0 3,962.0 Provision for Risks & Charges 15,471.0 14,164.0 11,521.0 6,436.0 6,785.0 Other Liabilities 68,615.0 40,493.0 41,221.0 44,789.0 51,830.0 Other Liabilities (excl. Deferred Income) 23,161.0 8,584.0 9,333.0 43,076.0 49,375.0 Deferred Income 45,454.0 31,909.0 31,888.0 1,713.0 2,455.0 Total Liabilities 438,804.0 377,218.0 356,424.0 312,707.0 306,798.0 Common Equity (Total) (122,307.0) (152,879.0) (120,882.0) (165,955.0) (167,334.0) Common Stock Par/Carry Value 67,000.0 67,000.0 67,000.0 39,000.0 39,000.0 Additional Paid-In Capital/Capital Surplus 6,500.0 6,500.0 6,500.0 6,500.0 6,500.0 Retained Earnings (200,015.0) (219,164.0) (187,144.0) (205,828.0) (207,207.0) Other Appropriated Reserves 3,506.0 3,506.0 3,506.0 (6,330.0) 3,506.0 Unappropriated Reserves 702.0 (10,721.0) (10,744.0) 703.0 (9,133.0) Total Shareholders' Equity (122,307.0) (152,879.0) (120,882.0) (165,955.0) (167,334.0) Total Equity (122,307.0) (152,879.0) (120,882.0) (165,955.0) (167,334.0) Liabilities & Shareholders' Equity 316,497.0 224,339.0 235,542.0 146,752.0 139,464.0

Figure 3 – SCP SAD’s Balance sheets. Fiscal year is July-June. Values in EUR Thousands

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Sporting Group

The Sporting Group owned 64% of the Sporting SAD, alongside other companies, as portrayed in Figure 4. Notice that the Sporting Group also had some interests in construction, insurances, websites and multimedia.

Sporting Clube de Portugal - Futebol, SAD 27% 37% 64% 27% 37% 64% Soc. Prom.Imobiliária - Lote Dourado, SA - - - 100% - 100% Soc. Prom.Imobiliária - Qta. De Alvalade, SA - - - 100% - 100% Soc. Prom.Imobiliária - Qta. Das Raposeiras, SA 100% - 100% 100% - 100% Soc. Construções e Planeamento, SA - - - 100% - 100% Sporting, SGPS 100% - 100% 100% - 100% Construz - Soc. Prom.Imobiliária, SA 100% - 100% 100% - 100% Verdiblanc I, SA 100% - 100% 100% - 100% Verdiblanc II, SA 100% - 100% 100% - 100% Verdiblanc III, SA 100% - 100% 100% - 100% Verdiblanc IV, SA 100% - 100% 100% - 100% Fundação Sporting 100% - 100% 100% - 100% Sporting - Comunicação e Plataformas, S.A. 100% - 100% 100% - 100% Sporting Multimédia, S.A. - 75% 75% - 75% 75% Sporting Seguros, Lda - 75% 75% - 75% 75% Sporting.com - - - - 100% 100%

Figure 4 – Constitution of the Sporting Group

2017 2016 Non-Current Assets 177,42 142,599 Current Assents 93,581 37,473 Total Assets 271,001 180,072 Patrimonial Funds / Equity -138,702 -174,97 Non-current Liabilities 220,004 243,738 Current Liabilities 189,699 111,307 Total Liabilities 409,703 355,045 Figure 5 - SCP Consolidated Balance sheet (with VMOCs accounted as equity in the SAD).

