China’s economic growth may have cooled down from its double digit rates of recent years but the country’s sports sector is powering ahead, both at home and abroad, with sports identified as a key area of economic development for the coming ten years. 

Investing at home

Beijing is set to invest USB 1.5bn in hosting the Olympic Games in 2022, but this is a tiny fraction of the total domestic investments into sport China is set to make over the next decade. 

China’s national plans for investing in sport are unprecedented.  According to the General Administration of Sports (GAS), the sector in China is set to expand to US$1tr by 2025 – more than the value of the entire global sports industry at present.

While this goal may sound unrealistic, recent figures support such a projection. The GAS says China's sports sector grew by US$55bn in 2012 to reach US$170bn in 2013. Official estimates suggest that China's sports sector will expand by US$62bn in 2015. And by 2020, the sports sector is expected to reach US$456bn.

To achieve this sustained growth in sports, the government has recently issued 50 documents setting out a series of measures, focusing on tax incentives, land security, specialized funds, technology and research and development. 

China outbound

It’s not just on home turf where China’s ambitions lie. With international reserves far outweighing any other nation, China is investing far and wide – and focusing on sports properties.

In a process dubbed “stadium diplomacy”, China has built and financed the construction of 37 venues in Africa, five in Asia (including Syria), eight in the Caribbean, six in the South Pacific and one in Central America (Costa Rica).

And over the last two years, Chinese investors and firms have bought into football clubs in England, France, the Netherlands, Spain and the Czech Republic. 

In December 2015 it was announced that a consortium of Chinese investors – CMC (China Media Capital) Holdings and CITIC Capital – was to acquire a 13 per cent stake in City Football Group (CFG)

CFG, the holding company of Manchester City, Melbourne City and New York City football clubs that is wholly owned by Sheikh Mansour’s Abu Dhabi United Group (ADUG), is valued at approximately US$3bn. 

CMC Holdings and CITIC Capital’s investment of US$400m in City Football Group demonstrates just how highly China values the power of investing in football overseas. 

For football clubs, the opportunity of Chinese investment brings access into China’s rapidly growing sports sector. The Chinese market is a crucial target for global football brands to grow their fan base, not only because of the sheer size of the market but because of the growing interest in football there.

"The deal will create an unprecedented platform for the growth of CFG clubs and companies in China and internationally, borne out of CFG's ability to provide a wealth of industry expertise and resources to the rapidly developing Chinese football industry,” Manchester City said in a statement.

"The capital from the share acquisition will be used by City Football Group to fund its China growth, further CFG international business expansion opportunities and further develop CFG infrastructure assets."

China Media Capital, a public equity and venture capital firm investing in sectors including culture, technology, media and entertainment, also secured the US$1.3bn broadcast rights for the Chinese football league in 2014.

World Cup hosting hopes

It’s not just state-owned investors that are capitalising on the global football industry – Chinese private enterprises are also getting in on the act. 

Since 2012, Huawei has signed sponsorship agreements with Spain’s Professional Football League (LFP) and club side Atlético Madrid, the Russian national soccer team, German clubs Borussia Dortmund and FC Schalke 04, Premier League side Arsenal FC, French champions Paris Saint-Germain and Dutch Eredivisie giants Ajax, among others.

And in December 2015, FIFA announced China’s Alibaba E-Auto as sponsor of the FIFA Club World Cup – the first new sponsor signed by FIFA in two years. 

"We are delighted to welcome Alibaba E-Auto as Presenting Partner of the FIFA Club World Cup and are excited to be working closely with them to embark on a journey to reach fans across the world,” said FIFA Marketing Director Thierry Weil. 

“We also hope to benefit from their innovation, and are looking forward to seeing what they can bring to the FIFA Club World Cup over the next eight years.”

The “internet car” brand is owned by Alibaba Group and operated with Shanghai Automotive Industry Cooperation (SAIC).

