The Chinese Super League Just Sold for 8 Billion Yuan. What's the Bigger Game Behind It?

At first glance the price looks absurdly high. It may turn out to be the deal that sets off investment across all of Chinese sport.

Regular article

This year's Chinese Super League kept its suspense until the final round.

Last Saturday, Evergrande beat Beijing Guoan 2-0 away and took the title by 2 points, its fifth league championship in a row.

Evergrande's rise over the past five years rested largely on its parent group spending on the club without regard to cost. Since buying the club for 100 million yuan in 2010, the group put in 2 billion yuan in the first three years alone, and over the past two seasons it has spent an average of 500-600 million yuan a year.

That money brought in world-class coaches and their staffs, such as Marcello Lippi and Luiz Felipe Scolari, and, through domestic and overseas transfers, a large number of high-level first-team players. It opened a gap between Evergrande and the rest of the league.

Beijing Guoan, Shandong Luneng and Shanghai SIPG have also spent more and given Evergrande some "trouble." But apart from these few teams able to join the arms race, the gap between "rich" and "poor" across the Super League has kept widening over the past few years.

That may start to change next season.

On October 28, three days before the final round, the Chinese Super League Company and Tiao Dongli (Super Sports Media) announced in Beijing that Tiao Dongli had won the bid with an offer of 8 billion yuan. It will produce the league's public TV feed and hold its broadcast rights for the next five years.

Eight billion yuan, or 1.6 billion a year, is 4 times this season's rights fee and 20 times last season's. It is more than the Premier League, La Liga and the NBA together fetch for their rights on the Chinese mainland.

The happiest parties are the Super League Company and the 16 clubs. Under the current 4% dividend policy, each club will receive an average of 64 million yuan a year, rising to 80 million yuan a year in the last three years.

Eighty million yuan may mean little to Evergrande, but for most Super League teams it is more than a whole year's revenue. Club managers will have more money to improve training and match facilities, buy better players and become more competitive.

The "sky-high" price has also turned everyone's attention to Tiao Dongli, a company few had heard of, and to its major shareholder, China Media Capital. Why are they willing to pour huge sums into a league that only a few years ago was caught up in a match-fixing crackdown and kicked off without a title sponsor? What makes them believe the Super League will change dramatically over the next five years and let them earn the money back? And, more important, what is the bigger game behind this 8 billion yuan?

Who is Tiao Dongli, the company that can write an 8-billion-yuan check?

2004 was the most important year in the history of Chinese professional football. After 10 years of the Jia-A League, the professional system had basically taken shape. To make the league more commercial and market-driven, the Super League replaced Jia-A that year.

The same year, a company called Beijing Huaao Xingkong Sports Communication was founded. It was one of the first to sense the commercial potential of the domestic league, and it was the forerunner of Tiao Dongli.

"That was when the ideas of broadcast rights and public-feed production first appeared, and TV stations started having to pay rights fees," Zhao Jun, general manager of Tiao Dongli, told QDaily. "People weren't used to it. CCTV, for example, began refusing to cooperate, and the anchor desk was set up at Dragon TV."

Zhao divides the past 10 years of the Super League's commercialization into three periods. In 2004-2006 the league began to run on market rules. In 2007-2011 the model basically worked, but a poor overall environment made these the hardest five years. In 2012-2015 the broadcast feed and the standard of play improved sharply, the environment turned favorable and big capital came in, making these the four years of fastest growth.

"We've worked on the Super League for more than a decade, and we understand it better than most people," Zhao says whenever she is asked to explain a bid others find unthinkable. Tiao Dongli began producing the public feed in 2004, became a Super League partner in 2007, and has now renewed for five more years. The Super League has become the most important brand in its hands, and it will not hand it to anyone else.

Tiao Dongli's business is easy to understand: it buys the Super League broadcast rights at a set price, then sells them on to TV stations and video sites. When it resells for more than it paid, the difference is its profit.

