Sports Has Become a Capital Game. Where Does Alibaba Fit In? | Founders Speak

Zhang Dazhong, CEO of Alibaba Sports, says he wants to build the foundational platform for China's sports industry. What does that mean?

On November 21, Guangzhou Evergrande Taobao beat Dubai's Al Ahli 1-0 at home and lifted the AFC Champions League trophy for the second time. Yet the highlight of that night's TV broadcast was Jack Ma in the stands. His animated faces during the match were turned into memes, which, for no obvious reason, went viral too.

Ma paid 2 billion yuan to become an Evergrande shareholder. Many people think he overpaid; he doesn't much care. In his words: "I don't understand it, so I'm not that torn up about it."

He may claim he can't tell whether the price was high or low, but when it comes to running sports as a business, Ma and his Alibaba are clearly far more serious.

Two months ago, Alibaba Sports Group was founded with money from Alibaba, Yunfeng Capital and Sina.

Its CEO is Zhang Dazhong, a former vice president of SMG (Shanghai Media Group).

Zhang is the person Ma sees as someone who "understands sports." His broadcasting career began at the sports channel of Shanghai Cable Television. Under him, the channel invested in clubs, bought event rights and brought in many sports Chinese audiences had never seen. None of this had a precedent in China at the time. Alibaba hopes Zhang's contacts and experience in the sports industry will help it build a business it does not know well.

Internet companies moving into sports is nothing new, and Alibaba Sports, founded only this September, is already a little behind.

In May, Tencent signed a five-year, US$500 million deal for exclusive online streaming rights to the NBA in China. Then there are the Premier League rights LeTV bought: 110 million yuan a year for the mainland, and more than US$200 million over three years for Hong Kong.

The arrival of these big companies quickly turned a once "grassroots" sports industry into a capital game. Most observers expect deep-pocketed Alibaba to raise the stakes further. The clearest sign: rumors that Alibaba would buy Sina Sports have already gone around the market several times.

More than two months on, the expected big deal has not happened. Zhang still spends most of his time learning the business and building up sports resources. Scrambling for broadcast rights, he says, is not what Alibaba Sports wants to do.

If you want to see what Alibaba Sports has actually done, the NCAA Pac-12 China Game on November 14 may count as its first formal public appearance.

The Pac-12 is a sports conference of universities on the US West Coast, whose members also compete in leagues run by the National Collegiate Athletic Association (NCAA). This year they brought one game, the University of Washington Huskies against the University of Texas Longhorns, to China. Alibaba was the sponsor and the matchmaker.

The NCAA, one of the most important sports institutions in the US, is little known in China. The November 14 China Game was about 70 percent full, and a quarter of the crowd were alumni of the two universities. To concentrate the crowd, the arena's upper stands were closed off. Yao Ming came, but few media did, and the game barely registered online.

By contrast, the NBA China Games at the same arena a few weeks earlier were a far hotter ticket: every seat was taken, and scalpers' prices doubled.

What the media and the public saw as a "small event" was, to Zhang, a "big deal."

"Bringing American college sports to China isn't only about this being a great game. More important is bringing over the way college sports are run and managed. There's a lot in there for us to explore," Zhang told QDaily. "The purpose of Alibaba Sports is to make sports simple."

"Make sports simple" carries at least two meanings for Zhang: using Alibaba Sports' data and technology to make events easier to organize, and using Alibaba's many products to make it easier for consumers to take part in sports.

Alibaba Group was the game's main sponsor. It brought the game to China and also produced and distributed the online signal.

For this, Alibaba Sports put together a team to deliver the broadcast signal to platforms including Tmall Box, Youku Tudou, Sina and PPTV.

Games like the NCAA Pac-12 China Game are what Zhang calls "sports IP" (intellectual property). "The core is the associations and the events. Broadcast rights are just one extension of this kind of IP. Owning a game and creating its value may be worth more," Zhang said. Alibaba does not want merely to buy rights; it wants to "create IP."

What Alibaba Sports wants from a US college basketball game is not just the audience traffic a broadcast can bring. Through its partnership with the Pac-12, it is looking for the commercial value that college basketball can unlock.

After the Pac-12 game, Alibaba Sports did a few similar things. It signed a comprehensive strategic partnership with the Urban Football Development Council, which organizes grassroots football matches, to promote the grassroots game. It teamed up with Ronaldo to build the Ronaldo International Football School. And it partnered with a boxing association to develop and run new boxing events.

