Sports $ Money

SPORTS: MORE THAN JUST AN EXPENSIVE HOBBY? Soccer teams are new toys for the Chinese super rich. Why have they become soccer fans so suddenly? By Yaojuan

The Chinese love soccer. It's not uncommon to see a stadium full of soccer fans. 新財富 X IN CAI FU / Syndication

Emerging Markets Insight 10 Sports $ Money

Considering that Jiayin, Wang Jianlin to this, these men have been opening their game. In 2012 alone, the total amount of and all number among the wealthi- wallets to recruit the right people without rewards reached $23.7 million. est entrepreneurs in China and could have even blinking an eye. The money Guang- Xu Jiayin even ended up establishing a pretty much anything they want, just what zhou Evergrande used to ensure its path to football training school, sending young play- is it about the sports industry that has success proves this point. ers over to Europe for training. According to grabbed their attention? Although China’s It seems that when it comes down to it, if statistics, over these past five years sports industry is currently undergoing you want to dance you’ll have to be pre- Evergrande has invested no less than $480 reform, looking at China’s history and the pared to pay the band! million in football. current situation overseas, the industry In 2010, the Evergrande Real Estate Although these expenditures may have poses no small risk to wealthy investors’ Group took over the Football seemed like the acts of a kid with a new toy, businesses and reputation. Just look at the Club for $16 million. Soon after, Xu Jiayin they had a huge impact on the club. Over Glazer family, owners of Manchester began implementing changes in a number the past several years, the Evergrande United, the highest earning team in the of areas, first by hiring coaches and foreign team has become increasingly more com- world. Although they can be considered players. Coaches, from Jose Antonio petitive, winning four league championships financial experts, their investment in the Camacho to Marcello Lippi, were some of and the AFC Champions League in team 10 years ago has only brought them the best in the world, while foreign players November of 2013. These wins earned the an approximately 60% return. were setting new transfer records in the team a huge following in China. On the night The money spent by these men has been Chinese Super League. For instance, in of the AFC Champions match against FC considerable. First we have Xu Jiayin, who 2011 the team spent $10 million in transfer Seoul, ticket sales reached $8.8 million, set- has spent an enormous amount recruiting fees and the promise of a $7 million annual ting a new record for Chinese football and domestic stars and foreign players and salary to bring Dario Conca into the team. the AFC Champions League. coaches to pave the way for Guangzhou For a player in the Super League, having Does Xu Jiayin himself know how to play Evergrande’s AFC Champions League win in Evergrande take an interest in you could football? Not really. Although he may love 2013 . Next we have Jack Ma’s purchase of change your fortunes overnight. The aver- the sport, he understands he is just an ama- a 50% stake in Guangzhou Evergrande for age annual salary for frontline players in the teur. Although he may own the team, he $192 million in June of 2014. Then there’s Super League is $240,000, whereas there doesn’t enter the player’s changing room Wang Jianlin’s trip overseas to acquire a are more than 10 Evergrande players who nor does he decide who gets to play on the 20% stake in Atletico Madrid and the huge make more than $480,000 a year. field, let alone interfere with the decisions of amount invested in sports marketing leader Another strategy that Xu implemented is coaches. What he does understand, howev- Infront Sports & Media. offering high monetary rewards for match- er, is human nature and how to manage and Next, we had rumors indicating that the es, with rewards for a win or a tie at an create encouragement. Commercial returns Hangzhou Wahaha Group was looking to away game being far higher than a home aside, as a lover of football, his investments partner with Huawei, Alibaba and other companies to acquire Silvio Berlusconi’s AC Milan, before Berlusconi has settled on Thai businessman Bee Taechaubol as a buyer. Unlike most industries, Looking at the industry, it’s clear that people are the core of the huge expenditures are nothing out of the sports industry, and if you ordinary, and yet China’s wealthiest still want to get the right people, remain entranced by sports. that takes money. Interception! Although these wealthy men may appear to be laymen when it comes to sports, tak- ing a closer look shows they may actually know what they are doing. Unlike most industries, people are the core of the sports industry, and if you want to get the right people, that takes money. When it comes

Emerging Markets Insight 11 Sports $ Money

For a player in the Super League, having Evergrande take an interest in you could change your fortunes overnight.

