A Chinese Company Paid US$400 Million for 13% of Manchester City. Why Is the Premier League Worth So Much?

TV money, pushed along by big capital, turned the Premier League into a money machine. Now the Chinese want in.

On December 1, China Media Capital (CMC), which had just paid 8 billion yuan for the next five years of Chinese Super League broadcast rights, announced that it and CITIC Capital will invest US$400 million for 13% of City Football Group, the parent company of Premier League club Manchester City. CMC chairman Li Ruigang will also join City Football Group's board.

US$400 million for 13% looks expensive. CMC's investment puts Manchester City's value at US$3.08 billion. The three most valuable clubs in the world, Real Madrid, Barcelona and Manchester United, are each worth only about US$3.1 billion. Manchester City cannot match those three for history or for trophies, yet it is valued at about the same.

Compared with Guangzhou Evergrande, though, the Manchester City deal looks like a bargain. Evergrande has won the AFC Champions League twice in the past three years, but its accumulated losses have reached a startling 1.2 billion yuan. Yet this club, still losing money hand over fist, was valued at more than 15 billion yuan as soon as it listed on the NEEQ (the "New Third Board") in November.

On results, history and profitability, Manchester City is far ahead of Evergrande Taobao. It has won the Premier League twice in the past three years, and last year its revenue topped £350 million and its profit topped £10 million.

Beyond the valuation itself, what really attracts investors is the "Premier League" name behind Manchester City.

The Premier League is the richest football league in the world. According to the Football Finance Report Deloitte published in March, its total revenue was €3.898 billion, the highest of Europe's five major leagues and about 70% more than the second-placed Bundesliga.

It also has the largest audience of any football league. In 2011 the league said its matches were watched 4.7 billion times a year, in 643 million households around the world.

Why does the Premier League make so much money? How did it become the most commercial of the top leagues? Why have Chinese fans always been so interested in it? And how will Chinese capital work its way, step by step, into every part of the Premier League business?

The Premier League is the richest football league in the world

In the mid-1990s the Premier League was not yet so flush. It already earned more than any of Europe's other major leagues, but the gap was much narrower than it is now.

In the 1996/1997 season Premier League revenue was €685 million, while Serie A and La Liga each took in more than €500 million. By 2013/2014 the Premier League's revenue had grown more than fivefold in 17 years, to nearly €3.9 billion, far more than Serie A and La Liga combined.

Every club that plays in the Premier League has gained. Of the 20 most valuable football clubs in the world on the Forbes list, 8 are in the Premier League.

Even clubs at the bottom of the table, such as Cardiff City and Fulham, do well. According to the Daily Mail, on revenue alone all 20 Premier League clubs would rank among the world's top 40. Even the Premier League club that earns the least takes in no less than the top six earners in each of the other major leagues.

Returns this high, of course, demand heavy spending. A KPMG survey found that over the three seasons from 2011 to 2014, it cost a Premier League club an average of €72.6 million to avoid relegation. In the other four major leagues, €30 million to €40 million is usually enough to stay up.

Britain's deep football culture is naturally one reason the Premier League became so rich. The British, so polite and refined in daily life as to seem almost stiff, also invented the "football hooligan", which shows how fanatical they are about the game.

The football itself is good, too. Premier League clubs have won the Champions League, the world's top club competition, 10 times; Manchester United set records of 18 consecutive seasons in the Champions League and 25 Champions League matches unbeaten; and starting in the 2006/2007 season, Premier League clubs took three of the four semi-final places three years running.

But none of these is the main reason for the Premier League's success. What made it the highest-earning football league in the world was the TV companies that bought its broadcast rights.

In the late 1980s English league football slowly began to recover. Rundown stadiums were renovated, hooligans were punished, and the standard of play rose; in 1990 England reached the World Cup semi-finals.

Fans came back to the grounds. More fans meant more money for the Football Association and the big clubs, and the fastest-growing source of it was TV. In 1986 a two-year contract to broadcast the English First Division cost only US$6.3 million; two years later the price was US$22 million.

