The market entry and retreat of Dalian Wanda Group in world football

The market entry and retreat of Dalian Wanda Group in world football

 

On 14th February 2018, Atlético de Madrid announced that its Chinese investor Dalian Wanda Group (DWG) has reached an agreement to sell 17 percent of its 20 percent stake in the Spanish football club for about US$ 50 million. According to the official statement, ‘The decision to divest is part of the global strategy of Dalian Wanda Group’. This strategic reorientation of the Chinese corporation marks a turning point in the international football business.

Chinese economic impact on world football

A few years ago, political reform policies in China to develop national football were followed by increased commercial activities and a high level of capital influx into world football. Several star players under contract at top European clubs were transferred to China for breathtaking amounts. Moreover, Chinese companies started to invest heavily in shares of top-tier European clubs like Manchester City (City Football Group) or acquired them all together, such as the emblematic pair of Internazionale Milan and AC Milan, as well as football-related service companies.

Source: FIFA Transfer Matching System

Regarding the spectacular player transfers to China, Liverpool manager Jürgen Klopp made an interesting comparison. He said in an interview that footballers might go to China for the money, but people in (continental) Europe think the same logic applies to a move to England. Other well-known names of European football, such as Arsene Wenger and Antonio Conte, have not only voiced their concerns about these developments but have portrayed China as a ‘danger’ to European football. The ‘China Threat’ categorisation recalls the statements of the Donald Trump administration in the US, where China is considered not only a ‘whole-of-government threat, but as a whole-of-society threat’.

Wanda’s foray into the international football market

In 2015, DWG acquired a 20 percent stake in Atlético de Madrid, the third most successful club in Spanish football, behind Real Madrid and FC Barcelona, for US$ 52 million. A few weeks later the Chinese company purchased Infront Sports & Media AG, one of the leading sports marketing companies, for about US$ 1.2 billion.

According to Infront’s website, the Fédération Internationale de Football Association (FIFA) has appointed the company as the ‘exclusive sales representative for the distribution of Asian broadcast rights to the 2018 and 2022 FIFA World Cups™ and all other FIFA Events 2015-2022 following an international tender process. The agreement covers 26 countries, including China, Hong Kong India, Indonesia, Singapore and Thailand.’

The president and chief executive officer of Infront Sports & Media AG is Philippe Blatter, the nephew of former FIFA president Sepp Blatter. In May 2015, Wang Jianlin, the founder of DWG and, according to the ‘Hurun Rich List’ of 2017, one of the wealthiest person in China, and Phillipe Blatter attended the 65th FIFA Congress, where Sepp Blatter was re-elected as FIFA president.

A few days after Blatter’s electoral victory, federal prosecutors in the United States disclosed corruption cases of FIFA officials and persons associated with FIFA. Sepp Blatter was banned for six years by the FIFA ethics committee accordingly since he allegedly approved a payment of about US$ 2 million to Michel Platini, former president of the Union of European Football Associations (UEFA). Subsequently, UEFA General Secretary Gianni Infantino was elected as the new FIFA president in 2016.

The corruption allegations had the consequence that some FIFA-affiliated companies such Continental, Castrol, and Johnson & Johnson did not renew their sponsorship contracts. At the same time, DWG became the first Chinese top-level sponsor of FIFA. This agreement was the first commercial deal of Gianni Infantino in his function as FIFA president. On DWG’s website, it is indicated that with the strategic partnership between DWG and FIFA the Chinese company ‘will be better placed to play a role in the bidding process to host major football events such as the World Cup’. The hosting of the FIFA World Cup is one of the dreams of China’s President Xi Jinping.

In an open lecture at Harvard Business School, Wang Jianlin explained the reasons for investing in international football: ‘Our dream is to improve China’s sports industry by adapting to the development of the mainland’s economy and society… If Chinese companies don’t go through the globalisation phase, it’s hard for us to make China powerful or realise the Chinese Dream’. Beyond positioning sport, and football, as drivers of globalisation, this quote also demonstrates that the investment decisions of the corporation are justified by the policy expectations in the era of President Xi Jinping.

Nevertheless, the calculation of DWG did not work out, and the ‘dream’ became a nightmare for the Chinese company.