In the worst years, when CCTV refused to show Super League matches in 2009 and 2010, and when the league kicked off without a sponsor in 2005 and again in 2011 (Wanda took over sponsorship midway through the 2011 season), the rights stayed at a "bargain-bin" price of a few million yuan. By both size and revenue, Tiao Dongli was a genuinely "small" company.

Then big capital poured into the Super League, most famously when Jack Ma paid 1.2 billion yuan for 50% of Evergrande. Attendance rose with the teams' results, the matches got better, and national policy gave a push, or, in Zhao's words, "there were signs of a virtuous cycle." To hold on to this asset, Tiao Dongli needed a stronger backer.

That is why China Media Capital became Tiao Dongli's major shareholder this year. In less than a year, Tiao Dongli first won the media rights to the national team's matches and then locked in the next five years of the Super League. Add its earlier deals with the Chinese Football Association for the FA Cup and the Super Cup, and with the Asian Football Confederation for the AFC Champions League and World Cup qualifiers, and it now holds the rights to almost every major football competition in China and Asia. It is no longer a small company.

Is the Super League worth that much? The argument has run for more than a month

Judged by the league as it stands, a price tag of 1.6 billion yuan a year is indeed high.

Last year the Super League Company's total revenue was only 440 million yuan, and the 16 clubs together took in only 2.015 billion yuan. Eleven of them still lost money.

The other view is that, next to top foreign leagues, the price is not high at all. Take the most lucrative, the Premier League. According to Deloitte's annual football finance report, published this March, the Premier League's total revenue was £3.26 billion, while its domestic broadcast rights for the next three years sold for £5.136 billion, 1.58 times total revenue. By that measure, the Super League's broadcast rights should be worth more than 3 billion yuan a year.

The biggest problem with this comparison is that the Premier League has more than 7 million paying subscribers, which is why TV stations will pay so much for its rights. In the Super League today, charging viewers is still hard to do, and if the rights cost too much, broadcasters will struggle to earn the money back.

Zhao leans toward this objection. "Abroad, the Premier League's model is clear: the viewer pays. But as we see it, there is no way the Super League will have paid viewing within two or three years," she says. "We rarely compare the value of foreign leagues with the Super League."

She believes that under current policy and market conditions, a five-year value of 5-6 billion yuan is normal for the Super League, the top brand among domestic sports events. The 8 billion yuan bid is "rather aggressive" by comparison, but in the long run it will not lose money.

Internet platforms' scramble for sports rights is a big reason Zhao is bullish. "At the current price of 1.6 billion yuan, TV stations can recover 5% at most. Most of it depends on the internet," she told QDaily.

Earlier this year, Tencent won the NBA's new-media rights in China for 600 million yuan a year, and LeEco won the Premier League rights in Hong Kong for the next three years at about 800 million yuan a year. With these big deals done, 1.6 billion yuan a year for the Super League no longer looks so hard to earn back.

"This is a five-year deal, after all. Look how much has happened in the past year alone," Zhao says. She does not want the 1.6 billion yuan a year to be merely a number on a balance sheet. She hopes the money will lift the league's production quality and standard of play, which also decides whether the rights holder, herself included, the clubs and the Super League Company can earn lasting returns from this investment.

"The old model was that the quality of play improves, and then the commercial value grows. Now we've turned it around and use this money as the spur: your stadiums, your turf, your floodlights, your media services. Everything on the competition side has to be raised," Zhao says.

She gives one example: each round's "big matches." At present, important fixtures such as Beijing Guoan against Guangzhou Evergrande, or Shanghai SIPG against Shandong Luneng, are played in the same time slot, so "the audience is bound to be split." The schedule needs to be drawn up more rationally. Staggering the key matches and, as foreign leagues do, spending more on promoting and producing every match from the pre-match build-up onward, "making every week feel like a holiday," would give fans a steadier viewing habit and make the most of the league's commercial value.

"We're all in the same boat now. We have to take this step together, and there are no more excuses. You say you can't control the clubs; well, I could say I can't control the TV stations," Zhao says.