But the Football Association controlled both the money and the broadcast rights. Tempted by the huge sums at stake, the most successful clubs, including Manchester United and Arsenal, began to think about breaking away and setting up their own league, which would sell its own tickets, negotiate its own TV deals and so on.

In January 1992, after a long tug of war, the clubs finally won the right to handle TV broadcasting themselves, and the Premier League was formally founded.

That same year, Rupert Murdoch and his Sky television came knocking. Murdoch's Fox network had been a big success in the United States, and he wanted to repeat the pay-TV model in Britain. To promote pay TV there he set up Sky and began buying up programs that large audiences would watch.

Murdoch had money but no programs; the Premier League had matches worth watching, and its clubs wanted more income. The two sides hit it off at once.

Sky paid US$190 million for the next five years of Premier League broadcast rights. The partnership has lasted ever since, and the fees have kept rising: the three-year contract the two signed in 2001 was worth more than £1.1 billion.

Murdoch

So TV became the Premier League's main source of income. In the 2013/2014 season more than half its revenue came from selling broadcast rights.

In the league's early years, broadcasters and the Premier League dealt with each other on roughly equal terms. Today the league clearly has the upper hand in their bargaining. Broadcast rights keep setting record prices, with several broadcasters fighting over them.

The man who changed things was a Russian. He arrived in the Premier League in 2003 and transformed it completely.

The Premier League, a "little World Cup", is really a game for global big money

The Russian was Roman Abramovich.

He ran oil and non-ferrous metals businesses in Russia, rose by exploiting the country's tangled politics, and was for a time the richest man in Russia.

Chelsea owner Abramovich

In 2003, perhaps because he had more money than he could spend, Abramovich parachuted into the Premier League and paid £150 million for Chelsea, then deep in debt. He not only paid off the debts but rebuilt the team. That year the Blues spent more than £100 million in the transfer market, signing big names including Glen Johnson, Claude Makelele, Juan Sebastian Veron and Joe Cole.

Much stronger, Chelsea at once became the best team in the Premier League, winning the title two seasons running from 2004. Apart from 2011/2012, when Andre Villas-Boas's mistakes as manager left it only sixth, it has almost always finished in the top three.

The success of Abramovich and Chelsea showed the whole league a simple, brutal way to get ahead: money. In the years that followed, capital poured into the Premier League.

In 2005 the American Glazer family paid £790 million for Manchester United. In 2007 Tom Hicks and George Gillett paid £220 million for Liverpool Football Club. In 2011 the American Stan Kroenke bought Arsenal in a deal worth £731 million in total.

Add the Arab consortium behind Manchester City and the Russian oligarch behind Bournemouth... and the Premier League has become nothing but a capital game.

Most of this money is not necessarily there out of love for football. United fans have always seen the Glazer family as a cancer on the club, because the family's leveraged buyout loaded United with heavy debt.

CMC's stake in Manchester City, by contrast, looks more serious. Its "Chinese bloodline" gives many partners room to imagine what might come next.

For CMC, its biggest sports investment is still in China. Paying 8 billion yuan for five years of Chinese Super League broadcast rights was a move so large it left people stunned, and its partnership with the university football league is also meant to build up grassroots sport in China.

Running Chinese football well also takes a complete management system, covering how a top league is run, how a youth academy system is built, and how clubs are managed as businesses. Here, Manchester City's experience can save CMC many wrong turns.

For Manchester City, what the deal is really about is the much larger Chinese market. The Premier League has never lacked viewers in China; what it lacks is a channel for showing itself to them. With its rich entertainment resources, CMC is a fairly good partner for that.

The Premier League is very popular in China

Chinese viewers first saw the Premier League in the 1990s. At first no TV station broadcast every round. Stations might cut Premier League clips into sports highlights shows, and now and then show a full match in a weekend slot.