Take the Ronaldo deal. Alibaba Sports plans to help Ronaldo find venues, recruit students and design courses, help him develop and sell branded merchandise, and help the school build a new brand.

Working with these event associations costs far less than buying a team or the broadcast rights to an event. Alibaba Sports wants to use its products and services to make these events more valuable.

"Concretely, if you're putting on an event and need money, Alibaba Sports can provide it in the form of internet finance products. If you need to sell tickets, Alibaba Sports can sell them for you. If you need to sell merchandise, Alibaba can sell merchandise. If you need to draw an audience, Alibaba can use big data to tell you where which kinds of fans are," Zhang said.

Finance, payments, e-commerce, cloud computing and big data, everything Alibaba already has, can all be put to work in sports. "What Alibaba Sports wants to do is build the foundational platform of China's sports economy," Zhang said, choosing a rather flashy phrase to describe its role. "Then playing sports, finding a team, finding partners, finding a team to go and watch, buying the right equipment will all become very simple."

In the end, all of this leads back to Alibaba's old trade: selling things.

In sports, the most obvious thing to sell is equipment. Sports equipment spending on Alibaba's platforms already exceeds 100 billion yuan a year; badminton alone brings in more than 4 million yuan in sales every day.

These merchants might once have simply waited for customers to come to them. On the Alibaba Sports platform, their role can change. Zhang hopes to use events of all kinds to turn these "sellers" into "organizers."

"Alibaba has 10 million stores, tens of millions of suppliers, or you could say a whole marketing system, and they have many needs in sports," Zhang said.

If a merchant wants to sponsor an athlete, for instance, the Alibaba Sports platform can bring the two together to talk. If a merchant wants to be the title sponsor of a sport, then when Alibaba Sports helps an association plan an event, it can bring the merchant and the association together through internet finance. The ultimate aim is still to get everyone involved and let them profit from putting on events.

Zhang gave the Chinese Super League as an example. "The Super League is a whole: 16 teams, and every one needs to promote itself. Alibaba can provide that service and help them open stores. The teams also have lots of star players, and when they transfer, I can provide a platform for that too."

This approach means LeTV Sports and Tencent, nominally direct rivals, could also become Alibaba Sports' customers. Alibaba Sports may compete with them in some areas, such as rights and media. "But why can't it be cooperation? If Tencent or LeTV wants to bring content to Alibaba to charge for it, or open a store there, we very much welcome it. Doing these things inside Alibaba is very efficient," Zhang said.

The NBA is a clear example. Although it sold its online streaming rights to Tencent, it still opened its own flagship store on Tmall, selling all kinds of licensed merchandise. Real Madrid and Bayern Munich have Tmall stores too.

By running events, Alibaba Sports also hopes to get closer to the consumers who buy sporting goods on Taobao and Tmall. "Before, you might only buy clothes and gear on Taobao or Tmall. That's just a purchase, and it's hard to build anything on it. But if Alibaba Sports holds a basketball game and you come to watch, then Alibaba Sports knows you're a loyal basketball fan. We'll pay more and more attention to you and offer you matching services," Zhang said. "If you don't run events and don't test, you only know the consumer bought some clothes, and you don't know what services you can offer."

In Alibaba Sports' vision, it can help you find a place to play, a coach, teammates and equipment. If you want to go abroad to watch a game, it can arrange flights, hotels, visas and tickets in one package. In short, it wants to meet every sporting need you have, by whatever means.

"Alibaba Sports' profit model is to make transactions and services happen," Zhang said. "Who doesn't want to sell more on Alibaba? Alibaba doesn't run a single one of the stores on its platform. It takes only a small cut from each, and that made it the biggest in the world." Alibaba Sports follows the same logic.

Alibaba Sports' positioning

Q: In the two months since its founding, what has Alibaba Sports mostly been doing?

Z: Mainly learning about Alibaba. Alibaba has many businesses: e-commerce, cloud and big data, logistics, internet finance. We had never worked in any of these fields, so we're still learning, and that has taken a lot of our effort.

The second thing is rebuilding outside partnerships. The sports world has many associations, event organizers, clubs and star resources, and we need to work with and connect to all of them. Those two areas have taken the most time.

Q: What is Alibaba Sports' positioning?

Z: First, Alibaba Sports will of course serve consumers well in sports, make sports simple, and get everyone involved.

