What China’s Football Reform Plan means for China and the global sports industry

Published 22 July 2015 | Authored by: Alex Haffner, Chi Liu

On 16 March 2015, the Chinese government released an ambitious reform plan for sport in China, with a particular focus on football. Under the current FIFA World Rankings, China is placed 77th in the world.1 The plan demonstrates the Chinese Central Government's determination to improve this ranking, including plans to make a bid to host (and win) the World Cup.

The 50-point reform plan, championed by President Xi Jinping, covers the national team, professional leagues, professional clubs and local clubs.2 The plan envisions increasing the number of football fields, creating two specialised training institutes and establishing 50,000 Chinese schools offering football training by 2025. These initiatives will be partially funded through revenues received from a newly established national football lottery (the full details of which are still to be finalised), based on Chinese football matches. Crucially, the plan also streamlines the widely-criticised governance system for football in China which some have suggested has contributed to the corruption scandals which have blighted the sport,3 separating the Chinese Football Association (CFA) from the General Administration of Sports (GAS). Other reform points include introducing new policies on broadcasting and marketing rights.

Earlier this year, Dentons and Beijing firm Dacheng (大成) announced they will be combining. Dentons 大成 hosted the first-ever Sports Law conference in China in June 2015 at the Regency Hotel in Beijing. Here, Dentons Managing Associate, Alex Haffner, discusses with 大成 Sports Law partner, Liu Chi, what the Chinese Football Reform Plan will mean, both for China and for the global football/sports community.

 

What has brought about the Chinese government's interest in Chinese football and why is the publication of the plan by the Chinese State Council so important?

As in most parts of the world, football is the most popular sport in China. Over the past 20 years, billions of Chinese sports fans have followed the ups and downs of the professional football leagues and the Chinese men’s and women's teams. Our attention is only drawn away to watch the brilliant performance of our national teams during the Olympic Games. In the FIFA world rankings, the national Chinese men's team is consistently ranked in the seventies.4 While many of the clubs operate in the red, the Chinese Super League (CSL) footballers' salaries are amongst the highest in Asia. In fact, they are ranked 15th highest in the world.5

China's performance on the football field has long been used as a benchmark for the overall sports sector in China. The turning point happened in July 2013, after the Chinese national team's 1:5 home defeat to Thailand.6 At the time, the Thai National team was ranked 142nd in the world, and was mostly comprised of its youth team players. This prompted the Chinese government, with the multiple levels of support, to accelerate its football reform efforts.

On 2 October 2014, the State Council enacted "Several Opinions on Accelerating Development of Sports Industry andPromoting Sports Consumption7 – one of the most high-level decisions involving the sporting sector ever released.

The Opinions specifically identify football, basketball and volleyball as the three key sports to lead the reform.

Key targets to be achieved before 2025 include:

  1. increasing the overall size of the sports industry to over RMB 5 trillion (around US$1 trillion) and becoming one of the driving forces to promote sustainable social and economic development of the Chinese society; and
  2. significantly increasing the amount of sport each person plays, and increasing the average exercise space to 2m2 per person.

In order to achieve these goals, the State Council has made orders to eliminate the unreasonable administrative hurdles required to host commercial and grass-roots sporting events, reform the sporting events management system, improve the governance structures of professional clubs, and promote innovative management of sports venues and facilities. The decision also encourages foreign investment into the Chinese sports industry.

The State Council clearly intends that the Football Reform Plan should set an example for reforms of other sports and the sports sector as a whole, in order to enable everyone to enjoy the benefits of the reform and to improve the wellbeing of the average Chinese person.

Do the Chinese football authorities tend to look closely at "best practice" from other countries/regions, and if so where would they tend to focus on particularly?

Under the Football Reform Plan, the first basic principle is “to integrate the international experiences with specific Chinese circumstances; to learn from the experiences of those football advanced countries based on the specific situations of China; to develop a new route of football reform and development with Chinese characteristics, in order to comprehensively fulfil the social value and function of football.8

The CFA, CSL and Chinese clubs all maintain very close ties with other football associations, leagues and clubs across Asia, Europe and the Americas. In particular, the CFA closely follows football in Japan and Korea. While China, Japan and Korea all launched professional leagues around the same time, they each offer unique experiences.

This international aspect will increase under the Football Reform Plan, to include player development, technical training, and hiring players and coaches from outside of China.9

 

Which aspects of the plan do you expect to be given the most priority?

The Football Reform Plan places priority on several areas:

  • governance model and structures amongst the CFA, professional leagues and clubs;10
  • operational models of professional football clubs and successful leagues;11
  • developing youth football, and improving performance of national teams;12
  • constructing more football fields;13
  • creating a competitive bidding mechanism for football broadcasting rights;14 and
  • reforming policies on football broadcasting revenue sharing. This is particularly important in light of the revenue these new commercial rights will attract.