That was exactly when Manchester United, the Red Devils, were at their peak. As the Premier League went on air, more and more fans got to know Sir Alex Ferguson and the young, still green-looking David Beckham.

Manchester United, Ferguson and Beckham together gave the Premier League a strong pull on every kind of viewer. People who liked football could watch the matches; people who liked handsome men could watch Beckham; women had found the right way into football. So Manchester United quickly became hugely popular in China.

Beckham in his Manchester United days

That popularity has lasted to this day. Manchester United's official account on Sina Weibo has 8.66 million followers. The same goes for Beckham: recently, at a charity match, the sight of Beckham, now a father himself, being substituted by his son Brooklyn moved plenty of people.

And it is not only Beckham and Ferguson; the Premier League always supplies players, managers and matches worth talking about. Arsenal, United's rivals for decades, have Arsene Wenger and Thierry Henry. After Abramovich took over Chelsea, names such as Jose Mourinho, Michael Ballack and Didier Drogba also drew a large following. For many people, the Premier League really does hold an important place in their hearts.

Watching matches is one of the few ways Chinese fans can get close to the Premier League, and one result has been soaring prices for the rights.

In 2007 a company called Tiansheng won the rights to broadcast in China for the next three years for US$50 million. In 2013 another company, Xinying Sports, bought the China rights for the next six years, reportedly for US$30 million a year.

Xinying Sports then began sub-licensing these rights. That season the two big online broadcasters, LeTV and PPTV, each paid Xinying Sports more than US$10 million for the right to stream 4 matches per round free.

More than US$10 million just to show 4 matches a round: LeTV and PPTV must have seen an opportunity, so there must be no shortage of Premier League fans in China.

It is not only fans who love the Premier League; players long for it too. Many of the Chinese players who went abroad chose clubs in the Premier League or the English second tier.

In 1998 Fan Zhiyi went to Crystal Palace and Sun Jihai went to Manchester City. Neither club was in the Premier League at the time. Even so, England had a strong pull on the two national-team players.

After Fan Zhiyi and Sun Jihai, Li Tie and Zheng Zhi also went to England. Dong Fangzhuo, hailed at the time as a prodigy, joined Manchester United in 2004, becoming the first Chinese player formally signed by one of Europe's elite clubs.

But as Chinese football has declined in the past two years, fewer and fewer players are good enough to play in Europe.

Fan Zhiyi in his Crystal Palace days

How Chinese capital has moved step by step into the Premier League

There are fewer players, but China's interest in the Premier League has not faded at all. There are always Chinese companies, investors or individuals who want some connection to it.

Advertising in the Premier League or sponsoring clubs directly has been the main way in. In 2010 Xtep signed a five-year deal with Birmingham City, under which Xtep would supply Birmingham's kit and advertise at Premier League grounds. Unluckily, Birmingham was relegated to the second tier the following year.

In 2013 Manchester United announced sponsorship deals with Wahaha and China Construction Bank, which would be United's sponsors for the next three years.

In 2014 Huawei became the official smartphone partner of Premier League club Arsenal.

Sponsorship and advertising have paid off reasonably well for these companies. Take Huawei: according to an international brand research firm, Huawei's global brand awareness rose from 25% in 2012 to 65% in 2014, and its combined sales in Europe, Africa and the Middle East rose from 72.956 billion yuan in 2011 to 100.99 billion yuan in 2014.

A step deeper than sponsorship and advertising is buying a stake in a Premier League club and taking part in running it day to day, which plugs a Chinese company more deeply into the Premier League business.

In 2014 there were rumors that Wanda boss Wang Jianlin was preparing to buy Newcastle. In 2015 there were reports that CITIC Capital wanted to buy Manchester United. None of these rumors was ever confirmed.

So the distinction of being the first Chinese companies to invest in the Premier League at the ownership level went to CMC and CITIC Capital.

CMC is the first company to invest in the Premier League, but it will certainly not be the last. This capital game from China is far from over.