Second, it will build the foundational platform of China's sports economy, which means grafting Alibaba's foundational platform onto sports resources. At the same time, it will bring more sports IP into Alibaba's system so it can do more.

Q: What exactly does grafting Alibaba's foundational platform onto sports resources mean?

Z: For example, what Alibaba's finance and payment platforms can do for sports. Every sports venue could take Alipay at the entrance, and events could be organized through crowdfunding. That changes how events are put on and how money is raised: from government-run to company-run, and from company-run to internet-run, a shift from B2C to C2B.

Q: The other thing you mentioned is bringing sports IP into Alibaba's system. What does that mean?

Z: All the best events, clubs and stars in the world will eventually appear on the Alibaba Sports platform. Alibaba can provide all kinds of basic services. Because Alibaba Sports aims to be a foundational platform, it will offer services from many angles: some through internet finance, some through e-commerce, some through sports cloud services, some through venue resources. It will also gradually remove the barriers between consumers and venues, consumers and products, consumers and other consumers, and consumers and stars, so they can reach one another more easily. Then playing sports, finding a team, finding partners, finding a team to go and watch, and buying the right equipment will become very simple.

Alibaba Sports and Alibaba

Q: Does Alibaba Sports have any link to Evergrande Taobao, the club Jack Ma bought into? Evergrande Taobao is currently listed on the NEEQ (the "New Third Board").

Z: For now they run independently. Evergrande mainly runs the team, and Alibaba's stake through Taobao is an investment. We are exploring business cooperation, but the talks haven't gone very deep, so there's nothing more I can tell you.

Q: Before Alibaba Sports existed, the Alibaba group already had plenty of sports business. The digital entertainment division worked with Kobe Bryant, and Tmall has partnerships with clubs like Bayern and Real Madrid. How will Alibaba Sports and Alibaba bring these sports businesses together?

Z: Alibaba is a digital economy platform; all its internet businesses are digital economy. Alibaba Sports may need to combine the digital economy with the real economy. The offline side has to be strengthened too, because sport needs live, in-person events.

Q: How will Alibaba Sports use the resources Alibaba provides?

Z: Our core task is to connect Alibaba's foundational platform with sports. Sports spending on Alibaba has already passed 100 billion yuan this year, the largest in China and among the leaders in the world. The question is how to make it bigger, more precisely targeted and broader in scope.

Q: Why set up a separate Alibaba Sports instead of doing this inside Alibaba?

Z: Sports has grown extremely fast in the past two years. The question is how to do it more professionally, and how to do sports in the physical world. Alibaba can handle the digital side, but the physical side still needs specialists.

Sport is also a category of its own, different from e-commerce. You can't just decide to put on an event; it isn't that simple. Sport has its own rules, and it needs dedicated sports operators to run the system. Only then can the service be more professional and more precise.

Q: How would you describe the relationship between Alibaba Sports and Alibaba?

Z: Alibaba's ecosystem and Alibaba Sports are tightly linked. We are not building Alibaba Sports in isolation.

How Alibaba Sports sees the sports market

Q: The hottest thing in the sports market lately is still rights. What do you make of it?

Z: The core of Alibaba Sports is sports IP. IP is the core. The core is the associations and the events, and owning that IP is what matters. Broadcast rights are just one extension of this kind of IP. Owning a game and creating its value may be worth more. Alibaba Sports creates; it doesn't take what belongs to others.

What others take can of course also appear in Alibaba's system. You can build your paid business here, for example: sell clothes, sell games, sell videos, sell video games, sell prepaid game cards. Anything can be sold. That is the basic service Alibaba Sports needs to provide. In future, Alibaba's system will be a platform open to everyone to offer services, rather than doing just one or two things. It focuses on providing an open foundational platform.

Q: Is there a bubble in the sports market now?

Z: Every capital market has bubbles. Whether the bubble is big depends on direction. If it's run well, it isn't a bubble. I won't pass judgment. We just do the foundational platform work; we don't fight others for bubbles.

Q: As you see it, are LeTV Sports or Tencent competitors to Alibaba Sports?

Z: In some areas there may be some competition. They do rights and content, for example, and Alibaba will also have rights and content. But on another level it's cooperation. If Tencent or LeTV wants to bring content to Alibaba to charge for it, we very much welcome it. They can open a store inside Alibaba, a paid video store, and it will be very efficient inside Alibaba.

