Chi­nese com­pa­nies look to score big in a risky business

China Daily (USA) - - ANALYSIS - By AN­GUS NCNEICE in Lon­don an­gus@mail.chi­nadai­lyuk.com

Chi­nese com­pa­nies have in­vested in Euro­pean foot­ball at a star­tling rate over the past 18 months, snap­ping up clubs across coun­tries and di­vi­sions, prompt­ing fans and in­dus­try play­ers to won­der: “Why now? And how do the Chi­nese plan on suc­ceed­ing in the volatile world of foot­ball in­vest­ment?”

At the start of 2015, no Chi­nese com­pany had money in­vested in an elite Euro­pean club. To­day, they own stakes in four.

Wang Jian­lin, chair­man of Wanda Group, bought a 20 per­cent stake in Atletico Madrid in Jan­uary last year, then China Me­dia Cap­i­tal bought a 13 per­cent stake in Manch­ester City, then Sun­ing picked up Inter Mi­lan. Early this month, a Chi­nese con­glom­er­ate also took con­trol of AC Mi­lan.

“One of the most no­table de­vel­op­ments in global foot­ball in the last 12 months has been a marked in­crease in the level of in­ter­est of Chi­nese stake­hold­ers in the game,” says Richard Bat­tle, se­nior man­ager of Deloitte’s Sports Business Group.

While Pres­i­dent Xi Jin­ping’s pol­icy drive to make China a foot­ball pow­er­house has spurred in­vest­ment, the sport has also be­come in­creas­ingly at­trac­tive to buy­ers. The threat of sanc­tions un­der UEFA’s fi­nan­cial fair play reg­u­la­tions and bal­loon­ing TV rights deals have made clubs both more re­spon­si­ble and more prof­itable.

In the 2012-13 sea­son, only half of the English Pre­mier League’s 20 clubs made an op­er­at­ing profit. The next year, it was 17, ac­cord­ing to Deloitte.

In Eng­land, thanks to a record 5.14 bil­lion pound ($6.6 bil­lion; 6 bil­lion eu­ros) tele­vi­sion rights deal, each Pre­mier League club will now make 170 mil­lion pounds over three years. The re­cent de­pre­ci­a­tion of the pound — a re­sult of the Brexit ref­er­en­dum — is also likely to have con­trib­uted to in­tense in­ter­est in Bri­tish clubs this sum­mer.

Yet foot­ball clubs re­main risky in­vest­ments, as many large Euro­pean clubs con­tinue to hem­or­rhage money.

AC Mi­lan has a strong in­ter­na­tional brand, but last year it re­ported a loss of about 94 mil­lion eu­ros ($104 mil­lion). Last week’s sale in­cluded an es­ti­mated 220 mil­lion eu­ros of debt.

Kathya San­tos, CEO of Guanxi Global, which bro­kers in­vest­ment deals be­tween Chi­nese cor­po­ra­tions and Euro­pean clubs, says Chi­nese buy­ers with other large com­mer­cial in­ter­ests are in­ter­ested in lever­ag­ing club brands to reach more con­sumers, as well as to gen­er­ate rev­enue di­rectly.

“They may al­ready be in real es­tate or on­line re­tail, and it’s about at­tract­ing a new au­di­ence to your other prod­ucts,” she says. “If you can at­tract an au­di­ence with what’s hap­pen­ing with the foot­ball club, you can in­crease sales else­where in your business.”

As well as in­ter­na­tion­ally known teams, Chi­nese in­vestors have tar­geted top-flight clubs with mod­er­ate pro­files — La Liga side Es­panyol is owned by Ras­tar Group, and a week ago a Shang­hai com­pany pur­chased a con­trol­ling stake in Pre­mier League side West Bromwich Al­bion.

Money has even seeped down into the lower di­vi­sions. This sum­mer, English se­cond-tier clubs Aston Villa and Wolver­hamp­ton Wan­der­ers were both taken over by Chi­nese buy­ers.

San­tos says pur­chas­ing lower-tier clubs can be a shrewd move, as pro­mo­tion can pro­vide a sig­nif­i­cant re­turn on an in­vest­ment. Of course, such pur­chases are also a gam­ble, and San­tos says there are a num­ber of ar­eas her com­pany looks at when ad­vis­ing Chi­nese in­vestors.

“We look at (the club’s) his­tory, their spon­sor­ship con­tracts, their squad, the cost of run­ning the club, em­ployee con­tracts,” she says. “Do they own the sta­dium? Do they own the fields they are train­ing on or are they rented? We look at the man­age­ment that is in place, from a business side and a sport­ing side. Some­times the club is per­form­ing re­ally well, but it’s in debt.

“What I’ve learned is that Chi­nese peo­ple re­ally don’t like to make mis­takes. They are more risk averse than most,” she adds. “They dou­ble-check ev­ery­thing and are big ne­go­tia­tors.”

Above all, San­tos says she tries to fire home the need to in­stall strong man­age­ment when ad­vis­ing Chi­nese in­vestors.

“I stress the im­por­tance of good man­age­ment from a business per­spec­tive, as well as foot­ball per­for­mance, to se­cure the vi­a­bil­ity of a foot­ball club as a healthy business,” she says. “In­vestors are al­ways look­ing to di­ver­sify their port­fo­lio and their main ob­jec­tive of course is to in­crease their wealth through any in­vest­ment they make. Foot­ball is no ex­cep­tion.”

PRO­VIDED TO CHINA DAILY

West Bromwich Al­bion fans in a car­ni­val spirit dur­ing a Premier­ship match.

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