Wanda under investigation of China’s regulatory bodies

In December 2016, China’s National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China and the State Administration of Foreign Exchange (SAFE) issued in a press release that regulatory bodies ‘pay close attention to the recent tendency of some irrational outward investment in the fields of real estate, hotels, cinemas, entertainment industry, and sports clubs.’ DWG has invested in all of these fields.

Source: Thomson Reuters

In March 2017, Pan Gongsheng, deputy governor of China’s central bank and director of SAFE, compared overseas mergers and acquisitions with ‘barbed roses’. He added that many investments in foreign football clubs were ‘irrational‘ since Chinese companies ‘borrowed large sums of money’ and had ‘already a high debt ratio’. In the same month, an American company announced that a proposed acquisition by DWG was cancelled. A few weeks later, Wang Jianlin explained that he was turning his attention back to domestic investments.

A few month later, the China Banking Regulatory Commission launched an investigation into the ‘systematic risk’ presented by some large corporations involved in overseas acquisitions, including DWG and other companies that invested in European football. As a result, shares in Wanda Film Holdings, a subsidiary of DWG, fell by 9.9 percent.

Prior to this, China’s central bank governor Zhou Xiaochuan remarked that ‘The experience of the global financial crisis tells us that the first priority is to keep financial institutions healthy so that financial crises could be prevented. We cannot tolerate phenomena such as heavy leverage, low capital and non-performing loans.’ These political interventions may also be connected to the issue that capital outflows via overseas investments have a depreciating pressure on the Chinese currency and might reduce China’s foreign exchange reserves.

According to data released by China’s Ministry of Commerce, from January to June 2017, Chinese overseas investment in culture, sports and entertainment industry dropped by 82.5 percent, accounting for 1 percent of the total overseas investment.

In January 2018, Wang Jianlin promised that DWG will gradually repay all its overseas debt and will not ‘have any credit default anywhere in the world’. The sale of the shares in Atlético de Madrid is, therefore, part of a strategic reorientation of the Chinese company.

China-EU or EU-China Sports Diplomacy?

China-EU or EU-China Sports Diplomacy?

 

Earlier this month (December 2017), the team of China Football 8 was invited to participate in the ‘Seminar on Sport Diplomacy’ in Brussels. The seminar was organised by the Directorate-General for Education, Youth, Sport and Culture of the European Commission, as a follow-up to the High-Level Group on sports diplomacy set up in 2015 by Commissioner Tibor Navracsics in order to elaborate political initiatives and recommendations in this field. The group included active and former athletes, academics, think-tank and media representatives. In an interview with the think-tank ‘Sport et Citoyenneté‘, Mr Navracsics indicated that the High-Level Group’s work might lead to more coordinated efforts by the EU Member States to harness the potential of sport for diplomacy and ‘make the EU a stronger global actor.’

On November 2016, the General Secretariat of the Council issued its conclusions on sports diplomacy. Sport is considered ‘a possible tool in supporting intercultural, economic and political cooperation and understanding between nations and cultures’. Moreover, sport is assigned the ability to ‘shape perceptions in order to support reaching broader foreign policy goals’ and promoting values such as ‘fair play, equality, respect for diversity, integrity, discipline, excellence, friendship, tolerance and mutual understanding which bring different people and countries together.’ Projects related to sports diplomacy should be realised through the EU funding programmes in the area of EU External Relations as well as through the Erasmus+ programme.

Against the background of these developments, the big question is of course: what are the target countries? And within the framework of this blog, the obvious question is whether the People’s Republic of China (PRC) could be a target country or even a partner of EU sports diplomacy.

According to Professor Thierry Zintz, the Dean of the Faculty of Sports Sciences of the Université Catholique de Louvain and rapporteur of the High-Level Group, sport is a source of cultural soft power. This definition fits very well with the official statements of Mr Xi Jinping, President of the PRC. On October 2017, Mr Xi Jinping delivered a report at the 19th National Congress of the Communist Party of China (CPC) where he revealed that China’s political leadership will ‘speed up efforts to build China into a powerful sports nation’. To achieve this goal, the CPC ‘will strengthen people-to-people and cultural exchanges with other countries, giving prominence to Chinese culture while also drawing on other cultures, […] improve our capacity for engaging in international communication so as to tell China’s stories well, present a true, multi-dimensional, and panoramic view of China, and enhance our country’s cultural soft power.’