Whether it's a game, a piece of clothing or an accessory, it's all a product that can be bought and sold, and what Alibaba does best is transactions, completed as fast as possible. It's quite simple; you just have to be willing. Others who hold these rights can open stores right here too.

This is a big ecosystem. It's not like before, when you held an event and I held an event, you bought rights and I bought rights, you set up a media outlet and I set up a media outlet, and we compared who had more users. That is competition within a niche. Alibaba provides a foundational platform that everyone has to use once they're in. If you don't use it, you can't really grow. This is the service Alibaba should bring together and provide.

What will Alibaba Sports do?

Q: By foundational platform, do you mean moving what Alibaba does into the sports industry? Is that a fair reading?

Z: You can't call it moving. Moving bricks takes no skill. Much of what Alibaba has is scattered across Taobao and Tmall, and that is still just consumption, not sport. Alibaba Sports wants to use an IP to connect these resources, so that the person forms a close tie with us.

Q: What does using an IP to connect these resources mean?

Z: Say I hold an American college basketball game today, and you come to watch. Then I know you're a loyal fan. A direct event like this brings us closer. Before, it was only a purchase, but once you take part in my event, I know there's strong interaction between you and us. You might even be a coach with your own athletes. We'll pay more and more attention to you and offer you services; that's what we can do. If you don't test, I only know you bought some clothes, and I don't know what services I can offer you.

Q: How would such a foundational platform serve consumers?

Z: Booking a venue, forming a team, playing a match, finding an opponent. Or going abroad to watch a game: tickets, flights, food and lodging, all handled in one package.

Q: How will Alibaba Sports serve events through the foundational platform?

Z: On the event side, the traditional model is to take the title sponsorship and the operating rights. Our model is that once I have those rights, I hand them out to the people who are best at each thing in every industry and let them take part, so everyone builds the league and the games together, and more people join in to run it, invest in it and take part. That's how we operate: let the internet make organizing simple.

If you put on an event and need money, Alibaba Sports can provide it, though we may provide it through sports newspapers and internet finance. If you need to sell tickets, Alibaba Sports can sell them for you. If you need to sell merchandise, Alibaba can sell merchandise. To draw an audience, Alibaba can use big data to tell you where which kinds of fans are.

Alibaba has 10 million stores, tens of millions of suppliers, or you could say a whole marketing system, and they have many needs in sports, so we let them host these games. They've made clothes all their lives, and now they want to sponsor athletes, or host a regional leg of a future competition, or say, "I'll take all the sponsorship advertising." We should be able to match them up.

Q: So you mean the Chinese Super League could become your customer, and so could the CBA.

Z: Of course. The Super League, for example, is a whole: 16 teams, and every one needs to promote itself, so they can all open stores on Alibaba, and Alibaba can provide that service. The teams also have lots of star players, and when they transfer, I can provide a platform for that too. Some sell goods; selling players works the same way, only more transparently, and foreign athletes can be traded here too.

Q: Will Alibaba Sports join the scramble for rights?

Z: We're not very interested. We would consider some core rights, but we won't do anything that departs from market value.

Q: Will Alibaba Sports buy event companies the way Wanda does?

Z: Anything is possible, but my answer is still the same: we build a foundational platform. If they fit our foundational platform and our core IP strategy, we will certainly do it.

Q: Is any part of this foundational platform live yet, something we can try?

Z: Not yet. We're still planning the business. What I just described is us working out what we will and won't do. The next step is to build the foundational platform, quietly, one module at a time.

Q: So what is Alibaba Sports' profit model?

Z: For now, making transactions and services happen.

Q: Do you expect to turn a profit?

Z: Not for now, and Alibaba hasn't asked us to.

Q: What is your current focus?

Z: Still IP. IP is the core. We have three phrases: IP is the core, media is the lever, industry is the direction. IP is the core, and IP means integrated operating services. Media captures audiences for us and brings in traffic. Once the traffic is in, we still build the industry, which could be sports consumption, sports events, the sports economy, travel and ticketing, anything. The emphasis is on the industry, and the core is building the foundational platform of Chinese sports.

Q: On IP, the Pac-12 is one example. What comes next?

Z: There will be many. Any IP you can imagine, existing or not yet created, will find a home on the platform.

Q: What is Alibaba Sports' goal?

Z: Our goal is to build the foundational platform of China's sports economy. The core business is integrated operating services for IP. The aim is to make sports simple and turn 1.3 billion Chinese into athletes.