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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.

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.