What Goes Around Comes Around: Ten Years Ago His Basketball-Court Business Was Going Under. Now He's Caught Sports Capital's "Tailwind"

In theory this really is a business that only gets broader the further you go. But with investors egging him on like this, something feels off.

At No. 886 Wenshui Road in Shanghai's Zhabei district, hemmed in by the Middle Ring elevated highway, a parking lot and a Lotus supermarket, sit four full-size basketball courts and four half-courts.

Unlike the run-down, unattended courts in ordinary neighborhoods, these are trimmed in bright orange, and the entrance is built to look like a shipping container. Black fencing rings the courts, and a white steel-and-plastic canopy covers them. Alongside them are a gym, showers and a locker room.

It's a weekday morning, so the place is quiet. No one has come to play; the only people here are staff cleaning up and handling odd jobs. On weekends, on holidays and in the evenings it fills up with students and young office workers.

The Wenshui Road court opened this past August. It is Rock Park's 13th location in Shanghai.

Courts are Rock Park's main business. Not only basketball: depending on when a location opened and what space it managed to get, some venues also have baseball or rugby facilities, and even restaurants and bars.

Prices vary with the facilities. At Wenshui Road, a 200-yuan membership card gets you court time at 10 yuan an hour. The Wuzhong Road location, which has baseball facilities, charges admission instead — 50 yuan for men, free for women. According to founder Dai Fuqi, a visit to Rock Park now costs about 50 yuan a head, "about the same as going to the movies."

Tickets are still Rock Park's biggest revenue source, roughly half the total. Part of the rest comes from advertising and sponsorship: Rock Park has deals with Pocari Sweat, Spalding, Great Wall Broadband and Yao Energy worth three to four million yuan a year. The venues also sell drinks and sportswear — water alone, Dai says, sells more than a million bottles a year.

Dai says Rock Park's 2015 revenue was around 20 million yuan and the company was already profitable. As the sports industry has heated up, capital has come courting: after two rounds of venture funding, the valuation has reached 600 million yuan. A price-to-sales ratio of 30 (market value divided by revenue, a key gauge of how richly a company is valued) is startling — even LeSports, which some consider a bubble, trades at only 7.5 times sales.

But perhaps only Dai knows how different things looked ten years ago, when he first got into the sports-venue business.

In 2006 Dai Fuqi was 24. He is from Wenzhou, and as he puts it now, "every Wenzhou person has a heart that wants to start a business." Since graduating from college at the latest, he had wanted to do something of his own.

The idea came from a foreign friend. The friend was visiting Shanghai, they both liked basketball, and they set out to play a game — only to find they couldn't book a court. Where courts existed, most were outdoors and uncovered. Nearly every indoor court had been converted for badminton, because, in Dai's words, "back then badminton players had more spending power than basketball players."

With nowhere to play, the friend described how sports venues worked abroad: some neighborhood courts were subsidized by the government, while others were run for profit by gym owners charging fees. He also mentioned Rucker Park, America's famous streetball mecca on 155th Street in New York, whose style of ball — nothing like the NBA — had turned it into another city landmark.

Why couldn't he open a company running basketball courts himself, Dai thought. He would take the name too: Rock Park.

The first Rock Park opened at No. 721 Kunming Road in Shanghai. Dai says a fire burned it into existence.

He had just borrowed 100,000 yuan from his family, which with his own savings gave him 200,000 yuan to start with. Even ten years ago that was not much, but his biggest problem was not money — it was space. He and a few partners rode bicycles across Shanghai looking for a site.

A basketball court is demanding. It has to be big enough for a regulation court, and tall enough: a standard hoop alone stands over 3 meters, so the ceiling has to clear 7 meters. Dai spent three months running around in the summer sun and found nothing. He "almost gave up."

He was living on Dalian Road then, a few minutes' walk from Kunming Road. No. 721 Kunming Road was a factory building that had belonged to the Shanghai Chemical Machinery Pump Factory. After the factory moved out, the space — more than 1,000 square meters — sat empty until a sub-lessor took it over, partitioned it and packed in more than 700 tenants.

Just as Dai was ready to quit searching, a fire broke out in that crowded housing. No one was hurt. Fire authorities then ordered the building brought up to code, which killed the subdivided-rental business, and converting the space to anything else would have cost too much. So Dai rented the second floor cheaply and turned it into Rock Park.

Dai believes "the key is persistence," but honestly, luck did most of the work here — before he found the Kunming Road factory, he had been cheated more than once.

One was a factory building on Huayuan Road in Shanghai's Hongkou district. The sub-lessor told Dai he could have it for at least three years, though the lease would be signed one year at a time. Dai put down a 10,000-yuan deposit and signed. He later learned the building was to be demolished within the year. He had planned a long-term business, and he had been conned. "Ten thousand yuan was a lot of money!" Even now his voice rises when he tells it.