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References Formatted: Portuguese (Portugal)

(NOS 2018) http://financefootball.com/2016/01/29/nos-meo-melhor-negocio/

(Varandas 2018) https://www.publico.pt/2018/09/09/desporto/noticia/frederico-varandas-toma- posse-as-19h-em-alvalade-1843517

(Warning 2018) https://www.msn.com/pt-pt/noticias/other/ex-líder-da-juve-leo-ameaçou-acuña-na- madeira-e-deixou-aviso-para-ataque/ar-AAxt7JC

(ForumSCP 1999) https://www.forumscp.com/wiki/index.php?title=A_Ger%C3%AAncia_1996-1999

(VMOC 2010) http://maisfutebol.iol.pt/liga/sporting-vmoc/sporting-tenta-alargar-prazo-de-vmoc- para-nao-perder-controlo-da-sad

(CM_18M_2018) https://www.cmjornal.pt/exclusivos/detalhe/novo-banco-mete-mais-18-milhoes- no-sporting

(SCP_Quote 2018) https://quotes.wsj.com/PT/XLIS/SCP/financials/annual/income-statement

(CNacional 2018) https://www.cmjornal.pt/desporto/detalhe/campeao-titulo-sem-direito-a-premio Field Code Changed

(Taça Portugal 2018) https://desporto.sapo.pt/futebol/taca-de-portugal/artigos/fpf-reforca-premios- Field Code Changed na-taca-de-portugal-vencedor-passa-a-receber-300-mil-euros

(Liga 2018) https://www.jn.pt/desporto/especial/interior/premios-dos-finalistas-ainda-por-definir- 5634434.html

(UEFACL 2018) https://pt.uefa.com/uefachampionsleague/news/newsid=2398636.html Field Code Changed

(EuropaL 2018) https://www.totalsportek.com/money/europa-league-prize-money/ Field Code Changed (Delloite 2018) https://www.jornaldenegocios.pt/empresas/desporto/detalhe/receitas-da-primeira- liga-portuguesa-nao-chegam-a-7-das-do-maior-campeonato-europeu

(Quotes 2018) https://quotes.wsj.com Field Code Changed

(Modalities 2018) https://desporto.sapo.pt/modalidades/mais-modalidades/artigos/modalidades- Field Code Changed do-sporting-dao-prejuizo-de-5-milhoes-de-euros

(SAD Reduction 2010) https://www.record.pt/futebol/futebol-nacional/liga- nos/sporting/detalhe/sad-reduz-capital-social-540388

(SAD_28 2014) https://maisfutebol.iol.pt/liga-campeoes/sporting-sad/sporting-escriturou-aumento- de-capital-da-sad-de-28-milhoes-de-euros

(Unilateral 2018) http://misterdocafe.blogspot.com/2018/06/o-impacto-financeiro-das- Field Code Changed rescisoes.html

(Salaries 2018) https://bancada.pt/futebol/portugal/o-impacto-financeiro-das-rescisoes-no-sporting

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Annex A – Supplemental Case Figures

In this annex we portray some comparisons to Portugal’s main other football clubs, namely SL Benfica SAD and FC Porto SAD. In Figure 6 the bond loans of the 3 clubs are portrayed. In Figure 7Figure 7 and Figure 8 we portray the balance sheet and income statement of SL Benfica SAD respectively, and in Figure 9 and Figure 10 the same thing is done, but done for FC Porto SAD.

Figure 6 – Bond loans of Portugal’s main football clubs.

