Chinese Investors Flee European Football After Home Government Policy Change

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JohnWallStreet
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Chinese investors are pulling out of European football en masse. In mid-2017 there were upwards of 20 Chinese-owned clubs in Europe. “There are now fewer than 10, and it’s a dwindling number,” said Simon Chadwick (Professor and Director of Eurasian Sport, Emlyon Business School). In recent months, the owners of Inter Milan (Suning Holdings Group), Southampton (Gao Jisheng) and West Bromwich Albion (Lai Guochuan) have reportedly all been looking to divest equity interest or sell the entirety of their ownership stakes.

Conversations with a pair of authorities on sports within the People’s Republic of China (Chadwick and Greg Turner, Founder of Shenzhen High Performance Event Management) suggest there is a good reason for the flood of exits. Over the last five or six years, the Chinese government has dramatically altered its approach to turning the country into a football power. Basically, they decided “all of the money going overseas was better spent on local development,” Turner said.

Our Take: To understand why Chinese nationals are pulling their money out of European soccer, one must appreciate why the investments were made in the first place. Back in 2014, with the country on the cusp of launching its 13th five-year economic plan, President Xi Jinping stated his intent to turn China into a leading FIFA nation (it’s believed the country would also like to host the 2030 World Cup). While there were no explicit references to football in the plan, one of its “crucial elements was the government calling for more outbound investments,” Chadwick explained.

With the Xi administration urging investors to purchase overseas assets and the country simultaneously striving to improve its domestic football program, it made sense that Chinese billionaires and corporations were pursuing international teams in the mid-2010s. Financial upside aside, the belief was that the Chinese would learn how to operate world-class clubs and inevitably be able to bring that knowledge back with them to help the domestic game. “And very quickly, Chinese investors built up a significant network of European clubs,” Chadwick said.

But by mid-2017, the Chinese government decided the country’s domestic football program wasn’t reaping enough benefits from all of the investment capital deployed within the sport and moved to turn the spigot off. They had woken up “to the fact [that the country] was almost like a carcass being consumed by the world of football’s vultures.” There was this considerable outflow of money, Chadwick said, noting the immense stress the Chinese financial system was under at the time (GDP growth in 2016 was the slowest in 25 years). Taking the position that Chinese investments in international football had become irrational, the Xi administration shifted emphasis from elite football to supporting domestic and grassroots efforts. “There was also a shift in government policy towards promoting inbound investments and incentivizing domestic corporations to invest at home,” he added.

Wang Jianlin was the first domino to fall following the introduction of football reform in China. In February 2018, the Chinese billionaire was all but forced to divest his stake in Athletico Madrid. (He was later awarded a CSL club for adhering to the government’s wishes). Ye Jianming, the founder of CEFC China Energy, followed. In April 2019, he too was pushed to sell the interest he’d acquired in a European football club (Slavia Prague). Ye was later jailed for exposing the country’s economic system to undue risk. Since that time, “pretty much everyone who had spent overseas has started to return home,” Chadwick said. Of course, it’s not as if there is much choice—at least, not if ownership hopes to continue doing business in China. Remember, private Chinese companies are “never really private companies,” Chadwick added. They operate at the mercy of the government.

China’s 14th five-year plan (launched in 2020) formally calls for “money to come back home and for investments to be focused domestically,” Chadwick said. “And it has been rolled out in conjunction with a more draconian state that is acting increasingly bullish toward entrepreneurs and its business people,” he added (see: Jack Ma conspicuously low profile of late). So, it seems safe to assume the number of Chinese owners in European football will continue to dwindle through at least 2025 (when the next five-year plan begins). Turner notes that with local governments now offering incentives for domestic investments, the financial upside to investing in China is also greater now than it was just a few years ago.

Between 2015 and early 2017, Chinese television broadcasters (and digital platforms) also clustered around European football. The competition resulted in companies like Mediapro, PP Sports and Le Sports significantly overpaying for rights. Naturally, “in terms of financial outflows and in terms of delivering return on investment to the Chinese government and Chinese economy, this was not a viable proposition,” Chadwick said (Le Sports has since gone bankrupt). Eventually, those Chinese companies stopped making payments to the leagues.

While Chinese broadcasters have defaulted on agreements with the EPL (Tencent has since inked a one-year deal to broadcast the games), Serie A and Ligue 1, Turner does not believe Tencent will follow suit with the NBA. “[The NBA has] a strong local operation that is focused solely on developing the game in China,” which the government likes to see, he said. Chadwick agreed, though he would not completely rule it out, adding, “The political symbolism [associated] with Tencent defaulting on the NBA would be huge and really could be a prompt to a much wider trade war [with the U.S.].”

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