Alibaba bought a 50% stake of Guangzhou Evergrande soccer team.

have certainly not been a waste of money. entrepreneurs are involved in an industry Investing in one of the local football teams The huge success of the Evergrande not their own, this hasn’t prevented them was most likely a quick way to create an team eventually caught the attention of from enjoying taking swipes at each other. emotional bond with locals and help main- Alibaba’s Jack Ma. Although some might Not long after Alibaba’s acquisition, Wang tain good community relations. think, as a Hangzhou native, Ma may have Jianlin’s announced Also, in recent years, the cultural and a soft spot for the Hangzhou Greentown that it would be acquiring a 20% stake in sports industry has been one of Wanda’s Football Club and its owner, real estate Spanish club Atletico Madrid for $50.85 mil- important development directions. tycoon Song Weiping, when it comes to lion (the group ended up spending $56.27 On Feb. 10 of this year, the Wanda Group investments Jack Ma has always held to the million). While making this purchase, Wang announced that it had led three well-known idea, “If you can’t be No.1, invest in No.1. If Jianlin didn’t forget to take a shot at organizations and Infront management in you can’t do that, then cooperate with the Evergrande by pointing out that Jack Ma successfully purchasing Switzerland-based No.1 in the field.” had spent the amount of money the entire Infront Sports and Media for approximately Jack Ma might as well be coming from Atletico team was worth to purchase only $1.2 billion, with Wanda holding a 68.2% another planet when it comes to under- half of a domestic team. Xu Jiayin was of controlling stake. standing football. He has said that at the course not very happy when he heard this This billion-dollar purchase set a new time Song Weiping told him, “Stay away comment and followed with a barb of his record for wealthy Chinese entrepreneurs from football. You don’t understand it.” own, “It would be meaningless for us to go getting involved in the sports industry. And Although this may seem like sound advice, to Europe or some other country to buy a quite a purchase it was: Infront is the sec- Jack Ma has pointed out that he was never top class team. What we want to do is make ond largest sports marketing company in an expert on the Internet or computers our [China’s] teams become the best in the the world, and one of the world’s largest either, and everyone knows how that world.” companies for sports services and related turned out. Of course both sides have their own rea- broadcasting. Covering 25 different sports, In June of 2014, Alibaba spent $192 mil- sons for staying at home or going abroad. the company broadcasts more than 10 lion to purchase a 50% stake in Ever- For Wanda, the purchase of Atletico goes events every day. Its greatest value, how- grande, changing the team’s full name to beyond a love for football. Wanda has been ever, probably lies with the marketing rights Guangzhou Evergrande Taobao. looking to expand in Europe, for instance for the 2018 and 2022 World Cup matches. What’s interesting is that although these purchasing the Edificio España in 2014. While yachts and private planes and