"You need to give this industry a stimulus so that the interests within it form a positive cycle. What we value in our Super League investment is mostly how it lifts the whole football industry. We hope to earn returns systematically," Li Ruigang of China Media Capital said in an earlier interview.

Tiao Dongli is now drawing up a new strategy for selling the rights. Eight websites currently stream Super League matches, and Zhao's job is to strike deals with them on terms and at prices they accept. Besides better broadcasts and a more sensible schedule, Tiao Dongli also plans to make more programming, "so the platforms that bought it feel it was worth it."

Beyond the 8 billion yuan and three companies, what is China Media Capital's bigger game in sports and content?

Li Ruigang says the moment has come for large-scale investment in the sports industry. The "moment" has at least two meanings.

On policy, the State Council's Several Opinions on Accelerating the Development of the Sports Industry and Promoting Sports Consumption, issued last October and known as Document No. 46, sent investors a clear signal. To reach the target of 5 trillion yuan by 2025, the industry will have to rely on big capital.

Commercially, sport is shifting from professional competition toward lifestyle consumption. Cycling, running, football and fitness have caught on, especially in first-tier cities, while the fast growth of mobile internet and online video has made watching live sports easier than ever. And variety shows built around outdoor games and sports already fill a good many screens.

That is the background to China Media Capital taking control of Tiao Dongli. Unlike highly organized, industrialized sectors such as the internet, China's sports industry is still fragmented, with short industrial chains. So the best move for now is to invest in the companies that hold the most important resources, such as Tiao Dongli, which holds the national team and the Super League.

Besides Tiao Dongli, China Media Capital's disclosed investments include two other sports companies: Youshi Media and Shengli Shijia. Youshi Media runs the China University Football League and also operates the CBA, the national beach volleyball tour and the Thomas Cup in China. Shengli Shijia is more of a sports agency; it has signed sports figures such as Olympic boxing champion Zou Shiming and Olympic figure-skating champions Shen Xue and Zhao Hongbo for commercial work.

These two investments aim to lengthen the industrial chain. The first targets the college league. The second aims to create commercial sports stars like Yao Ming and Li Na, or to help established athletes make more of their commercial value, as IMG is now doing for the retired Li Na.

These seemingly unrelated investments may end up reacting with one another in interesting ways. A stronger Super League will raise interest in college football (think of what the NBA has done for basketball among Chinese teenagers). The football stars who emerge can then be marketed through the agency. Higher income and fame from that marketing will in turn motivate young players and get fans spending more on the stars themselves, just as we now gladly spend money and time on Messi and Cristiano Ronaldo.

One of China Media Capital's advantages is that it has invested in many consumer-culture and content companies, including Oriental DreamWorks, IMAX, Flagship Entertainment (a joint venture with Warner Bros.), Canxing Productions and TVB. These companies have plenty of room to share resources. On the stage of the fourth-season finale of The Voice of China, for instance, a costumed Po, star of the Kung Fu Panda films, appeared to promote Kung Fu Panda 3, produced by Oriental DreamWorks and due out next January. So if you see a sports star turn up on The Voice of China or in a film, don't be too surprised.

All this premium content from sports, film and variety shows may eventually come together on a TV set called Whaley. Whaley is an internet TV brand launched in August by Whaley Technology, a China Media Capital company whose founder and chairman is Li Ruigang. He hopes to use it to upend the television industry he has worked in for 20 years and write a new set of rules.

Those rules boil down to "content wins." You can watch thousands of Hollywood films from Warner Bros. and DreamWorks whenever you like, exclusive content from The Voice of China, a Super League showdown on the weekend, or a couple of episodes of a TVB drama. Gather all this content on one TV platform, and it becomes the platform's core strength.

A week before the 8-billion-yuan Super League deal was signed, Britain's Sky News reported that Chinese investors were ready to buy Formula 1 for £5.5 billion (about 53.7 billion yuan), and that within the Chinese consortium, China Media Capital's fund was preparing to put in about 9.5 billion yuan. Before long, F1 may be another hit live event on Whaley TV.