Since 2014, many Chinese companies targeting football clubs have sparked a buying spree among Chinese investors throughout China. According to incomplete statistics, by the end of 2017, capital from China has already acquired stakes in 23 European football clubs, and this number is still growing continuously.
Rossoneri Sport Investment Lux, formerly known as Sino-Europe Sports and led by Chinese businessman Li Yonghong, completed the purchase of AC Milan’s 99.93 percent stake from Fininvest in 2017. The deal, which valued the club at 740 million euros; China Media Capital (CMC) and CITIC Capital purchased a 13 percent stake in Manchester City’s parent company, City Football Group (CFG), for $400 million; China’s retail giant Suning Group has acquired 70 percent stake in Italian football club Inter Milan, a deal worth 270 million euros; Dalian Wanda scores 20% stake in Spanish football club Atletico Madrid for 45 million Euros; IDG Capital has purchased 20 percent of French football club Lyon.
After a series of acquisitions, there are many Chinese capitals in the five major European leagues (Premier league, Bundesliga, Serie A, La Liga and Ligue 1). On the one hand, it shows that China’s sports industry, especially the football industry, has risen sharply in recent years. Through the power of capital to achieve its industrial upgrading and expansion. On the other hand, it has also demonstrated the ambition of Chinese corporations in their international strategy.
However, from a business perspective, Inter Milan’s liabilities are more than 300 million Euros, and AC Milan also have more than 240 million Euros liabilities, these clubs are clearly unable to make profits in the short term. So, why is Chinese capital still enjoying this? What do they really want?
The policy environment boosts capital influx
The good news from domestic related policies is an important impetus for enterprises to start layout and set foot in the sports industry spontaneously.
Football is China’s earliest sport to promote professional reform. In 1994, the association started the current league system, and football became the first sport to achieve commercial success in China. However, due to the weak foundation of football and immature social conditions, especially since the sports industry was still under “the State-run sports system”, football has not undergone much material reforms.
On February 27, 2015, at the 10th Meeting of the Central Reform Leading Group, headed by President Xi Jinping , ‘The General Plan of Chinese Football Reform and Development’ was passed. It is very rare that the central reform leading group has developed a reform program for one sport, which also explains the status of football in all sports. The implementation of the policy has set the agenda for the revitalization of football——as an important task for developing sports and construction of sports power.
The influence of policies is inestimable, and the top-down power of China is very powerful, especially in terms of execution. As we all know, Chinese President Xi Jinping is a big fan who has particularly deep affection for football. During the visit to the United States, Britain, Germany, Argentina, Russia, Ireland, France and other countries, President Xi has talked and even kicked the ball around the court.
“To qualify for a World Cup, to host a World Cup and to win a World Cup championship are three of my wishes.” he said.
In view of this, Chen Jian, vice president of the China Society of Economic Reform (CSER), made it clear that the development of the football industry ‘must be combined with private capital’ and only rely on the government operation will not work.
This has enabled Chinese entrepreneurs to see the potential of the football industry, and to seize this opportunity to contribute to the development of Chinese football and to meet the golden age of football.
Chinese investors want most the “Brand” and the “Academy”
First of the all, the owners of Chinese consortia are most interested in the brand effect of the club, and most Chinese companies participating in overseas investments regard the overseas football industry as a bridge, which can connect the markets between domestic and overseas, and open up various channels to help enterprises achieve the international strategic goal of the brand.
For the acquisition of Inter Milan, Zhang Jindong, chairman of Suning has given the explanation: “Lay out the sports industry and open a bigger market for healthy consumption; With the internal and external linkage of Suning club to improve the technical system and operation ability; To achieve international development strategy.”
In addition, the owners of Chinese consortia focus on the Academy and perfect youth training system of overseas clubs and seek to fundamentally promote the progress of Chinese football.
In the partnership between Wanda and Atletico Madrid, Atletico Madrid pledged to take a series of measure that will support the growth of Chinese football players and promote the development of football industry in China, such as developing training programs specifically for young players in China, investing in a new youth training center in Madrid, establishing three football schools in China and so on.
Li Ruigang, chairman of China Media Capital (CMC), said: “Through the cooperation with the City Football Group (CFG), we will jointly build a global platform for the development of the football industry. By using the operational experience of CFG, including team operations, players selection and training, commercial development and other industry-wide experience, to promote the development of China’s football industry, at the same time to play a positive role for the rise of China in the world football industry.”
Li Jianguang, the partner of IDG Capital who acquired Lyon Club, said: “The most important part of this cooperation is bringing advanced experience and systems to China. We hope to promote the popularity of footballand build the talent selection and training to the new heights in China.”It can be seen that most people are optimistic about Chinese capital M&A(Mergers and Acquisitions) overseas clubs. There is no doubt that the Chinese football industry has an immeasurable prospect.
For this reason, many overseas clubs are already actively looking for partners to expand their business in China. For Chinese enterprises, they hope to be able to really learn the advanced management experience of mature professional clubs, joint parties resources, thus to achieve the effect of nurturing the development of the domestic football industry, while they are acquiring overseas club opening up international markets for themselves
Opportunities and risks of for all investors
Although the industry structure of China’s overseas investment is continuously optimized, the strategy of supporting “going global” will not change for a long period of time, it is not a good thing to grow too fast.
According to data from the Ministry of Commerce of the People’s Republic of China (MOFCOM) and the State Administration of Foreign Exchange(SAFE), Chinese companies invested in 7,961 overseas enterprises in 164 countries and regionsin the world, with a cumulative amount of RMB 1.1 trillion ($170.11 billion) in 2016, China’s non-financial outbound direct investment (ODI) increased 44.1% year-on-year.
New Regulation affects everybody
In the aforesaid football clubs which Chinese capital has been invested, most of the acquisitions use non-equity capital. The domestic debt ratio of these consortia is very high. Once an overseas investment goes wrong, it will increase the risks for domestic banks and domestic financial environment.
Due to the lack of systematic planning and overheating of overseas investment in China, the follow-up management caused large economic loss. To address this situation, The State Council made public a series of measures that ensured the steady growth of foreign investment in August 2017. Its purpose is to hope investors can careful analysis of overseas investment risk before the decision-making, in order to deploy the corresponding prevention.
Policy clearly pointed out the limitation of overseas investment in sports clubs. Before and after the implementation of the policy, with the tightening of the China’s financial policies on overseas clubs’ investment, the project is still in process are influenced by different degree. The acquisition of AC Milan have to delay to pay the deposit and almost cannot complete the transaction because of domestic financial controls; Dalian Wanda’s acquisition also experienced some twists and turns.
The new measures have proven effective. In the first ten months of 2017, China’s non-financial outbound direct investment (ODI) dropped 40.9% compared with the same period a year ago, official data showed.
On December 26, 2017, China’s National Development and Reform Commission (NDRC) releases new rules to regulate outbound investment. The new rules, effective from March 2018, strengthened the regulatory measures for overseas investment, in order to ensure the stability and sustainability of overseas investment.
To some extent, the trend of capital indicates the prosperous conditions of the industry in the future. From sponsorship to the acquisition of the club, Chinese capital let the world football industry see the Chinese power. With the continuous improvement and standardization of policies and regulations, Chinese football is expecting a more long-term and more positive effect.