The Football Reform Plan also encourages private investment, in order to increase football development in China.15 For example, in an effort to raise more funds, Evergrande Football Club (jointly owned by Evergrande Real Estate Company and Alibaba, and currently ranked number 1 in the CSL) is seeking a public offering on the Chinese over-the-counter equity exchange; the first such listing in China.16

 

What is the current situation in China regarding the exploitation of media rights to domestic football matches? In particular, how up to date are the football authorities in exploiting "new media" (Mobile/Internet) opportunities?

Currently, most football-related revenues in the CSL are generated from tickets and sponsorships (in comparison to other professional leagues around the world, the broadcasting rights and other commercial rights are not significant). In 2014, the CSL's revenue was around RMB 440 million (approximately US$70 million). Of this, only around RMB 40 million (US$6 million) was in copyright-related fees. The internet rights are distributed amongst the four major internet companies: Sina.com; Sohu.com; Netease.com; and Tencent.com.

In January 2015, the CSL ended its 10 year-long "naked run", entering into a sponsorship and media rights contract with a Tianjin company. In March 2015, LeTV obtained exclusive global media rights, title sponsorship and commercial rights for the Chinese women’s football league for the next five years.17 In April 2015, China Sports Media gained the broadcasting rights for the Team China games in the next four years, beating more that 13 other bidders.18 China Sports Media reportedly paid more than RMB 70 million (US$11 million) for the first year alone.

In August, the CSL will announce the winning bidder for its 2016 Super League broadcasting rights. The base price is reportedly set at RMB 200 million (approximately US$30 million).While this is more than three times the figures achieved in 2014, some experts predict the final price will be as high as RMB 500 million (about US$80 million).19

On 30 June 2015, a district court in Beijing issued an important judgment on the protection of IP in sports broadcasting rights. Sina.com brought claims against ifeng.com for infringing Sina.com's exclusive broadcasting rights in CSL games. Ultimately, the court sided with Sina.com. The case is currently under appeal, and is being closely followed.20

 

How do you think the exploitation of media rights will change as a result of the plan being put into effect?

Under Point 46 of the Football Reform Plan, the State Council specifically instructed that: “the restrictions on sports broadcasting rights should be gradually relaxed, except for the rights to broadcast the Olympic Games, Asian Games and the FIFA Men’s World Cup [that are currently exclusively reserved to China Central TV]. The rights to broadcast all other domestic and international games may be purchased or transferred by all TV stations.

The Football Reform Plan emphasises “reforming football broadcasting revenue sharing mechanism"21 in order to ensure that events hosts and participants are the principal beneficiaries of the revenue. The Plan also encourages the “innovation of football broadcasting and promotion methods, and exploring the combination of traditional media and new media in the football development to increase revenues from the new media markets.22

These changes will apply to both domestic and international football matches. For domestic rights, the results of the August auction for the CSL will indicate how high the fees will go. For international rights, many TV stations and companies frequently broadcast games played overseas. Under the Football Reform Plan, we can safely say that the international broadcasting rights fees for these games will be higher and the competition among the Chinese broadcasters will be more intense.

 

What opportunities are there for foreign investors to get involved in Chinese football and, correspondingly, are we going to see more investment by Chinese investors in football leagues/clubs outside of China?

Under the Chinese Foreign Investment Catalogue laws,23 foreign investors may invest in most sporting areas except for those closely linked to broadcasting and sports programme productions. For example, foreign companies such as Siemens, Adidas and Nike have been title sponsors of Team China. DHL is currently the sponsor of the CSL from 2014 to 2017, with Infront, IMG and Octagon and others sports companies also active in the Chinese football market. Further, there are many foreign players and coaches working in Chinese professional football clubs. However, foreign investment in China still requires governmental approval. Many foreign companies are waiting for the result of new relationship between the CFA and the General Sports Administration of China before investing in big projects in China.

On the other hand, encouraged by the Football Reform Plan, some Chinese companies plan to invest in European football clubs.24 This will strengthen the ties between Chinese and international football. Investments like this will also train the future Chinese football stars, in the hope that China will win the right to host and win the FIFA World Cup.

 


 

During the 2015 Dentons 大成 International Sports Law Conference held in Beijing on 25-26 June, Liu Chi of 大成 and the CFA organised a “China Football Reform” afternoon (see title picture25). Speakers included James Johnson and Omar Ongaro from FIFA and James Kitching from the Asian Football Confederation. The topics discussed during the conference included “Governance Models of Member Associations, Leagues and Clubs”, “FIFA Dispute Resolution System”, “Training Compensation and Solidarity Mechanism”, “Rights Protection in Asian Football, the Regulatory Approach of AFC” and “Legal Considerations of Youth Football Players' Development.” During the afternoon, Ben Cohen of FIBA and Alex Haffner of Dentons, London, joined the speakers in a panel discussion on “How to Build A Successful Football League”, offering FIBA's experiences and private practitioners' perspectives to the Chinese audiences.

 

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About the Author

Alex Haffner

Alex Haffner

Alex is a Partner in the Commercial, Sports and IP Team at Fladgate LLP, specialising in the sports, technology and media sectors.

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Chi Liu

Chi Liu

Chi Liu is a sports and entertainment lawyer, with legal licenses in China and New York State.

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