The concept of soft power has been used and abused in studies about China in recent years. The major problems are the imprecise contextualisation, wording, quantifying and application of this concept. Some argue it is no longer relevant in the context of sport mega-events. Nonetheless, the very vague derivation and interpretation of the concept is also used in the context of the developmental aspirations in Chinese football and the hosting of the 2022 Beijing Winter Olympics and Paralympic Games.

One month after Mr Xi Jinping’s speech at the 19th National Congress of the CPC, Mr Navracsics and Chinese Vice-Premier Mrs Liu Yandong met on the occasion of the 4th EU-China High-Level People-to-People Dialogue in Shanghai. In this context, the topic of sports was discussed for the first time.

However, the question remains whether China is a target of European sports diplomacy, or whether it is perhaps the other way round! The fact is that there are various cooperation opportunities associated with sports, such as in fields of health, governance, economics, education, etc. Sport in general, and football, in particular, have a multi-dimensional impact on human beings: they attract a lot of attention, trigger emotions and create a strong sense of belonging or rejection, have increasing economic weight, and immediate implications on public health. Sport is indeed a promising avenue for engaging in People-to-People dialogue not only on ‘high level’, but also between sportspeople and citizens.

It remains to be seen whether the diplomatic relations between the EU and China in this specific field will lead to mutual influence and exchange, beyond ‘soft-power’ posturing.

Seminar on Sport Diplomacy (1)
Seminar on Sport Diplomacy (2)
The influence of media on China’s “Soft Power”

The influence of media on China’s “Soft Power”

 

Academic debates about China’s “soft power” are controversial. Internationally renowned scientists such as Joseph Nye and David Shambaugh believe that many efforts of China’s central government aimed at accumulating cultural soft power had only a very limited return on its investments. But this may change now, thanks to the coverage of some influential non-Chinese media outlets.

Today, the Financial Times published an article titled “Beijing’s endgame: football with Chinese characteristics”. The article is mainly about the overdose of Chinese investments in English football clubs. It is argued that these investments are a response to President Xi Jinping’s football reforms, which are a means to boost China’s international influence.

But is this conclusion coherent? Are not the Chinese national team and the domestic league the key to increasing soft power? I’ve heard relatively little about German investors in foreign football clubs – even though the money is there. Nevertheless, football is a very important element of German soft power. The reason for this is obvious: the national team has been sustainably successful for decades and even more appreciated globally since the 2006 World Cup and the Klinsmann/Löw revolution.

In recent years, there has been an inflation of studies about Chinese soft power. Just because there are repeated scientific claims that China possesses (more or less) soft power, it does not mean that this is necessarily the case. From a scientific point of view, one major difficulty is already to quantify soft power. How exactly do you measure it?

What’s even more important (and not discussed in the FT article) is that the term “soft power” is interpreted differently by different scholars, especially in China. While the traditional understanding framed by Nye (1990) considers soft power mainly in the context of international relations, Chinese scholars and policy analysts also apply the concept to the context of domestic politics (Wang/Lu 2008: 445). That’s why we might miss the point in the soft power debates.

However, what I noticed recently is that the constant reporting of non-Chinese media – especially about Chinese football – has resulted in an increased awareness and interest in contemporary China’s popular culture.

What I mean by this is that the issue of Chinese soft power has shifted from a purely academic debate to a widely discussed topic in other fields like European football for example, which may have paradoxically led to China having actually more international influence and, consequently, more soft power.

Even now that you have spent your energy and time reading this text, it may be that I have influenced your perception of the capacity of Chinese soft power. Talking, writing, blogging about Chinese soft power may well turn out to become a self-fulfilling prophecy.

Football in China: New hub for new technologies in the service of new politics

Football in China: New hub for new technologies in the service of new politics

Recently, the Chinese Football Association (CFA) has announced that it wants to “learn” from the English Premier League, the German Bundesliga and other developed football countries to launch new technologies such as the Video Assistant Referee (VAR) and a professional referee system in 2018. The VARs communicate with the main referee on the pitch and review their decisions to avoid “clear errors”.

