Jack Gage of Forbes writes that Europe's richest football teams have struggled to crack the lucrative China market but are finally making real gains:
Chinese expats such as Manchester City's Sun Jihai and Manchester United's Dong Fangzhuo have started delivering on the promise of China, which qualified for the World Cup finals for the first time only five years ago. Man U, AC Milan, Arsenal and other top European clubs have made more than 20 trips to the sport's wild frontier since the early 1990s, scouting Chinese teams for players capable of turning the country's massive football following into customers of team shirts, broadcasts and sponsors. Chinese fans make up roughly 20% of soccer's worldwide audience.
Two such tours by Spanish giant Real Madrid in 2003 and 2005 brought in roughly US$10 million from sales of replica shirts and tickets to watch its star players go up against local talent. The latter trip also resulted in a deal with China's state-run financial company Citic Group to develop Real's brand in that huge market.
The trek to China began a decade ago with Crystal Palace FC, which faced potential demotion from the English Premiers League and the threat of bankruptcy if that occurred. Palace bet on a pair of Chinese national team defenders for US$1.7 million, roughly a quarter of the team's annual broadcasting revenue. Sun Jihai and Fan Zhiyi were the first Chinese players to suit up for a British club and within weeks appeared in the first live broadcast of English football on national television in China. More than 100 million viewers tuned in, a larger audience than what the NFL's USA Super Bowl drew this year. Suddenly floundering Palace was the most popular football team in China.
In 2002 Premiership club Everton struck a two-year, US$3.2 million deal with Chinese mobile phone maker Kejian to slap the company's logo on its uniforms (in English and Mandarin) and travel to China the following summer to participate in the Kejian Cup Challenge. (The tour was canceled due to the outbreak of SARS.) Everton also signed Li Tie, and his World Cup teammate Li Weifeng to one-year deals per Kejian's request. Six months later Everton played Manchester City and newly acquired Sun Jihai, shattering the single-country viewership record for a league game, as 360 million viewers watched from China. An audience of 260 million Chinese watched the entire World Cup played in Asia that year.
Growing audiences for matches featuring Chinese players are translating into boosted broadcast values in China. The EPL's latest rights deal with Guangdong Provincial Television's Wintv covers three years for US$50 million, 40% more than the bid put in by incumbent carrier, ESPN Star Sports, the joint venture of Walt Disney Co and News Corp. "The deal signals the start of a serious tv rights market in China," says Dan Fletcher, Asia director for FMM International. Prices to stream European football over broadband Internet connections are also rising rapidly. Now Broadband TV, owned by Hong Kong telecommunications firm PCCW, earlier this year paid US$200 million in a three-year exclusive rights agreement to broadcast the EPL and the Euro 2008 tournament, an increase of 122% over the previous deal. "Five or six years ago tv rights in China went for peanuts," says Nicola Antognetti, cofounder of Eurostar Asia. "Now clubs have a real opportunity to exploit players with both marketing and broadcasting."
One reason many Chinese football fans favor European teams over the locals is that they love to bet on sports and Chinese teams have a history of fixed games. China's first division Super League was racked by scandal last year amid match-rigging and referee payoff scandals. Marcus Luer, head of Total Sports Asia, calls China's love of gambling "both the life and death of the Chinese Super League." Despite government crackdowns on illegal soccer betting (90% of the market in China), fans continue to wager on teams in the Premiership and other established leagues perceived to be consistently fair. FMMI's Fletcher notes that even lesser leagues in Sweden and Denmark, which play games in the summer, draw Chinese bettors looking for action during Europe's off season.
China's football gambling market reached US$33 billion in 2006, tripling in two years and surpassing the UK's US$30 billion industry, according to estimates from UK-headquartered Global Betting & Gaming Consultants. Still, that is only US$25 per person in China, compared with US$488 in the UK. Peter Kenyon, CEO of EPL club Chelsea, takes issue with outlawing football wagers. "There has to be a way of legalising gambling in China," says Kenyon, adding that the British government reaps a windfall taxing gambling revenue in the UK. Potential gains are enormous.
Overall, the top 25 football teams are only modestly profitable. Last season they posted an operating margin of 12% (in the sense of earnings before interest, taxes, depreciation and amortization as a percentage of revenue). NFL USA teams have an average operating margin of 16%. "A big reason why these teams are attracting suitors is their growth potential in all of Asia, but China is the key." says Salvatore Galatioto, president of Galatioto Sports Partners. "You have great brands with these soccer teams that have not been fully exploited."