Emerging Markets Insight 12 Sports $ Money

helping this industry grow in the country. that it was cooperating with hupu.com to On Dec. 19, 2014, the central government establish a $320 million sports industry released “Several Opinions of the State fund that would focus on sports operations, Council of the People’s Republic of China on training, media and other related sectors; Accelerating the Development of the Sports China United Travel has announced that it Industry and Promoting Sports Consump- will be registering $800,000 in capital to tion” in which it called the sports industry an establish a subsidiary sports company; important part of continued economic Toread Outdoor Products has announced growth for the country and stated that its that its subsidiary company in Tianjin would goal was to see the industry grow into an be working with an asset management $800 billion industry by 2025. Even company in Jiangxi to establish a sports President Xi Jingping has high hopes for investment fund worth $48 million. Chinese football. He once publicly stated he This increase in industry capital has also On the night of the AFC had three wishes, that “China would qualify spread into second-tier markets. In China’s for a World Cup, host a World Cup and win a A-share market, sports industry funds like Champions match against FC World Cup.” These same hopes are most Guorenniao, club concept stocks of football Seoul, ticket sales reached likely the greatest wishes for most football clubs like Jiangsu Guoxin-Sainty and $8.8 million, setting a new fans in China. Guoan, sponsors like Ledman Optoelec- record for Chinese football. Currently, the sports industry only tronic and sports broadcast companies like accounts for 0.6% of China’s GNP, whereas Guangzhou Daily Media have all in Western developed countries this number seen increases in their stock prices since is more than 3%. As Zhang Yidong, head last year. other luxury items many not be that popu- strategic analyst for Industrial Securities, The rapid development of the industry is lar after President ’s anti-corrup- sees things, the current state of the sports also expected to promote the growth of tion movement, the wealthy’s investment in industry is similar to that of the broadcast- related indexes. On Feb. 9 of this year, the football and sports has earned them over- ing industry in 2010. Over the short-term, China Securities Index Company whelmingly positive feedback from the pub- policy and sports events will act as a cata- announced the establishment of its Chinese lic. In the end, these men’s efforts in this lyst, while over the long-term there is plen- Securities Sports Industry Index, which will industry have many in China feeling that ty of room for development. This “newness” include more than 50 companies in sectors the once impossible dream of winning the is one of the main reasons he recommends such as sports services, sports product World Cup is one step closer than before. the industry. manufacturing and sales, sports media, Looking at the general public, when GDP sports medicine and other related services. A Hope for China per capita in China passes the $6,000 mark, Xu Jiayin, Wang Jianlin and Jack Ma are all people’s interest in sporting events is Money or Fame? in the running to becoming the wealthiest expected to explode. At the same time, the It’s worth being aware that the sports person in China. The success they have younger generation will have a more ratio- industry does have unique conditions that achieved in their lives is a testament to their nal understanding when it comes to balanc- set it apart from other industries. This forward vision and ambition. If these three ing work and life, and as more and more means that while success can come in the take an interest in something, there must people begin to brag about the latest mara- form of monetary reimbursement or fame, be something about it that is worth their thon they ran, running, tennis, badminton it is difficult to have both. A number of big attention. So just why have they been will- and cycling will become an everyday part of names have tried and failed to successfully ing to spend billions in in this area? Perhaps white-collar workers’ daily lives. make their way into the industry. it has to do with predictions that the Investors are already itching in their “The football waters are too murky. I Chinese sports industry is about to undergo seats, just waiting to get in. Since the couldn’t make it across…,” famed comedian explosive growth. beginning of this year, a number of enter- Zhao Benshan remarked about his experi- Over the past 15 to 20 years, the global prises in traditional sectors have begun set- ences in the industry. In 2005, He took over sports market has seen continued strong ting up sports investment funds or making as chairman of the Liaoning Football Club. growth. In China, besides continued invest- moves into the industry. On Jan. 19, Like Xu Jiayin, he had huge plans for the ment, government policy has also been Guirenniao (603555:) announced team, proposing that it establish a school at

Emerging Markets Insight 13 Sports $ Money

Ben Shan Film Studios, work with domestic 2014, the team spent more than $11 mil- this boost was short-lived and was unable to broadcasters and buy an online video site lion to get into the Chinese Super League, help maintain long-term sales. At the begin- so it could establish its own sports channel. and it’s estimated that they’ll need to spend ning of 2014 Xu Jiayin announced that the However, in just half a year’s time Zhao’s at least $32 million to stay there. At 77 group’s sales goals for Evergrande Spring hopes fell flat. years of age this may have been too much were $1.6 billion the first year, $3.2 billion “Football is a hard dish to eat.” I used to for Yin Mingshan. At the end of 2014, the the second year and $4.8 billion for the third hold my comrades in football circles in high team’s legal representative and sharehold- year. However, looking at Evergrande’s esteem, but now I can see how dark foot- ers underwent some big changes, changing recently released annual report, sales of ball really is. Many things end up changing the team’s name to the Chongqing Chang- Evergrande Spring for 2014 only reached after they get involved in this sector.” This is sheng Football Club. $174.44 million, while reported losses how Geely Automobile’s Li Shufu described As it stands now, Chinese football seems reached $368 million. his time in the industry. to be a game reserved for real estate com- On the official webpage for the One of the reasons they weren’t a good panies, as only these enterprises seem to Evergrande Football Club, you can see that fit for the sports industry was because they have resources to keep their hobby going. sales of Evergrande branded sports prod- were not prepared for the ever increasing And in many ways investing in football is a ucts are less than ideal. While low-priced expenses that came along with it. Just look good hobby, as a team’s success on the products like T-shirts and calendars are fair- at the Lifan Group’s Yin Mingshan. He spent field can increase an investor’s reputation. ly hot, the Nike brand jerseys that cost nearly $9 million in 2000 to acquire the However, a successful team does not more than $50 are being left out in the cold. Chongqing Qianwei Huandao Football Club, always equate to a successful business Also on the site are links to the group’s which he reorganized as Chongqing Lifan. venture. cooking oil and rice products, but in reality Over the past 15 years, the Lifan team has The night Evergrande won the AFC the strategy to use the team’s fame to pro- suffered from long-term financial loss. Champions League, the mote the group’s other business sectors Adding to this is the fact that since the introduced its Evergrande Spring brand of isn’t turning out to be very effective as team’s listing, its expenses have come bottled water, making the bottled water these non-football related products on the directly from Yin Mingshan’s own pocket. In brand nearly famous overnight. However, site are barely selling.