VAR in action. The technology was first tested in the USA between two reserve teams of Major League Soccer clubs – New York Red Bulls II and Orlando City B – in August of 2016. (Source: FIFA)

The official motto of the CFA is: “Go out, and please come back” (Zǒu chūqù, qǐng jìnlái). This means that the CFA is promoting international exchanges and encourages Chinese referees to learn from foreign partners. In addition, the CFA is investing in new technologies in order to improve the quality of Chinese referees. This simply means – no more and no less – to transfer know-how to China.

This matter could give the impression that Chinese football is technologically lagging behind in many aspects. This is, however, not correct.

A good example of how advanced the technologies in Chinese football are is demonstrated by a company called Whaley Technology. The company is using the internet and Virtual Reality (VR) technologies to broadcast sports competitions. VR is a computer technology that creates a realistic perception of images, sounds and other sensations by using headsets or other technical devices. The technology simulates the user a physical presence in an imaginary environment. In May 2017, the Chinese Super League (CSL) match between Chongqing Lifan and Henan Jianye was the first football match in China that was broadcasted live with VR technology.

Whaley Technology was founded by Li Ruigang, the chairman of China Media Capital (CMC), in April 2015. According to Bloomberg, CMC is a private equity and venture capital firm that “prefers to invest in the cultural, technology, media, entertainment, consumer, medical treatment, telecommunication, internet, mobile, and middle-class lifestyle sectors” in China and abroad.

In August 2015, CMC partnered with Alibaba Group and Tencent, to invest RMB 2 billion (US$ 304 million) into Whaley Technology, only a few months after the company was founded.

In December 2015, a consortium led by CMC agreed to pay US$ 400 million for a 13 percent minority stake in City Football Group, the owners of Manchester City, among other football clubs. It is therefore not surprising that Manchester City announced in May 2016 that Whaley Technology will become the official TV partner of the club in China.

The user of VR technology can experience stadium atmosphere in the living room.

In April 2016, Ti’ao Dongli, another subsidiary of CMC that acquired the CSL broadcasting rights for five consecutive seasons (2016-2020) for a record of RMB 8 billion (about US$ 1.19 billion), and Whaley Technology announced that they will introduce VR technologies to their football broadcasting business.

In the same month as Whaley Technology has announced that it will introduce VR technologies to their football broadcasting business, the National Development and Reform Commission, a macroeconomic management agency under the State Council of the People’s Republic of China, issued a new reform programme called The Medium and Long-Term Development Plan of Chinese Football (2016-2050). In this reform programme, it is required to promote the deep integration of the internet technology with the football industry and to focus on the introduction of the mobile internet, e-commerce, Big Data and other new technologies and formats. All this is only the beginning of a scientific and technological revolution that will dramatically change football, and not only football, it will change our lives.

Where is China’s Nick Hornby?

Where is China’s Nick Hornby?

25 years ago, in September 1992, football changed. Not only through the launch of the Premier League and the Champions League, but also through the publication of a small autobiographical novel by an unknown author, which in a strange, certainly unintentional simultaneity, became the swan song of all these decades of traditional football that were now to be replaced by the Brave New World of postmodern football in all its splendour.

Nick Hornby’s Fever Pitch did not invent anything: the entire vocabulary and set of behaviour patterns it relates were already well-known. But it introduced a different way of talking about the football addiction, a new narrative.

Fever Pitch is the monument to the ‘unknown supporter’. Many football lovers, of whatever level of education, recognised themselves in the bittersweet nostalgia of this both hilarious and sad account of what it means to be diagnosed football-virus-positive. There it was, all laid out before them in a funny, touching story: this helpless feeling of being emotionally imprisoned in the attachment to a football club, the stupid urge to keep on suffering weekend after weekend on windy and drenched terraces, the self-mocking despair about this stupid game’s totally disproportional impact on your daily life.

Hornby brought supporters comfort and relief, by activating and reformulating something they had never really lacked, but had been mostly unaware of: ironic distance.

Irony is based on a deep, shared understanding of an object, dissimulated behind apparent ignorance. It is an implicit agreement with one’s audience about the inadequacy of what is explicitly said. But irony is not cheap mockery of something that deserves contempt: it only works if the object of its derision is taken seriously in the first place.

