China’s $2bn football buying spree has fans fearful of final score

Clubs in Europe question whether new owners have commitment needed to fight

Manchester City’s Raheem Sterling celebrates scoring his sides third goal during the UEFA Champions League  . Photo  : Martin Rickett/PA Wire.

Manchester City’s Raheem Sterling celebrates scoring his sides third goal during the UEFA Champions League . Photo : Martin Rickett/PA Wire.

 

An obscure Chinese investor buys an unfashionable Premier League football club and promises to transform their prospects, making them big in China by signing leading Chinese players and sealing lucrative sponsorship deals thanks to his guanxi, or connections.

But the reign at Birmingham City FC of Carson Yeung, a former hair salon owner who became the first Chinese proprietor of an English top-flight team in 2009, ended in ignominy. The team was relegated to the second tier of English football, Yeung was jailed in Hong Kong for money laundering in 2014 and the club remains barely known in China.

The Chinese tycoons who have invested more than $2 billion in European football clubs since the start of last year – and the fans who support these teams – are hoping that this time is different.

Keen to fulfil President Xi Jinping’s ambition to turn China into a football powerhouse, and supported by ready financing for acquisitions of overseas assets, Chinese entrepreneurs have embarked on an unprecedented buying spree of foreign teams.

“[China is] the largest consumer market in the world and they are looking to leverage brands from Europe and bring home the associated expertise in running football clubs,” says Steve Horowitz, a partner at Inner Circle Sports, a US-based boutique advisory firm that has worked on a number of European football deals.

Investors

Chinese groups have invested in or acquired famous clubs including Italy’s AC Milan and Inter Milan and England’s Manchester City and Aston Villa, as well as a string of lesser teams across Europe. Many more clubs, including Liverpool and Hull City, are being eyed by Chinese investors.

Some of the buyers are politically well-connected, financially well-endowed groups such as Dalian Wanda, Fosun International and China Media Capital.

Others are little-known even in China, including Aston Villa’s new owner Tony Xia, who runs a loss-making producer of food additives, and Lai Guochuan, who acquired West Bromwich Albion this month for £150 million-£200 million and previously built a company he described as “the IBM of landscape gardening”.

With the Premier League in England and other top leagues more competitive than ever, fans and football executives are questioning whether these newly arrived Chinese owners have the personal and financial commitment needed to fight for long-term success, or whether Mr Xi’s Chinese football dream will turn into a nightmare in Europe.

Investment bankers say there is a big difference between the “first division” acquirers such as Wanda and Fosun, which have deep pockets and a broader plan to develop their sports and media businesses, and the “second division” of investors, who offer fewer synergies and whose finances are hard to trace.

The top tier of Chinese investors see an opportunity to build integrated sports businesses that can sate the hunger for entertainment in the world’s second-biggest economy, in addition to satisfying the whims of Mr Xi.

Last year Wanda bought a 20 per cent stake in Spain’s Atlético Madrid for $52 million and acquired Swiss sports rights agency Infront Media, in addition to continuing investments in the film and theme park industries.

Broadcast rights

China Media Capital, which bought a 13 per cent stake for $400 million in the parent company of Manchester City last year after a visit to the club by Mr Xi himself, has also acquired the broadcast rights to the Chinese Super League and launched a film-making joint venture with Warner Brothers, on top of its other media businesses.

Everbright, which has approached Liverpool about a possible investment, previously acquired joint control of MP & Silva, another sports rights group.

But Alexander Jarvis, whose company Blackbridge has advised on several football deals involving Chinese investors, says that many smaller Chinese companies appear to be acting on impulse even though they “have no experience of football”.

“Some football types will sell their granny to do a deal,” he says. “So there’s a risk of the clubs and the Chinese investors getting duped.”

An adviser who worked on the sale of West Bromwich Albion says that roughly a dozen Chinese investors looked at the club but only four had the financial capability and a good rationale to proceed with the deal.

“It’s very difficult to assess the quality of potential buyers unless you have hands and feet on the ground in China,” he says.

Feng Tao, chief executive of Shankai, a Chinese sports marketing company, says that some entrepreneurs believe they can make quick profits by buying underperforming European clubs with a large fan base and turning them round, eventually capitalising on a higher valuation by injecting them into Chinese listed companies.

But the new Chinese owners of second-tier English clubs Aston Villa, Birmingham City and Wolverhampton Wanderers will not find it easy to secure promotion to the money-rich Premier League.

Managing expectations

Mr Jarvis says that these backers will need to invest significantly in players and coaches, while managing the expectations of the fans and trying to boost income and cover their financing costs. It is, he says, an exercise akin to “a monkey dancing on a razor blade”.

Keith Wyness, the recently installed chief executive of Aston Villa, admits that getting into the Premier League is “without doubt one of the hardest football challenges”.

He adds that Mr Xia “fully understands this” although the owner has been somewhat more quixotic in his public statements, telling the club website that “my long-term aim is to make Aston Villa the greatest club in the world”.

Like others representing the new wave of Chinese football tycoons, Mr Wyness argues that Aston Villa can use Mr Xia’s connections to gain access to the best emerging Chinese players and tap commercial opportunities in China, saying that “being on the inside gives us a big advantage”.

But Mark Dreyer, an industry expert who runs a blog called China Sports Insider, says “the idea that clubs will be big in China just because they have a Chinese owner is nonsense”.

“Every club across the big leagues is trying to appeal to the Chinese audience through TV, social media and pre-season tours,” he says. “Some of these purchases are going to end in tears.”

– (Financial Times)