i/VIII 2018 2017 2016 2015 2014 Assets Cash & Short Term Investments 7,539.0 13,252.0 30,338.0 6,742.0 8,875.0 Total Accounts Receivable 76,906.0 76,795.0 82,489.0 79,473.0 92,550.0 Other Current Assets 15,065.0 371.0 926.0 1,172.0 5,222.0 Total Current Assets 99,510.0 90,418.0 113,753.0 87,387.0 106,647.0 Net Property, Plant & Equipment 171,846.0 167,409.0 169,331.0 166,630.0 164,416.0 Long-Term Note Receivable 32,250.0 52,014.0 6,242.0 9,926.0 - Intangible Assets 169,131.0 179,689.0 169,007.0 104,667.0 109,476.0 Other Assets 5,558.0 2,475.0 2,896.0 2,807.0 2,233.0 Total Assets 485,077.0 507,718.0 478,595.0 432,531.0 443,672.0 Liabilities & Shareholders' Equity ST Debt & Current Portion LT Debt 99,091.0 27,917.0 152,339.0 236,004.0 188,445.0 Accounts Payable 60,962.0 66,144.0 40,139.0 27,394.0 31,962.0 Other Current Liabilities 55,221.0 45,598.0 65,182.0 56,589.0 58,282.0 Total Current Liabilities 215,274.0 141,856.0 263,887.0 321,126.0 283,775.0 Long-Term Debt 71,344.0 249,178.0 154,309.0 72,549.0 126,261.0 Provision for Risks & Charges 3,634.0 3,878.0 3,749.0 3,666.0 4,485.0 Other Liabilities 101,784.0 38,656.0 29,129.0 27,785.0 29,211.0 Total Liabilities 398,254.0 439,986.0 457,693.0 431,956.0 452,073.0 Total Equity 86,823.0 67,732.0 20,902.0 575.0 (8,401.0) Liabilities & Shareholders' Equity 485,077.0 507,718.0 478,595.0 432,531.0 443,672.0 Figure 7 – Balance Sheet of Sport Lisboa e Benfica - Futebol SAD

2018 2017 2016 2015 2014 Sales/Revenue 121,541.0 128,235.0 84,675.0 80,049.0 75,906.0 Cost of Goods Sold (COGS) incl. D&A 152,388.0 163,303.0 147,598.0 135,651.0 137,770.0 Gross Income (30,847.0) (35,068.0) (62,923.0) (55,602.0) (61,864.0) Other Operating Expense (912.0) (5.0) 1,381.0 713.0 (1,892.0) EBIT (29,935.0) (39,506.0) (68,160.0) (56,833.0) (61,182.0) Non Operating Income/Expense 62,338.0 100,424.0 104,026.0 86,833.0 95,458.0 Non-Operating Interest Income 6,960.0 2,271.0 2,207.0 2,467.0 2,460.0 Interest Expense 18,488.0 17,806.0 19,425.0 21,356.0 21,859.0 Net Income 20,582.0 44,537.0 20,396.0 7,072.0 14,165.0 Figure 8 – Income statement of Sport Lisboa e Benfica - Futebol SAD

ii/VIII 2017 2016 2015 2014 2013 Assets Cash & Short Term Investments 14,575.1 13,437.7 25,067.0 14,965.4 17,817.8 Total Accounts Receivable 70,778.1 81,998.7 83,786.0 75,912.1 84,965.2 Other Current Assets - 6,555.7 8,091.9 24,591.9 17,237.2 Total Current Assets 88,458.3 104,541.5 119,125.2 117,066.5 121,132.7 Net Property, Plant & Equipment 139,504.6 140,503.9 139,965.1 1,197.4 1,561.1 Long-Term Note Receivable 39,028.8 36,392.9 33,552.5 35,835.9 40,019.8 Intangible Assets 102,813.5 96,764.0 70,764.6 66,409.5 78,145.5 Other Assets 8,237.8 (3,623.9) (4,464.2) (20,834.3) (15,253.1) Total Assets 378,425.0 375,044.9 359,235.4 200,395.9 227,852.6 Liabilities & Shareholders' Equity ST Debt & Current Portion LT Debt 117,362.9 98,183.6 61,454.6 100,632.4 52,621.1 Accounts Payable 55,002.0 49,368.4 46,132.8 35,846.5 5,546.1 Other Current Liabilities 53,878.2 50,325.9 41,234.8 40,720.6 95,760.2 Total Current Liabilities 226,243.2 202,057.3 151,461.0 180,326.6 153,927.4 Long-Term Debt 74,551.0 79,065.8 99,999.5 38,508.4 42,751.6 Provision for Risks & Charges 353.7 324.9 335.2 859.4 1,924.6 Other Liabilities 84,315.5 65,579.2 22,125.5 13,768.9 21,621.5 Total Liabilities 387,560.2 349,180.7 276,131.4 233,463.3 220,225.2 Total Equity (9,135.2) 25,864.2 83,103.9 (33,067.3) 7,627.4 Liabilities & Shareholders' Equity 378,425.0 375,044.9 359,235.4 200,395.9 227,852.6 Figure 9 – Balance Sheet of Futebol Clube Porto SAD