Kunming Road: the stairwell up to Rock Park was covered in graffiti. From @Su Ruoyu's Sina blog.

Looking back at the Rock Park of ten years ago, Dai thinks it was bound to fail. The factory looked perfect — big enough, cheap enough — but it "went against the logic of business." "A factory building with 10-meter ceilings: split it into three floors and almost anything makes more money than basketball," Dai says. "The economic output per square meter of a sports venue is lower than the commercial value of the land itself."

That is exactly what happened. Between 2006 and 2010 Dai opened two Rock Parks in Shanghai, and between tickets and event sponsorship both turned a profit with healthy cash flow. Then the Kunming Road factory was demolished for a municipal relocation project, and the landlord of the second site took it back and turned it into apartments. For a landlord, demolition compensation or apartments both paid better than renting to Dai for a basketball court.

Losing both locations hit Dai hard. He describes his life then as "fleeing disaster." Around that time Cheng Hang, founder of Hupu Sports, asked him to help Hupu build venues, and Dai joined.

The venues Hupu wanted, Dai says, were a joint project with Peak Sport. Peak put up 500,000 yuan a year in sponsorship per venue; Dai worked out that this alone covered about half the running costs, so he "went around the country opening venues for them."

It didn't last. Peak suspended the sponsorship for "internal reasons," and "the venues never got the funding or the attention from Hupu to grow." With nothing to do, Dai left. He went back to Rock Park and started working on it again.

His problem had not changed: how to close the gap between what a basketball court earns and what the land under it is worth.

This was 2011, and raising a court's earnings directly looked impossible — in Dai's words, "why would anyone pay 100 yuan to play basketball?" So he had to hunt for the city's "offcuts": idle land nobody was using well. Saying this, Dai points at the court downstairs. "This used to be a parking lot. Look, we took half the land away and it still doesn't fill up."

The site he found in 2011 was on Huachi Road in Putuo district, an empty lot behind a shopping mall's rear entrance, where he built one regulation court and three half-courts. The location was poor, squeezed between the fences of Guanlong Park and the Putuo Stadium on one side and facing railway tracks on the other. Rock Park had to put a sign up at the intersection: "Rock Park, Enter Here."

It was not a good address, but plots like this, that nobody else wanted, were what kept Rock Park alive. Dai calls it Rock Park's 1.0 survival phase: "We pulled it off."

From 2011 to 2014, Rock Park opened one venue a year, "using the money the last store made to open the next one."

2015 was the turning point: growth sped up sharply. Rock Park now has 14 venues, nine of them opened in 2015 and 2016. Its good years seem to have arrived, a decade late.

Sites are still hard to find, but Rock Park no longer has to hide in the city's offcuts. The seesaw between e-commerce and shopping malls became Dai's best opportunity.

Sales at Tmall's "Double 11" festival grew 700-fold in five years, reaching 57.1 billion yuan in 2014 — one day's sales, more than a third of Wanda Commercial Properties' revenue for the whole previous year. Retail brands duly tilted toward e-commerce, putting more of their resources into digital channels, and the shopping mall, once the place where a brand planted its flag, began to matter less to them.

"Before 2011 some multinational chains followed us everywhere: however many stores we offered, they opened that many, and several chains would fight over a single storefront. This year a lot of chains have cut their plans sharply. They can't follow all of it anymore — even following at 50 percent of our growth looks like a strain." Even someone as powerful as Wang Jianlin and his Wanda had noticed the shift.

Their answer was to add more experiential business — the kind you have to show up in person to consume. Movie theaters are one. Sports venues are another. That was the opening left for Rock Park.

"CapitaLand, Bailian, Zhongfang, Greenland, CP Group..." Listing the commercial landlords Rock Park works with, Dai reels off a long string of names. "These days I get calls from commercial complexes all over the country. Leasing calls."

The other engine behind the fast expansion was capital. From 2006 to 2016 Rock Park's own business model barely changed — tickets plus event sponsorship, throughout — but capital, having sniffed out where policy was heading, turned toward sports, and toward Rock Park.

In March 2015 Rock Park took tens of millions of yuan from Rongzheng Investment and Green Pine Capital Partners. This past September it announced a 40-million-yuan Series B from China Media Capital.

Unlike the startups that live round to round, Dai says Rock Park is "under no great pressure" for money. "Our cash flow is pretty good. We could do this with bank loans instead." Taking investment is really about amplifying the company's value in the capital markets. He won't refuse it either: "If we need to, we'll do another round next year."

Rock Park is changing too. Where once "no one was willing to pay 100 yuan to play basketball," Dai says spending per customer today is ten times what it was a decade ago. Customers have changed with it: more and more people will pay for their health, and more and more will pay for good service.