Football is a case in point. Football-bashing is boring. But football irony can be truly funny. Football’s most-quoted definition – Bill Shankly’s ultimate sentence about it being much more than just a matter of life and death – is a wonderful illustration. The effect of humour in this ironic statement is mainly drawn from the fact that behind the obvious absurdity of the claim, there is a shared understanding that – ‘well, I hate to admit it, but let’s face it’ – it holds a kernel of truth. The life of a football lover is rife with moments that can, for fear of utter ridicule, only be openly referred to behind a veil of irony.

In a large social group, irony can only function if there is a shared (aesthetic) experience to which it can refer. This post, being published on a blog that is dedicated to football in China, therefore almost automatically raises the question to what extent it is possible to create, as intended by President Xi Jinping, a football nation from scratch, without the decades of accumulated understanding of the game and what it does to people.

In 1994, only two years after the release of Fever Pitch, Chinese football went professional. And as in so many other fields, China is taking the shortcut and jumping directly into postmodernity. Football has never been the country’s ‘national sport’, there seems to be no widely shared tradition of supportership, it does not seem to have played any role in processes of self-perception or identity formation.

Today, the government expresses the political will and mobilises the economic means to implement the immensely ambitious reform programmes and achieve, in record time, what must well be termed a ‘football revolution’ across the nation. Looking at China’s track record of performance over the last quarter century, there is hardly any doubt the market will continue to explode and, at one point, the massive effort in detection and training of talent will bear fruit.

What is strangely absent from all this ‘hyper-loop’ football, is the supporters themselves. What do we actually know about them, besides their level of brand recognition for Premier League clubs and readiness to purchase Bayern Munich jerseys? Do they love the game for having played it themselves or are they simply being educated into becoming the perfect consumers of global entertainment football? What do we know about the legends and myths of Chinese football, the stories that are handed on between generations, besides the claim – officially acknowledged by FIFA – to have invented the game around 4,500 years ago?

In other words: Where is China’s Nick Hornby? A simple question that entails that academic research about the contemporary Chinese football revolution should be accompanied by studies in literature and, ideally, some ethnographic field work among Chinese football fans. What does their collective memory look like? How strong can the roots of fandom be without a whole century punctuated by the reassuring rhythm of successive seasons and a shared canon of unforgettable highlights?

It’s not complicated to be a customer of today’s football industry. But as an individual socialised in Europe, I doubt I would be have any interest for it if I did not have that bittersweet Fever Pitch nostalgia for a time that is no more, will not come back, but generated a touching, sometimes ironic, lasting narrative.

What the Neymar transfer tells us about Football in China

What the Neymar transfer tells us about Football in China

 

Paris Saint-Germain signed Brazilian forward Neymar for a world record fee of 222 million euros from FC Barcelona. The football public went crazy and some people accused Neymar on social media of being immoral. Most people, however, forget that the greatest value of football is not money; it is attention.

Imagine if football would not receive worldwide attention, as it is nowadays. Do you believe that so many entrepreneurs would be willing to invest their money in football, where a large number of clubs generate no or very low financial returns compared to other industries? Probably there would be some benefactors who voluntarily sponsor their home teams. But would these enormous sums of money be spent on sponsorship and TV rights if football would not receive the attention of so many people? I don’t think so.

The irony of the Neymar transfer is that most people who are now terribly upset and angry about it will most likely turn on the TV when Neymar plays against his former colleagues in the Champion League.

Many people are unaware that football is, in fact, a made-up game that is invested with so much meaning that it becomes reality. It involves elaborate rituals, and the results of the competitions have substantial impact on the social, economic and political standing of both players and spectators. Without the global attention, the social, commercial and political impact of football would probably not be worth mentioning. In fact, football would have no effect at all if we did not believe it had an effect. But it has an enormous impact! This is the reason why football is “more than a game”.

Football is a “religion” that people usually join very early in life. Of course, there are people who convert only at advanced age from other sports to football, but according to a study of FREE (Football Research in Enlarged Europe) about 89 per cent of respondents (over 8,000 European football fans) stated in a survey that they started to be interested in playing and watching football before they were 12 years old. This means that football socialisation takes place at a very young age.