Wang Jianlin’s Dalian Wanda Group acquired a 20% stake in Spanish club Atletico Madrid for $56.27 million. Sports $ Money

Before Wanda bought Infront, Wang Jianlin pointed out that sports should be an industry that does business, not a cause Looking at the general public, when GDP that needs supporting; only by making per capita in China passes the $6,000 money could the sports industry truly mark, people’s interest in sporting achieve scaled development. Looking at the current money-burning events is expected to explode. state of the sports industry, it seems that the money-making phase is still a ways off. Both Wanda and Evergrande’s plans for the future include setting up schools and send- ing young players overseas for training, investment strategies that are sure to take If you attend an NBA game you also may ful examples is probably the Glazer family quite a while to pay off. have a chance to see Joshua Harris, co- and Manchester United. Although the wealthy can afford such founder and senior managing director of In 2005, with the backing of JP Morgan expenses, if sports is to be a business and Apollo Global Management, and the Chase Bank and the advisers the not just a hobby, then the goal is still to Blackstone Group’s David Blitzer. The two Rothschilds, the Glazer family managed to make money. once came together to acquire the privatize the Manchester United in a highly Currently the global sports industry is a Philadelphia 76ers for $287 million; leveraged deal for $1.47 billion. Holding the $113 billion industry shared among four Platinum Equity’s Tom Gores spent $325 record for the most Premier League titles, main markets: Media and broadcasting million to own the Detroit Pistons; Paul the team’s performance has turned the accounts for 30% of that value, sponsor- Allen, co-founder of Microsoft alongside Bill club into a world-class brand whose broad- ship revenue, 23%; ticket revenue, 32% Gates, owns the NFL’s Seattle Seahawks cast, ticket, sponsorship and derivative and commercial development,14%. and the Portland Trailblazers. The love of product revenue to continually climb over However, when it comes to China, the only sports isn’t just limited to buying teams. the years. However, despite this, due to the ones who are striking it rich are the sports Oracle’s Larry Elison is an enthusiastic pro- huge amount of interest on the acquisition clothing sellers such as Li-Ning, Anata and moter of the America’s Cup. loans and the high salaries of players, it Toread. However, there are those that invest in took the Glazers five to six years before the teams to achieve other goals. After Russian team could begin turning a profit. For Love of Money oligarch Roman Abramovich took over the In order to bring in needed funds, Even in the Europe and US sports indus- companies that controlled England’s Manchester United did all it could to com- tries where sporting events, sponsorships Chelsea Football Club in 2003, he used an mercialize operations, leading to it becom- and derived products are mature, most enormous amount of money to quickly ing the world’s highest earning football wealthy people invest mainly for the love of raise the team’s performance. Although he club. It also went a long way toward con- sports as they know it’s only the lucky few has claimed his investment in the team was trolling expenditures, lowering labor costs that end up making money. purely as a hobby, he probably cared more to 50% of all expenditures. In August of It seems that Internet and investment about mingling with the high class in English 2012, the Glazer family listed 10% of the moguls are especially interested in sports society and the political benefits. Some in club on the New York stock exchange teams. Before his retirement after working the media have even said that he was using (MANU.NYSE). Based on the stock’s recent at Microsoft for 34 years, former Microsoft the team to launder money. Eventually price of $17.67 (June 19, 2015), the total CEO Steve Ballmer gave himself a little other members of Russia’s wealthy class market value of Manchester United should retirement present buy buying the Los followed suit. In 2007, an iron mogul be Is more than $2.6 billion, with the Angeles Clippers for $2 billion. His reason- acquired a partial stake in English team Glazers 90% share being worth more than ing? “I love basketball,” he said during an Arsenal, while potash king Dmitry $2.3 billion, roughly a 60% increase on interview with CBS This Morning. “There’s Rybolovlev became owner of AS Monaco. their investment of10 years ago. Putting just no sport as great as basketball. There’s Of all these wealthy entrepreneurs to the love fans have for this world renowned poetry, the speed, the decision-making. I dive into the sports industry only a few team aside for a moment and looking at it just love it. I love it. And for me to be have actually been able to make their from a business perspective; does this involved is a heck of a lot of fun.” teams profitable. One of the most success- really qualify as a successful business deal?

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