Dai is proud that Rock Park can serve different kinds of people. Showers and a gym he now considers standard, and bars and restaurants have been added as well: "Young people are busy. After work, it's best if they can eat and exercise in the same place."

All of it still answers the same question — that a basketball court earns less than the land under it is worth. If revenue was once capped by how much people would spend, today's "consumption upgrade" looks like the best opening yet.

Rock Park's Wuzhong Road location

The opening created by consumption upgrading, shopping malls and capital together is what Dai calls Rock Park's 2.0 phase. He is already thinking about the 3.0 phase: the city landmark. "Diversify, build cultural IP. Tailor it, make it a highlight of the city," Dai says.

He means the new Rock Park court at Expo Source. The site sits next to the China Art Museum, less than ten minutes from a subway station, and besides the courts it has a big bank of spectator seats. It is open to players day to day, and it is built to host tournaments.

From August 26 to 28, Rock Park's own Jump 10 streetball tournament was held there. Sixteen teams from the United States, Canada, France, Spain, Australia, Japan, China and elsewhere competed for a $100,000 first prize, and the whole thing was streamed on Hupu TV and Zhanqi TV.

Talking about it, Dai gets excited: "Come to my office and see. Full-page spreads in the newspapers, the whole wall."

Turning Rock Park into a piece of city culture, interestingly, does not seem to be entirely his own idea: "This one is a partnership with the government — the government approved the land for us. Funny, isn't it? Now the government is the one pushing us forward."

Dai wouldn't say what exactly the government wanted, but soon after getting the land, in late 2015, Rock Park set up a separate team and went to work on Jump 10.

China had streetball tournaments before this. Grassroots leagues like the National Streetball Domination Tournament and the Red Bull City Legends Championship have done well enough. But Dai thinks China's streetball tournaments today have only Chinese players in them. "Sit and watch Chinese guys play ball all day and you'll want to throw up," he says. "Jump 10 has already opened a gap on them, because we're international."

Tournaments cost a lot of money, especially in the first few years, while you are building an audience. Rock Park put close to 10 million yuan into this year's Jump 10 and made nothing back. But the sight of "tickets impossible to get on game day, scalpers all over the entrance" gave the company confidence: "Next year we should break even, and the year after we'll make money."

Dai calls Jump 10 the industry's barrier to entry: "Anyone with money can build a venue. I spend 1,000 yuan on fit-out, you spend 1,500, and your product may come out about the same as mine, maybe better. But Rock Park has a brand. We have tournament IP — it produces stars, stories, videos, merchandise. That's what builds the barrier in this industry, and other people can't get past it."

When he says this, he is probably thinking of the original Rucker Park in America: an ordinary outdoor court, without Rock Park's upscale showers and gyms. What made it a streetball mecca was the people who played there and the history handed down on that patch of asphalt.

Dai wants China's Rock Park to become a streetball mecca the way Rucker Park is. Jump 10 is the first step, and next, "we're already talking to the organizers of the Rucker Park league in the US about buying them" — which would give them the endorsement to call themselves China's streetball mecca. As Dai puts it: "You can build a venue, but you can't build a brand."

His investors don't necessarily see it his way. Right before this interview with QDaily, Dai had been meeting them. They want him to open, as soon as possible, "a Rock American-style sports center combining offices, sports, dining and entertainment in one."

That is a different way to level up: not a streetball brand, but something closer to complicated commercial real estate — sports commercial real estate, in Dai's phrase. Stack enough kinds of business together and people keep spending at the venue and around it.

"I've got the land already, right in the Expo Park, and it can open by the end of the year," Dai says. Only the interior fit-out is left, so three months will finish it. "We're doing Japan's Round One: pachinko on the first floor, bowling on the second and third, darts, table tennis, soccer and basketball on the fourth, karaoke on the fifth, arcade games on the sixth, a batting cage on the seventh. One ticket, and you can play everything inside."

Upgrade the brand through the Jump 10 tournament, or widen the venues into sports commercial real estate: these are the two choices in front of Rock Park, and Dai seems to think he can have both.

His ambitions are large. He has floated a plan for 50 Rock Park locations in the Pearl River Delta by 2018. He talks fast, with the air of a man who is pleased with himself and has it all worked out.

But as the interview wound down, asked what ten years in the sports business had taught him, Dai's voice dropped and his tone sank a little: "Sports is just so hard."

"Those of us who started in sports ten years ago have dealt with both sides of the law, with everyone from migrant laborers to the market. People in sports all need a big heart."

"A lot of people going into sports now are just borrowing the tailwind."

With that he finished his lunch quickly, sat in his chair to rest a few minutes, and left. He had a meeting at the sports bureau that afternoon.