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CHINA DIGEST | Nike rapped; officials eye football investments; Asian Tour-CGA golf deal; sportswear financials

Weekly round-up of sports business news from the Chinese sports industry.

Nike rapped for inaccurate marketing

Every year on March 15, state broadcaster CCTV marks World Consumer Rights Day with an exposé of certain brands, and every year a number of foreign companies get caught in the cross-fire. This year, it was Nike’s turn to grovel to the Chinese public (subscription required) after it admitted, following the broadcast, that 300 pairs of its Nike Hyperdunk 2008 FTB basketball shoes had been sold last year with nothing more than a rubber sole, instead of the advertised “zoom air” cushion. The sportswear giant appears to have got off relatively lightly by simply offering refunds to those affected. Back in 2012, it was fined around $700,000 by Chinese regulators after a “double air” cushion turned out to be only a single.

Screw turns on football investments

More high-level government officials offered their commentary on football investments this week. While sports minister Gou Zhongwen told the public to expect more restrictive measures to curb irrational investment in the Chinese Super League, Pan Gongsheng, head of the State Administration of Foreign Exchange (SAFE), confirmed what many suspected when he said Chinese firms are using overseas club acquisitions as cover to transfer assets abroad. Speaking over the weekend at the China Development Forum, which drew Tim Cook, Hank Paulson, Sir Martin Sorrell and many others to Beijing, Pan noted that the various deals to acquire foreign clubs would be fine if they actually helped to improve the quality football in China, but questioned if that was the true motivation. “Overseas mergers and acquisitions can resemble roses among thorns,” he said.

One such thorn would appear to be the proposed takeover of AC Milan, which Bloomberg reports has now lost the backing of state-owned Chinese firm Haixia Capital Management, which withdrew following increased scrutiny from regulators. The Chinese consortium behind the offer, Sino-Europe Sports (SES), is desperate to revive the bid having already transferred a non-refundable deposit of €200m to Silvio Berlusconi, but the end could be in sight with various sources saying the deal is set to be completed – or not – sometime in April. The report implies that SES has the money, but can’t get it out of China and is now considering pledging a third non-refundable €100m deposit. It looks increasingly likely this could be the best deal the former Italian PM never did.

ICC returns with slew of partners

As expected, the International Champions Cup (ICC) is returning to China with Bundesliga clubs Bayern Munich and Borussia Dortmund, Serie A rivals Inter and AC Milan, and English Premier League side Arsenal contesting four games across four Chinese cities in July. Shenzhen-based Kaisa Culture Group will serve as 'strategic match promoter' of the tournament, responsible for the management, promotion, sale and distribution of tickets to all four matches. German carmaker Audi will be a presenting partner of the event in Shanghai and Shenzhen, mutual fund Neo Online and flooring company Der Floor have signed on as premium partners, while Emirates and Wuciyuan Herbal Products will serve as official sponsors. More firms are expected to partner with the event in the months ahead.

New investment fund backs boxing and esports

Sequoia Capital China and CMC Holdings announced the launch of a sports investment fund, which has already led a series A financing round for Chinese boxing event operator and video platform Beijing Wanmingyang Media and has also invested in esports organisation Hero Sports. Sequoia Capital China has previously invested in many sports companies in China. CMC Holdings and its affiliate China Media Capital, led by media tycoon Li Ruigang, have most notably invested in the City Football Group, parent company of Manchester City among others. Li has been particularly active in recent weeks, with Chinese media reporting that he has also purchased a stake of between 20 and 30 per cent in CBA club Shanghai Sharks, as newly-appointed CBA boss Yao Ming looks to offload the club to avoid any conflict of interest.

Golf's Asian Tour claims major partnership

Golf’s Asian Tour will return to China for the first time in nine years after it agreed what chief executive Josh Burack called a “game changing” strategic cooperation with the China Golf Association (CGA). The partnership will seek to grow the profile of golf in China and will see up to four new events planned for the market this year, with player earnings to count towards the Asian Tour Order of Merit and the China Tour Order of Merit. While it’s ostensibly good news for the sport, the Chinese golfing landscape remains uncertain after more than 100 courses were shut down earlier this year due to environmental concerns. In addition, the CGA now has partnerships with the Asian Tour, OneAsia and the PGA Tour China, so some consolidation appears likely once it’s clear where the CGA’s priorities truly lie.

Sportswear financials

Two more Chinese sportswear brands announced their yearly financial results this week. Xtep saw revenue growth rise 1.9 per cent year-on-year, with overall gross profit margin rising to 43.2 per cent, up for the fourth straight year. However, due to what Chairman and CEO Ding Shui Po referred to as “a year of restructuring and realignment” in order to make long-term gains, net profit for the year declined by 15.2 per cent.

Meanwhile, footwear and apparel group 361°, the first Chinese sportswear brand to sponsor the Olympic Games, saw revenue rise by 12.6 per cent in 2016 and gross profit margin increase by 1.1 percentage points to 42 per cent, although net profit slumped 22.2 per cent. During 2016, the number of 361° outlets was reduced from 7,208 to 6,357.

Also this week…

 

The China Digest is written by Mark Dreyer, who runs the China Sports Insider website, which features sports business news and analysis related to China’s fast-growing sports industry. He has worked for Sky Sports, Fox Sports, AP Sports and many others, and has covered major sporting events on five continents, including three Olympic Games. He has been based in China since 2007.

 

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