Deal focus: Yao Capital bets big on sports training

China’s examination-oriented school system means physical education has never been a priority at primary and secondary level. Teaching curriculums are often poorly designed, offering basic physical training classes without strong scientific exercise instruction. Students have also complained that there is little opportunity to explore a variety of sports.

The situation has improved in recent years as parents and the government place greater emphasis on physical health and wellness. In what could be seen as recognition of this progress, Yao Capital recently led a RMB500 million ($75 million) round of funding for Doing Now, a private sports education provider. It is the sports-focused GP’s largest investment yet.

Founded in 2010, Doing Now claims to be China’s biggest sports training organization. Nearly one million students aged 4-17 participate in customized programs across basketball, football, badminton, and fencing. These take place in underutilized government-owned stadiums or sports centers, with all student registrations made online.

“Kids go to the classes not just to learn how to play sports, but also to have fun. The primary focus is not training kids to become professional athletes. The KPI [key performance indicator] measurement tools used by the coaches track whether students are happy after the classes,” says David Han, co-founder and CEO of Yao Capital.

Doing Now is profitable, with net profit margins of more than 20%. Additional revenue comes from outsourced sports venue management services – it runs about 1,000 stadiums – and hosting national sporting competitions that have so far attracted more than 10,000 participants. The company has also invested in the construction of a youth-focused sports training center, with a view to creating intellectual property rights associated with self-run events.

“Thanks to its large customer base, Doing Now is able to negotiate favorable leasing terms with the stadium owners and operators to better utilize the stadiums for organizing events and training classes. The company will continue to operate an asset-light model – running the stadiums rather than owning them,” says Han.

China’s K-12 education market reached RMB180 billion in 2015 and it is projected to be worth RMB500 billion by 2020, according to Deloitte. The sports education segment generated RMB100 billion in revenue in 2015 and it will likely ride on the growth of the broader K-12 market.

“If you look at the New Oriental Education and TAL Education, the entry barriers for their addressable markets appear to be relatively low, but these companies are successful in their respective segments,” says Han. “The sports education market is so fragmented in China. Doing Now has emerged as the industry leader in terms of the business scale, profitability and growth rate. One key thing is they have done is build a powerful technology platform to achieve scale.” 

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• Topics
• Greater China
• Consumer
• Expansion
• China
• Education
• Growth capital