Paper size: 210mm x 270mm LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: [email protected] NEW YORK 111 West 57th Street New York The big league? NY 10019 United States Tel: (1.212) 554 0600 The business of sport in China Fax: (1.212) 586 1181/2 E-mail: [email protected] A report from the Economist Intelligence Unit HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Sponsored by Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: [email protected] The big league? The business of sport in China Contents Preface 3 Executive summary 4 A new playing field 7 Basketball 10 Golf 12 Tennis 15 Football 18 Outlook 21 © Economist Intelligence Unit 2009 1 The big league? The business of sport in China © 2009 Economist Intelligence Unit. All rights reserved. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Economist Intelligence Unit. 2 © Economist Intelligence Unit 2009 The big league? The business of sport in China Preface The big league? The business of sport in China is an Economist Intelligence Unit briefing paper, sponsored by Mission Hills China. The Economist Intelligence Unit maintained full editorial control of the report, and the findings and views expressed in the report are those of the Economist Intelligence Unit alone. A.E. Beere was the author of the report. The editor was Laurel West. The cover image was created by David Simonds. Gaddi Tam was responsible for design and layout. We would like to thank the many people who took the time to share their views on the future of the sports business in China. In particular we would like to thank Pierre Justo of TNS Sport China/CSM Media Research for providing us with data. © Economist Intelligence Unit 2009 3 The big league? The business of sport in China Executive summary The 2008 Beijing Olympics proved that China has what it takes to host world-class sporting events—and to produce world-beating athletes. The Games went off with hardly a hitch. There were dazzling ceremonies held in state-of-the-art venues and the host country won 51 gold medals, more than any other nation. The event served to intensify already-huge interest in the business of sport in China—from international sport marketers to municipal officials seeking to host major events to help put their cities on the map. Beyond its gold-winning national athletes, what does China’s sports business look like? How does it compare—and how might it compare in future—to the billion-dollar, star-laden sporting leagues in Western markets? To examine these questions we have focused on four sports: basketball, football, golf and tennis. We have interviewed a wide range of industry players, both local and foreign, from all levels of the business—from athletes and coaches to league officials, equipment suppliers, sport-marketing consultants and broadcasters. Among the issues we have examined: Is China creating its own model for development of these sports? Who is driving that process? Which companies have succeeded in crafting business models out of sport in China, and what lessons can be drawn from their experience? The main findings of our research include: • Though the state still dominates sport, commercialisation is taking root. Though China has liberalised and globalised many of its industries, sport has remained largely sheltered from commercialisation. Almost all of China’s top athletes are products of the state system. The official sport federations still control their respective sports, acting as de facto professional leagues in the sports we have chosen to study. But commercialisation is taking hold, and, some would argue, gathering pace. In basketball, for example, several teams in the Chinese Basketball Association (CBA) league are now privately owned. The US National Basketball Association (NBA), which has been active in China for the past 20 years, has set up a company called NBA China to promote the sport and its own business in the country. More athletes—recent examples include tennis players Zheng Jie and Li Na—are stepping away from their sport associations to become free agents, choosing their own coaches and keeping more of their winnings. With the state focused on elite athletes, major equipment suppliers from China’s Li Ning to international giants Nike and Adidas are trying to build the market by pouring money into training programmes for young players at the grassroots level. • For China’s sports industry to reach its true potential, much more grassroots development is required. In most of the sports examined in this report, China has not yet created the virtuous circle found in more developed markets, where popular events expand the fan and participant base, which in turn attracts sponsors and creates more demand for merchandise and more events. With basketball this circle is beginning to form—the emergence of a Chinese star in the NBA, Yao Ming, has led to basketball becoming the common man’s sport in China, with courts found in the yards of many export factories. But 4 © Economist Intelligence Unit 2009 The big league? The business of sport in China this contrasts with golf, where industry players are fervently hoping that the sport’s potential inclusion in the Olympics will encourage the government to spend more on public facilities, thereby raising its profile and also putting what is currently one of China’s most expensive sports within reach of more potential players. • Sport marketing is in its infancy—and is taking some interesting turns. According to most industry players interviewed for this report, few of the sport federations in China are focusing on issues like branding and marketing, or are cognisant of the fact that they are competing with other forms of entertainment. Few Chinese athletes have agency representation, and consumers have yet to show the obsession with teams or individual players that their Western counterparts do—or at least to translate this into purchases of apparel or equipment emblazoned with team logos. All this may eventually change as China follows the path of development seen in other countries, but for now it is leading to some interesting attempts to promote sport. For example, the US National Football League (NFL) has created a reality show for Chinese TV featuring a popular band from Taiwan touring the US, observing, and sometimes participating in, the sport’s rituals. • Broadcasting presents a bottleneck. The dominance of the state-owned broadcaster, CCTV-5, of the national television market means that it can pay less for the rights to broadcast domestic sporting events than broadcasters in other countries. Indeed, there are already more events than it can reasonably cover. This means less money for sport, and for sport development. Overall, China accounts for just a fraction of the global sport-sponsorship market—US$1.5bn-2bn out of US$60bn, including broadcast rights, according to Pierre Justo, Asia director for sport and media research at TNS/CSM Media Research, a market research group. Yet TV is widely perceived to be more important in reaching audiences in China than in other countries. • Local heroes are needed—but so is the expertise to make them stars. Industry insiders point to the need for local stars to inspire more Chinese to take up their sport at the grassroots. While the rise of Yao Ming to star with the NBA’s Houston Rockets is seen as a key factor in the popularity of basketball in China, it is notable that he only became a star with the help of Western marketing expertise. Indeed, while basketball fans mob Los Angeles Lakers’ star guard Kobe Bryant when he visits China and NBA games can draw television audiences in the hundreds of millions, China’s own basketball league does not have the same hold on local fans. A similar situation prevails in football, with the popularity of England’s Premier League far eclipsing that of the local equivalent. Industry observers blame this partly on a lower calibre of domestic play—but also on a lack of marketing savvy and management skills. Creeping privatisation in the sport could help to rectify this. • Facilities construction is key. Although the Olympics raised awareness of sport in China, facilities remain scarce and expensive. A survey conducted by China’s General Administration of Sport in 2004 found that only 8% of sporting venues were in villages and towns, highlighting the concentration of resources in urban areas. China needs more public venues for sport in order to expand the fan base and grow the market. The Chinese government has taken note and is investing in more facilities, as are foreign © Economist Intelligence Unit 2009 5 The big league? The business of sport in China companies such as AEG, a US-based sports and entertainment group. But this will take time. • The complete privatisation of sport is not assured. Though commercialisation is taking hold, does this necessarily portend the end of state control? The timing and likelihood of a privatisation of China’s sport federations are subject to heated debate among sporting industry executives in the country. Though the onslaught of private-sector investment in sport would seem to indicate a tilt towards privatisation, the federations could continue to operate as state-owned enterprises but gradually become more market-oriented—sport marketing with Chinese characteristics, if you will.