In 2015, China’s Ministry of Education included football on the physical education syllabus in all primary and secondary schools and made football a compulsory part of the national school curriculum. In contrast to many European countries, youth football should be developed mainly in schools and not in clubs. The basic idea behind these efforts is to popularise football in the Chinese public. Thus, a special programme called Campus Football should “develop excellent grassroots to provide a growth path from social football to professional football”.

But it’s not the party, it’s the people who really matter. The Chinese population plays a decisive role in the development of national football. A comprehensive development of national football in China cannot be performed without the voluntary decision of the Chinese public to pay attention to and participate in football-related activities. This is the power of attention. It is all the more surprising that the role of football communities are often underestimated in the public debates not only on Chinese football.

European Football Clubs Tour China

European Football Clubs Tour China

 

A lot of prominent European football clubs are currently in China. It’s summer break. The competitions in the European leagues have not yet started and the teams are preparing intensively for the coming season.

The weather is usually at this time of the year very hot and sticky in areas like Shanghai, Guangzhou and Tianjin and the time difference is an extra burden, especially for professional players. There is also the fact that European teams mainly play friendlies against each other, since the Chinese teams are in the middle of the season.

The question arises: Why are so many teams taking on the hardships to travel to China during their pre-season preparation?

China is the second largest economy in the world, it has now more than 100 cities of over 1 million residents, and after President Xi Jinping came into office in November 2012, three comprehensive reform programmes to develop football and sports in general in China have been issued. It is therefore only logical that actors of European football consider China first and foremost one of the most promising markets for their own business expansion.

Since 2015, the International Champions Cup (ICC) has been organising friendlies between European football clubs in China. LeTV, one of China’s largest online video companies, teamed up with RSE Ventures, Relevent Sports and Catalyst Media Group to bring ICC to China. According to ICC website, the corporation “is dedicated to full-dimensional premium European football experience for Chinese fans. As a world’s leading pre-season football tournament, ICC China brings along the top European football culture and football lifestyle in China”.

Is it really about bringing European football culture and football lifestyle to China? There is subsequently a more important question: what do they mean with “European football culture” and “football lifestyle”? And: can we even speak of European football clubs when three of the six participating teams are partly (Olympique Lyonnais, Inter Milan) or completely (AC Milan) owned by Chinese investors?

In the field of social sciences it is widely accepted that sport is a powerful facilitator, provider and resource for an array of identities. However, this does not mean that sport should be understood as some kind of self-sufficient social institutions or subsystem, but rather as a constitutive element of everyday life and popular culture, within particular social and historical settings. Football, as one of the most popular mass sports in the world, has a great social, cultural and political impact in (re-)producing collective identities on all levels. The ritualised sporting events became an expression of their imagined communities.

In June 2016, the Suning Holdings Group, one of China’s largest retail business enterprises with more than 1,600 stores, spend €270 million (US$ 307 million) to buy a majority stake of 68.55 percent in European football club Inter Milan. The Suning Holdings Group is based in Nanjing, where the next ICC game will take place on Monday: Inter Milan vs Olympique Lyonnais. For this reason it will probably be a “home game” for Inter.

Welcome

Welcome

 

My name is Ilker Gündogan. I was born in Gelsenkirchen, Germany, in 1988. I am a PhD candidate at the Ruhr-University Bochum and ESSCA School of Management. My current research focuses on China’s football politics and market creation in the era of Xi Jinping. The overarching research question of my dissertation project relates to the understanding of current developments in Chinese football: what are, beyond official and popular narratives, the underlying motivations of the Chinese government to promote football in an unprecedented manner? Or, in a nutshell: why football? And: why now? And what does this case study of the big football reform programme tell us about policy-making in contemporary China, especially with regard to the complementarity of top-down and bottom-up impulses of policy initiation?

This is my first blog post. This blog is featuring both academic reflexions (including from guest contributors) and general information on Chinese football (both in historical and contemporary perspective). The objective of the online presence is to set up, beyond the dissertation project, a small standing group of industry experts, observers and scholars from various disciplines who are interested in working on football in Chinese society, politics and economics and who can bring together their different expertise and methodology in a loose network.

Welcome to China Football 8