The NBA Storm Warns Chinas Capital Concentration in Investment and Financing Risks

 The NBA Storm Warns Chinas Capital Concentration in Investment and Financing Risks

Subsequently, both the Chinese sponsors and partners of the NBA issued a statement calling for the termination of the cooperation. Eventually, the impact of the situation may be unpredictable or unpredictable, but it is certain that, for both the NBA and the many Chinese investment and financing capital in this industry chain, there will be economic losses.

In fact, after the No. 46 in 2014, sports industry has begun to receive widespread attention in China. Rich people with capital are flocking, and sports industry funds have been established.

However, after a few years of excitement, it returned to silence, and a lot of capital came back. According to the statistics of vertical information institutions in the field of sports, 217 sports start-ups raised funds in 2015, amounting to about 14.7 billion yuan; in 2016, 235 sports start-ups were disclosed, amounting to about 19.6 billion yuan. Subsequently, in 2017/2018, it cooled down rapidly, and the scale of financing dropped by more than 50%.

In the final analysis, there is no foundation in the Chinese market. Many outsiders come in and play. They are ignorant of the operation, cash flow patterns and rules of the sports industry. A veteran of the sports industry told reporters of economic reports in the 21st century.

Warning the rich who play games

The Morey incident brought another risk to the table.

The 21st Century Economic Reporter interviewed many people familiar with the operation of the event, pointing out that similar political protection clauses are common in the relevant broadcasting and sponsorship agreements, especially those signed by institutions with national backgrounds. This risk involves not only cultural and ideological differences, but also the characteristics of professional management system of sports league. This event undoubtedly gives risk hints to the capital seeking opportunities in the sports industry.

To assess the economic impact of the incident, Lv Jianhua, chief executive of feldspar sports, analyzed the 21st century economic reporters and concluded that Tencent was relatively affected, but not very obvious. From the current caliber, the main reason is to suspend broadcasting, not the agreement between the two.

In 2019, Tencents rivals renewed their broadcasting agreements with the NBA to obtain exclusive digital rights in 2020-2025, amounting to $1.5 billion, or $300 million per year, which is three times as much as the previous round ($100 million per year).

Normally speaking, its October now. Tencent should have paid the copyright fee for this years broadcasting. So suspending the broadcasting means losing the benefits of the next three months of this year. In other words, how can Tencent compensate for the rights that have been sold in advance for this broadcasting of the NBA league? Lu Jianhua said.

As for the next round of broadcasting agreements, one argument is that only $30,000 is currently paid down. At present, there is no issue of loss or compensation, because according to the current official calibre, only suspension of game broadcasting, not termination of the agreement with the NBA. The NBA still has to send this years broadcast signals to Tencent in accordance with the agreement, and Tencent can also develop and utilize these videos and pictures in other forms of commercialization.

From the economic point of view, the incident is direct to Chinese-funded enterprises, and may not be so obvious to the NBA for the time being. But if things continue to ferment, the long-term impact on the NBA may be incalculable, behind which is the high growth of Chinas market and its increasingly important contribution to the NBA.

What Are the Links of Capital Concentration in China

In the business model of NBA, the core part comes from basketball related income (BRI), including TV broadcasting revenue, commodity business around NBA (such as jersey), ticket revenue and so on. According to Forbes, in the 2016/17 season, 36.6% of NBA revenue comes from broadcasting rights (nationally and internationally), 22% from tickets, 11.7% from sponsorship, and 29.7% from other revenue (peripheral products, regional broadcasting rights, etc.).

Among them, the contribution of the Chinese market is growing. Chinas GDP growth and consumption upgrading, the development of the Internet have led to rapid growth of demand and huge market space. However, Chinas local sports industry, due to many factors such as the stage of development and the basic system, is far from being satisfied. According to insiders told reporters, in the current domestic sports industry structure, more than 70% of the market scale is concentrated in the production and manufacturing of low-end sports products in the industrial chain, while only about 10% of the core sports service areas. This creates a good opportunity for the NBA, the top international league, to enter the Chinese market.

Hoops Vibe, a professional basketball media in the United States, has rated five major overseas markets of the NBA, with China ranking first. NBAs annual revenue in China is about $1.2 billion, accounting for more than 10% of its total revenue. According to Forbes, as of February 2018, the market value of NBA China exceeded 4 billion US dollars (28.6 billion RMB), and the average value of each team in China exceeded 133 million US dollars (950 million RMB).

The growth rate of Chinas market can be seen from the changes of broadcasting costs in recent years.

At first, when the Chinese market was just opening up, the NBA took the initiative to find CCTV for free broadcasting, and then Chinese audiences gradually became familiar with the NBA. Before Tencent, Sina spent $7.5 million a year on digital broadcasting rights in the NBA, and then Tencent signed digital broadcasting rights of $100 million a year. Tencent renewed the rights this year, even as much as $300 million a year. According to the reporters understanding, because the cost of broadcasting rights is fixed according to factors such as population coverage, the cost in China market is higher than that in other markets.

Lu Jianhua said that if things get worse, the impact on the NBA will be obvious in the next three to five years. In this process, with the increase of income, the cost of playerssalary is also increasing rapidly. Professional managers are behind the club. In order to maintain the effective operation of the game mechanism, the balance of treatment between teams will be taken into account. Therefore, the whole cost will rise, and once the cost rises, it will be difficult to reduce.

The mode of professional operation mechanism of international sports events is quite different from that of Chinese sports system and training of athletes. The management system of NBA League is composed of Club and Association, each club is an independent legal person for profit, while the league is a non-profit commercial organization, responsible for organizing, promoting and managing events, dealing with public affairs between clubs, and the clubs pay management fees and salaries for the league.

Source: Responsible Editor of Economic Report in the 21st Century: Chen Hequn_NB12679