Chinese expats such as Manchester City's Sun Jihai and Manchester United's Dong Fangzhuo have started delivering on the promise of China, which qualified for the World Cup finals for the first time only five years ago. Man U, AC Milan, Arsenal and other top European clubs have made more than 20 trips to the sport's wild frontier since the early 1990s, scouting Chinese teams for players capable of turning the country's massive football following into customers of team shirts, broadcasts and sponsors. Chinese fans make up roughly 20% of soccer's worldwide audience.
Two such tours by Spanish giant Real Madrid in 2003 and 2005 brought in roughly US$10 million from sales of replica shirts and tickets to watch its star players go up against local talent. The latter trip also resulted in a deal with China's state-run financial company Citic Group to develop Real's brand in that huge market.
The trek to China began a decade ago with Crystal Palace FC, which faced potential demotion from the English Premiers League and the threat of bankruptcy if that occurred. Palace bet on a pair of Chinese national team defenders for US$1.7 million, roughly a quarter of the team's annual broadcasting revenue. Sun Jihai and Fan Zhiyi were the first Chinese players to suit up for a British club and within weeks appeared in the first live broadcast of English football on national television in China. More than 100 million viewers tuned in, a larger audience than what the NFL's USA Super Bowl drew this year. Suddenly floundering Palace was the most popular football team in China.
In 2002 Premiership club Everton struck a two-year, US$3.2 million deal with Chinese mobile phone maker Kejian to slap the company's logo on its uniforms (in English and Mandarin) and travel to China the following summer to participate in the Kejian Cup Challenge. (The tour was canceled due to the outbreak of SARS.) Everton also signed Li Tie, and his World Cup teammate Li Weifeng to one-year deals per Kejian's request. Six months later Everton played Manchester City and newly acquired Sun Jihai, shattering the single-country viewership record for a league game, as 360 million viewers watched from China. An audience of 260 million Chinese watched the entire World Cup played in Asia that year.
Growing audiences for matches featuring Chinese players are translating into boosted broadcast values in China. The EPL's latest rights deal with Guangdong Provincial Television's Wintv covers three years for US$50 million, 40% more than the bid put in by incumbent carrier, ESPN Star Sports, the joint venture of Walt Disney Co and News Corp. "The deal signals the start of a serious tv rights market in China," says Dan Fletcher, Asia director for FMM International. Prices to stream European football over broadband Internet connections are also rising rapidly. Now Broadband TV, owned by Hong Kong telecommunications firm PCCW, earlier this year paid US$200 million in a three-year exclusive rights agreement to broadcast the EPL and the Euro 2008 tournament, an increase of 122% over the previous deal. "Five or six years ago tv rights in China went for peanuts," says Nicola Antognetti, cofounder of Eurostar Asia. "Now clubs have a real opportunity to exploit players with both marketing and broadcasting."
One reason many Chinese football fans favor European teams over the locals is that they love to bet on sports and Chinese teams have a history of fixed games. China's first division Super League was racked by scandal last year amid match-rigging and referee payoff scandals. Marcus Luer, head of Total Sports Asia, calls China's love of gambling "both the life and death of the Chinese Super League." Despite government crackdowns on illegal soccer betting (90% of the market in China), fans continue to wager on teams in the Premiership and other established leagues perceived to be consistently fair. FMMI's Fletcher notes that even lesser leagues in Sweden and Denmark, which play games in the summer, draw Chinese bettors looking for action during Europe's off season.
China's football gambling market reached US$33 billion in 2006, tripling in two years and surpassing the UK's US$30 billion industry, according to estimates from UK-headquartered Global Betting & Gaming Consultants. Still, that is only US$25 per person in China, compared with US$488 in the UK. Peter Kenyon, CEO of EPL club Chelsea, takes issue with outlawing football wagers. "There has to be a way of legalising gambling in China," says Kenyon, adding that the British government reaps a windfall taxing gambling revenue in the UK. Potential gains are enormous.
Overall, the top 25 football teams are only modestly profitable. Last season they posted an operating margin of 12% (in the sense of earnings before interest, taxes, depreciation and amortization as a percentage of revenue). NFL USA teams have an average operating margin of 16%. "A big reason why these teams are attracting suitors is their growth potential in all of Asia, but China is the key." says Salvatore Galatioto, president of Galatioto Sports Partners. "You have great brands with these soccer teams that have not been fully exploited."