2017 2016 2015 2014 2013 Sales/Revenue 97,878.2 75,055.6 92,338.7 70,698.3 77,336.5 Cost of Goods Sold (COGS) incl. D&A 152,225.2 152,963.0 140,038.5 121,230.3 120,720.0 Gross Income (54,347.0) (77,907.4) (47,699.9) (50,532.0) (43,383.5) Other Operating Expense (1,031.6) - (410.6) - 151.5 EBIT (59,661.6) (78,262.8) (49,369.5) (53,413.5) (45,775.3) Non Operating Income/Expense 40,224.4 36,440.5 84,489.4 27,688.8 77,725.1 Non-Operating Interest Income 99.4 33.2 641.2 1,045.4 1,073.5 Interest Expense 14,830.4 14,990.9 14,770.4 11,276.6 10,165.9 Net Income (35,314.6) (58,410.8) 19,351.8 (40,701.1) 20,356.0 Figure 10 – Income statement of Futebol Clube Porto SAD

iii/VIII Annex B – SCP’s Official Support Groups

Sporting Clube de Portugal had four organized groups of supporters, who in Portugal and in Europe, supported the club with dedication and devotion, chanting and performing choreographies, thus becoming the indispensable 12th player of the team. The official support groups were: Juventude Leonina

“Juventude Leonina”, also known by “Juve Leo”, was founded in 1976, being the oldest official soccer cheer group created in Portugal and its motto was "History doesn’t care for the weak; once a Juve Leo, always a Juve Leo". Founded by the brothers João and Gonçalo Rocha, children of the president of Sporting at the time, João dos Anjos Rocha, Juventude Leonina was a cheerleader group organized from the day of its foundation and was composed of several nuclei, according to its geographical location. Starting with a group of school friends who regularly supported their team in every game, Juventude Leonina distinguished itself by its huge flags, giant choreographies and lots of smoke, which gave the stadium an impressive animation. Torcida Verde

Torcida Verde was another supporting group for SCP and was formed on November 11, 1984, having been officially recognized by the club in 1988. Its motto was "At the forefront of an ideal, Sporting 1906!" With a very characteristic attitude and culture, Torcida Verde stood out for the defense of Sporting eclecticism and did not only support professional football; one of its flags was the unconditional support for the other sports of the club, namely Roller Hockey, Futsal or Handball, which made this cheering group into one of the best examples of the true Sporting ideal. Diretivo Ultras XXI

The Diretivo Ultras XXI was founded on May 17, 2002. The motto of this cheerleading group was "Coherence! Honor! Faithfulness! This is our Mentality!" There was room for everyone, regardless of differences of opinion, because the unity of the group was built through the diversity and plurality of opinions. Brigada Ultras Sporting

The Brigada Ultras Sporting was the most recent cheerleader group of SCP, having emerged in September 2004, and was created from former members of the Torcida Verde group. Being the most recent cheerleader group, it was only in 2013 that it inaugurated its headquarter space in Sporting’s stadium.

iv/VIII Annex C – Possible Football Winnings

In Portugal, a football team doesn’t win any prize money directly from the Portuguese Football Federation (FPF) for winning the national championship (the FPF only pays for the League Cup and the Portuguese Cup) (CNacional 2018). The prize money for the League Cup and Portuguese Cup are rather small (for instance, the winner of the Portuguese Cup wins 300.000€ and the runner-up 150.000€ (Taça Portugal 2018); the League Cup had prizes that varied according to the commercial and marketing deals associated with the competition, with the main prize money varying from 600.000€ to 1M€ (Liga 2018)).

There is a huge gap (financial and performance-wise) between the 3 main teams and the other 15 teams of the main Portuguese league. According to a study from Delloite (Delloite 2018), the Portuguese league is the only major European league that allows the sale of individual transmission rights, which hinders the remaining teams, leaving them with very small budgets.

