CFA regulations create casualties on Chinese football clubs’ hard road to sustainability

Chen Xuyuan, CFA Chairman. (Image Credit: CFA website)

It has not been a good year for Chinese football.

As well as grappling with the impact of Covid-19 – the start of the Chinese Super League has been pushed to May at the earliest – many Chinese clubs been taken aback by the harsh measures enacted by the Chinese Football Association, which announced last October that failing to pay salaries of players, coaches and staff on time would result in disqualification from the whole league season.

As an attempt to curb excessive spending by Chinese clubs it has been undeniably effective, with the bottom falling out of Chinese football’s winter transfer market. It closed last Friday with a whimper, CSL clubs spending just €28m ($31m), the least since 2011 and a far cry from its recent heyday of smashing transfer records. Rather than big names heading to China, they were seen leaving.

Additionally, the CFA has applied a transfer tax and a wage cap on foreign signings to encourage clubs to develop youth players. Foreign signings purchased for more than CNY 45m (€5.8m/$6.5m) are subject to a 100-per-cent tax rate, while foreign players are now prevented from earning more than €3m a year net.

This will likely lead to a further exodus of foreign stars, such as Shanghai SIPG’s Oscar, reportedly on €26m a year, when their existing deals expire.

In the second-tier League One, the changes have thrown clubs into chaos. This week, Xinhua reported that Liaoning Hongyun players have complained the club had forged their signatures on documents confirming that their wages had been paid.

Jiewen Li, an executive from club Sichuan Longfa, told SportBusiness that the average annual loss for clubs below the CSL is about CNY20m. The situation in the CSL is a little better.

Ultra supporters and fans of the Beijing Guoan FC watch their team play against Chongcing Lifan FC during their Chinese Super League match on June 28, 2015 in Beijing, China. (Kevin Frayer/Getty Images)

“Outside the CSL, the Chinese football market simply isn’t large enough to support so many leagues and teams, with match day ticket revenues so small, and sponsorship and other income sources practically negligible,” Li says.

According to Zhang Yujie, co-founder of Shanghai-based football fan engagement company Baker Sports, many clubs in China’s lower leagues were struggling financially last year but were told to keep going to maintain appearances, with the country in the midst of celebrations for the 70th anniversary of the Communist Party of China’s leadership.

“It’s all been fundamentally wrong in recent years,” says Zhang, “with Chinese League 1 teams buying players on large transfer fees. For them to go bankrupt is hardly a surprise, especially with the slowing Chinese economy leading to economic pressures for investors of lower league clubs.”

Some of these investors have revolted at the CFA’s recent aggressive measures, with Meng Yongqiang – primary investor at League Two Baoding Yingli Yitong – threatening take legal action to recover losses he argues have resulted from the CFA’s mismanagement of the league.

Investors like Meng are common, says Wang Wenyuan, deputy general manager of All Football, a Chinese sports news mobile application. “Everyone wants to be like Guangzhou Evergrande, hoping to buy a team to get advertising benefits and political benefits, but have ignored basic business sense, leading to the current bubble situation. Now that bubble has popped.”

An executive from Sichuan Longfor, who did not wish to be named, tells SportBusiness that the CFA was adding too much cost to clubs by its emphasis on youth training, saying: “The mandatory requirements for clubs to set up youth sides, which includes costs for players, training accommodation and coaching staff is too high. As it stood, we were having issues keeping the senior teams going.”

Such is the impact on clubs that the CFA has started free coaching programmes for players who are made redundant. A CFA source told Xinhua: “Not all the players from those bankrupt clubs can find a job, and the CFA, as the governing body for the Chinese football industry, has to help them.”

In December, CFA president Chen Xuyuan, told Xinhua in December that – with clubs having “burned too much money” – drastic action was needed to avoid “an earthquake in Chinese football”. As it happens, even the CFA’s countermeasures have created tremors.

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