The growth of football in China: internal reform and overseas ambition

Published 13 July 2016 | Authored by: Richard Barham

"When will China beat England in the World Cup?"

This was one of the questions that the author faced when on the panel at the recent Sodastream Conference on Football Law and Governance, held in Beijing in May 2016. The conference involved a number of engaging talks and panel discussions, including talks from James Johnson, the head of FIFA's Professional Football Department on international league governance; Mark Abbott of Major League Soccer (MLS) explaining how the MLS has developed over the last 20 years; Javier Tebas, the President of La Liga on the development of the Spanish League; and James Kitching of the Asia Football Confederation talking about combating match manipulation, and cases involving Chinese clubs and players. The author spoke about buying and selling European sports teams, and protecting sports media rights.

There are a number of interesting points and themes discussed during the course of the conference, both in relation to China's development internally, and their ambitions to acquire sports team and businesses outside China.

 

China's internal growth

No European football fan will have missed the incredible growth of interest in football in China,1 actively encouraged by President Xi Jinping.2 The Chinese Super League is developing significantly. In the January 2016 transfer window, clubs in the Chinese Super League paid significantly more for players than any other league, spending Euros 331 million ($365 million).3

China is also hungry to watch other football leagues, and the bidding price for English Premier League games in China has grown significantly4 as well as for other European leagues.

In addition, China has high ambitions for its own national team, whilst recognising that its development will take some years. In the meantime, China is ever hopeful that it will successfully bid for the next World Cup that is available to it (possibly 2030).

However, all of that growth is not without issues:

  • There is a real need to develop grass roots football, and a football culture. That takes time. It is no co-incidence that a lot of those involved in Chinese football are now looking to European leagues to help assist with the development of training facilities and the coaching of young players, for example Guangzhou Evergrande employs coaches from Real Madrid to train around 3,000 young people enrolled at its academy.5
  • There is also a growing concern that a number of the Chinese clubs, having bought an expensive player or coach, stop paying him as soon as his performance drops. This is not what is expected, and raises obvious concerns amongst the international football community. However, the real risk for China is that if such behaviour continues, others outside China will either demand upfront contractual payment on a more regular basis (including, for example, transfer fees), charge more to cover non-payment risk, or stop dealing with China entirely. None of these would be good for the Chinese game.
  • Another issue is, as we have seen with other leagues (such as the MLS), that it takes a number of years to develop a professional league. In order to maintain interest and momentum, it is important to ensure that there are some successes along the way. Whether that means a better showing for the China national team (e.g. qualifying for World Cup finals), a better performance from Chinese clubs in the Asian Champions League, or even more star players coming from the rest of the world to China, some short to mid-term success is important.

 

China’s overseas ambitions

As part of the "One Belt, One Road"6 policy, Chinese companies are now being generally encouraged to look overseas for acquisitions, and that is certainly true in sport. In the last 12 months we have seen China Media Capital take a 13.5% stake in Manchester City;7 Tony Xia of Recon Group has acquired Aston Villa;8 and there are numerous rumours about Chinese acquisitions of other clubs.9 In one week in May 2016, the author had three separate approaches from Chinese companies all looking to acquire the same English football team – no deal has to date been concluded.

The volume of noise around the Chinese acquirers and investors is so great that some English clubs are now largely ignoring Chinese approaches, as a number of discussions have been held and have not led anywhere. So it has reached the stage where any Chinese buyer needs to do more to get a proper response from the target club. In particular:

  • they need to show proof of funding before they can properly engage with club owners about a potential purchase or investment;
  • they need to show their willingness to commit to the purchase by engaging, on a paying basis, financial and legal advisers to assist on the transaction (and possibly other advisers too);
  • if they are to make an approach, they need to have properly undertaken their homework on the club and have a clear idea as to the ballpark figure for the acquisition/investment.

Without the above, it becomes more difficult for a Chinese company to be taken seriously, and if that happens on a first approach, their interest will be dismissed.

 

Lessons from the MLS model

It is certainly an exciting time for Chinese football. Whilst a very different market, probably the greatest similarity is with the development of the MLS in the US, another major economic nation, perhaps not known for its interest in football, but which has had its interest awakened.

The MLS has developed significantly over the 20 years since its formation. This is also feeding into a US national team that is gradually becoming more successful. There may well be lessons for China from the development of the MLS, including in particular development of youth academies and a sustained development of the football spectacle.

Who knows – in the 2030 World Cup, perhaps USA and China will meet in the final in the Bird's Nest Stadium in Beijing, China having knocked out England in the quarter-finals on penalties!

 

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About the Author

Richard Barham

Richard Barham

Richard heads both the London Corporate practice, and Sports practice, of Dentons.

Richard's focus is on M&A and corporate work.  He is particularly interested in corporate governance issues, and regularly advises companies and other organisations on how they best operate to achieve good and effective governance standards.

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