[SCMP Column] Grand football ambitions

July 25, 2016

If you want to understand how China is changing the world economy with international acquisitions mushrooming wherever you look, you might choose to look at chemicals, or engineering, or smart phones and E-Commerce, or wind and solar power, but to be different, let’s look at football.

 After all, in the lull between Portugal spluttering to victory in the Euro football championship, and Brazil’s scramble to organize the Rio Olympics on time for teams to arrive on August 5, sport is naturally on the mind. And apart from determination to win as many Olympic medals as possible (China will be sending the largest team to the Rio Olympics, no doubt determined to better the 100-medal tally they won in the 2008 Olympics at home in Beijing), it seems as if China’s business barons can’t take their mind off football.

Since Chinese President Xi Jinping smiled into the selfie with Manchester City footballer Sergio Aguero in October last year, a national plan for sports promotion has been unleashed. With the aim of building China as a “great sports nation” by the time of the 2026 soccer World Cup, billions is being spent on lifting the country’s soccer. With a government strategy comparable with steel or high speed rail construction, the aim is to build a sports industry worth RMB 5 trillion by the time of the 2026 World Cup. The schools offering specialized football training are to be hoisted from 5,000 to 50,000.

To be frank, as far as soccer is concerned, China has a long way to climb. At present, the country’s national team ranks 96th worldwide, behind even North Korea. It has not qualified to compete in the World Cup since 2002. But the frenzy of local and international investment in soccer is breathtaking – and driven as strongly by leading private sector business leaders as much as the national plan. It will be fascinating to watch how this global grab for influence in football will impact China in the coming decade as a soccer power.

Over half of the 16 teams in the China Super League (CSL) are currently spending around RMB1bn a year in deals ranging from acquiring foreign players to snapping up foreign managers with the single-minded aim of lifting soccer standards nationwide. Nine of the 16 CSL teams are now managed by foreign managers. Rather than acquiring fading international football starts, China’s leading teams are among the most aggressive competitors worldwide for top international talent. These include the Ivorian player Gervinho bought from Arsenal for US$21m and Alex Texiera from Brazil bought by Jiangsu Suning for US$55m, to “the Hulk” – Givanildo Vieira de Souza by Shanghai SIPG. Rivalry between the 16 teams is intense, with Shanghai SIPG, who have never won the League, clearly gunning for top slot, which has been occupied for the past five years by Alibaba-funded Guangzhou Evergrande Taobao. The hope is obviously that “the Hulk” will make the difference.

To build local expertise, a clutch of Chinese billionaire business barons have gone aggressively overseas to acquire control of top clubs which will build knowledge of the the way the global football business works, and at the same time earn them a handsome profit. Suning Holdings has paid €270m for 18-time Italian champion Inter Milan, while Wanda Sports Holdings, controlled by Wang Jianlin, reputed to be China’s richest man, has bought a 20% stake in AC Milan. Which means the next “local-derby” between the two top Milan sides will be as much a Chinese contest as an Italian one.

Wanda has also acquired a 20% stake in Atletico Madrid for US$52m. Media magnate Li Ruigang has bought a 13% stake in Manchester United for US$400m, while entrepreneur Chan Yunsheng has paid €65m for 54% of Espanol. Toy manufacturer Tony Xia has paid £76m for Aston Villa, and the Hong Kong-listed Chinese conglomerate Fosun is mooted to be buying the UK’s Wolves for £45m.

Jack Ma’s Alibaba is thought to have joined Dalian Wanda in sponsoring FIFA probably to the sum of US$40m apiece. With FIFA in such disarray over the past year, and now deeply in debt, such sponsorship will greatly enhance China’s impact on FIFA, and could clearly influence China’s aspirations to host the 2026 World Cup.

Simon Chadwick, Professor of Sports Business at the UK’s Salford University, captured well this blitzkrieg of investment: “In a matter of weeks we have seen the global power balance in football shift east by quite a big margin.” And as Ben Bland and Charles Clover in the Financial Times noted, “this is bringing the world’s biggest game to the world’s biggest audience”.

The most ambitious plan so far to bring this vision to reality has been the pitch from Wanda’s Mr Wang to create a new European super-league tournament. Price tags are still under wraps, but the arithmetic of this plan is clear, and built off one of football’s biggest official income streams – TV transmission rights. Note that in the UK, Sky TV and BT have paid £5.1bn for exclusive coverage of Britain’s Premier League – generating fees to each Premier League club of £100m a year. In Germany, Sky and Eurosport have forked out €4.6bn for coverage rights for the Bundesliga. In Italy, Mediaset has reportedly paid €700m for the rights to screen Italian games. A key attraction of Mr Wang’s plan for a new league is to augment these huge sums, and generate more income for Europe’s most successful clubs.

Of course, while TV sponsorship may be one of the largest official revenue streams, by far the biggest sums linked with football travel underground through the gambling industry. This was well illustrated by minnow Leicester City’s shock victory in the UK’s Premier League last year. Losses on 5000-1 Leicester cost the gambling industry so much that Britain’s gambling rules have been written. Odds of 5000-1 are no longer allowed.

Of course, gambling is supposed to be illegal in Mainland China, but it will be fascinating to watch how punters wriggle around the rules as passions for China’s Super League teams intensify in coming years. It is under the counter rather than over the counter that China’s soccer fortunes are likely to be made in coming years.
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