China football: Game of two halves?

In 1978, while flying high near the top of the English league, West Bromwich Albion became the first UK football team to tour China. Over the course of two weeks, West Brom took on four Chinese sides and a Hong Kong XI, emerging undefeated. (On a visit to the Great Wall, one of the players was reportedly asked what he thought of it, and replied: "I've bent balls around bigger walls than this.")

Earlier this month, nearly four decades on from that tour, the Chinese won the rematch: Guochuan Lai, a local entrepreneur who made his fortune in landscape design and construction, agreed to buy West Brom. The club has yet to recapture its former glories - consistently mid-table in recent seasons, with a tendency to chop and change managers - but Lai described himself as a passionate fan and a long-term investor. He also promised exposure to the raw potential of China's consumer market.

Lai is not the first Chinese party to make this bold claim. Following the announcement that IDG Capital Partners had agreed to buy a 20% stake in the holding company of France's Olympique Lyonnais, a total of five European football clubs have done deals with Chinese investors over the past two months. In addition to West Brom and Olympique Lyonnais, there are agreements involving Aston Villa, which was relegated from the English Premier League last season, and both Milan clubs, Inter and AC.

There is a private equity angle to this in that some of the participants in these various consortiums are either independent or government-backed funds. But this is largely subsumed by the broader M&A trend. Are these deals the work of strategic investors that can genuinely monetize the combination of China's rising middle class and its penchant for international football, or wealthy groups and individuals seeking trophy assets on an opportunistic basis?

Clearly, Chinese stakeholders are tapping into the government's elevation of football to a national priority with the ultimate objective of hosting the World Cup. Blueprints for the development of the game have been unveiled, while support for domestic sports was the subject of a State Council guideline that envisaged creating an industry worth RMB5 trillion ($755 billion) by 2025. On a broader level, culture and entertainment is one of the pillar industries in the country's latest five-year plan.

Free-spending entrepreneurs are pumping into local clubs, enabling them to attract better-quality players. In a move that reflects this increased bullishness on the prospects for domestic football, CMC Holdings - an investment platform created by CMC Capital Partners - last year paid a record $1.3 billion for broadcast rights to Chinese Super League matches.

As to the forays overseas, much can be read into what is, and isn't, known about the buyers. Questions are already being asked about Tony Xia, who has agreed to buy Aston Villa, after it emerged that the company of which he is chairman has fewer listed subsidiaries than previously suggested. Meanwhile, the consortium behind the AC Milan acquisition is for the most part a black box: state-controlled Haixia Capital is the only disclosed consortium member.

With others, the connection is clearer. Suning, the electronics retailer that bought Inter Milan, has been making efforts to build a greater online presence, having also acquired video streaming assets; adding a high-profile football club to its portfolio could be seen as a move to collect media and entertainment assets through which it can better engage with consumers. Alibaba Group has taken similar steps.

An earlier deal involving the holding company for Manchester City and related businesses also fits this rubric. The investors are CMC and CITIC Holdings, and the former has made no secret of its strategy to acquire assets throughout the media value chain, from content to distribution.

Anecdotal evidence indicates that a host of European football clubs are being pitched to Chinese investors, in some cases by highly motivated sellers that want to take money off the table and leave what is an increasingly expensive industry. Buyers make all the right noises but it is unclear whether they can make good on their promises. Can West Brom really be transformed by tapping into an as yet non-existent cult following among Chinese consumers?

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• Topics
• Greater China
• Europe
• Media
• Consumer
• China
• IDG Capital Partners
• China Media Capital