The main revenues of the main 3 Portuguese football clubs are essentially those that come from:

o Participation in European Competitions, namely the Europa League and the Champions League . The Champions League awards the following (UEFACL 2018) (excluding qualifying, with matches granting around 200K€ for the winners):  12,7M€ for the group stage, where each victory accounts an extra 1,5M€, and a draw accounts for 0,5M€;  Prize money for each of the knockout stages are: o 1/8 Final -6M€ o 1/4 Final - 6,5M€ o 1/2 Final 7,5M€ o Final: 15,5M€ for the winner and 11M€ for the runner-up.  The Champions League also awards part of UEFA’s TV income which is distributed according to which league the team comes from – In Portugal’s case, this is a relatively small portion, though it can reach an amount of around 15M€ if a Portuguese team reaches the final.

The Europa League awards the following (EuropaL 2018) (excluding qualifying, with matches granting around 200K€ for the winners):  2,6M€ for the group stage, with 360K€ awarded for each victory and 120K€ for each draw. Group winners get 600K€ and runner-up get 300K€  Prize money for each of the knockout stages are: o 1/16 Final – 500K€ o 1/8 Final -750K€ o 1/4 Final - 1M€ o 1/2 Final 1,5M€ o Final: 6,5M€ for the winner and 3,5M€ for the runner-up.  The Europa League also awards part of UEFA’s TV income – In Portugal’s case, it can reach an amount of around 9M€ if a Portuguese team reaches the final.

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o Ticket sales, including season tickets (around 10M€ in a good year – Benfica can reach 13M€) o TV rights (around 40M€/year, with the NOS deal) o Marketing and sponsorships (10M€/year, with Benfica surpassing 21M€) o Player transfers (very volatile, though since SCP is a formative team, it can reach as high as 40M€ in a good year or it can be negative in a bad year).

vi/VIII Annex D – Case Questions

It’s the case purpose for the reader to analyze the situation in different dimensions, namely financial, strategic, marketing, business ethics and leadership. The discussions held while answering the following case questions should guide the reader through each of these dimensions.

Strategy - What actions could Sporting undertake to improve its situation?

Marketing - Do you think that it’s worth keeping the club’s modalities active? Could they be a good marketing tool?

Leadership – What kind of a leader was Bruno de Carvalho? How would you describe his performance as president?

Finance - Is Sporting a viable club, financially?

Business Ethics / Finance – How would you describe the banks’ investments in Sporting? (both the VMOC deals, and the posterior renegotiation in lowering the price and ensuring the SAD’s payment)

Business Ethics – What’s your opinion on the unilateral termination of the players? Were they right to do so?

vii/VIII Annex E - About the authors

João Carlos. M. Silva received the BSc and MSc degree for Aerospace Engineering from Instituto Superior Técnico (IST) – Lisbon Technical University, (1995-2000). From 2000-2002 he worked as a business consultant in strategic management in McKinsey&Company. From 2002 to 2006 he undertook his PhD in telecommunications at IST, integrated in 3 EU projects (Seacorn, B-Bone e C- Mobile), having been the representative of the university. Since 2006, he has been working on computer networks, as an assistant professor in Instituto Superior das Ciências do Trabalho e da Empresa (ISCTE-IUL), and as a senior researcher in Instituto de Telecomunicações. From 2013 to 2016 he decided to complement his knowledge on the business management area and finished a MBA, a Masters in Management and a Post-Graduation on Business Clusters, all in ISEG (Instituto Superior de Economia e Gestão).

Email: [email protected]

José Azevedo Pereira is a full Professor of Finance, at Universidade de Lisboa, ISEG - Instituto Superior de Economia e Gestão. He holds a PhD from the Manchester Business School and an MBA, from ISEG. Besides his academic career he has held top executive positions in several companies. During seven years he led the Portuguese Tax and Customs Authority, where he was Director-General and Chairman of the Board. Email: [email protected]

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