Sport is big business, and it is becoming even bigger, especially in China and India. While inbound investments grew into their new local franchises, these countries are now looking at outbound investments. However, the objectives of their outbound investments vary owing to a difference in priorities. China made the headlines by buying football clubs in Europe’s domestic leagues. The Chinese interest is extending to agencies and other global sports. On the other hand, India is showing interest in cricket franchises in the Caribbean, South Africa, and England. The title sponsor of the Caribbean T-20 league is an Indian company, and the owners of a team in the Indian Premier League (IPL) also own a team in the Caribbean league.
Apart from investing in its domestic football franchises, China is connecting its outbound investments to the Chinese sports market. Disposable incomes in China have risen significantly, thereby fuelling interest in another level of sporting content. Ownership of European clubs means better chances for the Chinese players to train overseas and raise their standards.
It hopes to bring in more youth into sports and change the perception of sports as a career, which is negative in a high-population country. However, given the small size of the sports market, profits from these investments are still some time away. While advertising and ticket sales are yet to surge, the sponsorship rates of the Chinese Super League have risen rapidly. Its broadcasting rights, sold for $7.6m in the 2015 season, went for $1.3b for the next five years. If this growing local interest can eventually manifest into hosting a global sports event, then the resultant sports tourism is another upside. It is the local Chinese sports market that can help cover its investments in Europe.
India is connecting its outbound investments to foreign viewers by creating visibility for Indian brands in foreign shores. With many Indian companies turning multi-nationals, it is pushing brand-building in international markets through these viewers. Very few formats can give as much mileage to a brand as a major sports event. It helps the Indian brands get known not only in the host country, but also in other nations where that event goes. For instance, the Caribbean league also gave Indian brands visibility in the USA, where some of the matches were played. B2C or tech companies, who thrive on a large user-base, get access to a larger audience. Apart from foreign viewers, even Indian viewers get more cricket content, thus generating higher ratings. Of the 130 million viewers in the Caribbean league, around 63% were from India. The addition of the large Indian audience also helps boost the financial interest in the investors’ bids.
China’s objectives hold learnings for India
China is emerging in a sport where it didn’t have any precedence, while India is growing a sport where it already had a name. China’s ambition is impressive; because this is not just about football, but of wider strategic importance. The world’s powerful countries are all football playing nations. If China wants to cement its place further in this league of “big boys”, being a football playing nation would be a way to further drill its geopolitical branding. This could be seen as analogous to many executives learning golf because they don’t want to miss business deals struck on the golf course. Geopolitical deals amongst powerful nations are, perhaps, often struck in football galleries. But India’s objective seems brand-building of its businesses, not politics. While this has wider strategic importance to improve its standing in investee countries, the number of nations playing global cricket is less and most are not the world’s powerful nations. If India also aspires to drill its position in the global geopolitical arena, should it also play football like all the “big boys”?
China is creating future purchasing power by converting local talent into professional players and establishing local tournaments across sports which can employ thousands. While India also did the same, the number of sports and tournaments seem fewer in India. China wants sports to comprise 1% of its GDP by 2020 (up from the current 0.6%), and then gradually move to 2% like the developed nations. China has a higher savings rate than India (49% vs. 30%). So its scope to transfer the savings to local consumption is higher. As the scope to transfer savings into local consumption is less in India, it is increasing global consumption of its products through brand-building. But will this boost its local purchasing power in future as much as China?
Both China and India have committed to developing the youth through sports. Chinese President Xi Jinping himself visited Manchester City’s Football Academy. Indian Prime Minister Modi pushed the largest stadium project in Motera, but is yet to visit a major cricket establishment where India is investing. Such visits show a level of seriousness and commitment from China’s leadership, which bodes well for its investors venturing into Europe.
Important questions raised by China
China’s investments are following prudent practices. Many are eyeing smaller European clubs that are struggling financially but can be better-valued acquisitions. While it is not clear if India’s investments paid a high price in the Caribbean league, the prices of top players did see good hikes this year. In the domestic IPL, most franchises still bear losses even after few years. Continued losses may delay further interest in the industry.
It must also be noted that the industry does not only depend on deep-pocket corporates. China has already created Yuan-denominated sports investment funds. India also needs to diversify its funding sources in order to sustain the flow of funds.
China is moving into the football value-chain. It is targeting not just the clubs, but even the agencies that represent footballers. Fosun invested in an agency that represents Jose Mourinho and Cristiano Ronaldo. Indian investments extend to merchandise, which is not the same as value-chain. Not only does this help China unlock further value, but it also gives it better control over the price, supply, and quality of all the related services.
China’s post-investment strategy is to stay away from the day-to-day micromanagement. Micromanagement leads to a clash of work cultures; which is a major cause of failures in similar deals. It is too early to comment on India’s management style. Should India follow China’s hands-off style in its outbound sports investments?
China’s interest is spreading to other sports too – hitherto hardly played in China. Wanda bought Triathlon, while Ali Sports turned towards NFL. While India has also seen new football and hockey leagues, these sports already had some viewership, albeit relatively small. Can sports that are not played in India increase the novelty factor and help bump up the incremental viewership?
In conclusion, both the countries are making concentrated efforts in outbound investments in global sports. But in order to ensure that its investments yield higher and sustained value, India might have some learning to do from China.
Image Courtesy: Youth Ki Awaaz & Lintao Zhang/Getty Images
Originally published here – https://qrius.com/chinas-outbound-sports-investments-have-multiple-lessons-for-india/