Daniel Zhang, Alibaba Group CEO said: “Sports is at the intersection of Alibaba Group’s strategic themes of health and happiness, and we look forward to adding new value for participants and consumers in the sports sector through data-driven Internet technology. 

“Partnering with a major sporting event with a global audience such as FIFA Club World Cup is also an important part of Alibaba Group’s globalisation strategy for connecting China to the world.”

The partnership is also seen as a means of increase China’s stature within FIFA. 

China is not yet a major force when it comes to playing football. The country has only qualified for the FIFA World Cup once, in 2002, and it currently sits at 84th position in the world ranking. 

But it is hoped that all this investment into sports will help raise the standard of the game in China. And while the country isn’t yet among the best at playing the game, it certainly has a strong track record of hosting major events and a bid to host the World Cup would be welcomed by FIFA.

The host of the 2026 World Cup is due to be elected at the FIFA Congress in Kuala Lumpur in May 2017. For the first time, all FIFA’s 209 member associations will have a vote, instead of just the Executive Committee members. 

The bidding process has not officially begun and bids are unlikely to be announced until the dust begins to settle on FIFA’s process of transition. 

FIFA dropped its policy of continental rotation in the bidding phase for the 2018 and 2022 World Cups and the organisation decided not to vote on reintroducing the policy at its Congress in 2015. 

If the policy were to be reintroduced, China would be out of the picture until 2030 – assuming Qatar retains its right to host the 2022 World Cup. 

But as things stand, a bid from China for the 2026 World Cup is possible and would be strong competition to a bid from the USA. With the coming years set to be a time of renewal for FIFA, taking its flagship event into the world’s largest growth area would no doubt be an appealing prospect for the world’s football leaders. 

This article first appeared in the Winter issue of Host City magazine. Register here.

The Association of Global Event Suppliers (AGES) has launched its Industry Partner Program with a partnership with EY (Ernst & Young). Representing the category “Assurance, Tax and Legal”, EY will use its expertise to support AGES in developing standards, procedures and any other appropriate tools to support the members of AGES when developing their business.

“Our members often need to assess business opportunities outside their core markets quickly and comprehensively before they enter into any commitments,” said Daniel Cordey, chairman of AGES.

“It is key to know exactly the import and export regulations or the tax implications when delivering works at an event in a new country, so we are pleased to get the expertise of EY to elaborate the necessary tools.”

EY has already supported AGES members. Wim Kurvers, partner at EY said “In recent years, sustainability has become one of the most important criteria in organizing large events. This has led to a significant increase in the use of temporary infrastructures.

“We see our partnership with AGES as a unique opportunity to further develop this fast growing industry and thus help building a better working world.”

AGES’ Industry Partner Program (IPP) is created for leading industrial companies who are directly connected with the business of its members and associate members and are willing to support the objectives of AGES in specific thematic categories.

Through knowledge transfer and active involvement by the partners, new standards and policies will be established for the event suppliers industry.

The IPP has identified 5 categories and AGES is now seeking an industry Partner for each of these categories.

The Association of Global Event Suppliers (AGES) is a not-for-profit organisation based in Switzerland which has been formed to become the label for quality and reliability for temporary infrastructure works for major events.

It might not feel like it right now, but sport event rights holders are extremely fortunate. They have access to a wide range of revenue streams: broadcasting and city hosting rights, ticket sales, sponsorship and public funding. For the last twenty years these streams flowed ever faster, until the age of social distancing and staying at home blocked many of these lifelines.

With loyal customers and packed calendars of events, sports organisations rarely felt the need to save up for a rainy day. Few could have envisaged a black swan like Covid-19 preventing them from serving their loyal customers or paying their bills.

While some organisations have been able to stage events through the pandemic, they have tended to lack audiences to sell tickets to – and not all sports have a level of broadcast reach that can make up for this shortfall. This means most rights holders are now under intense pressure. And one person’s loss is another’s gain.

“Private equity companies are circling due to Covid,” says Andy Westlake, Chairman of the European Sponsorship Association. “A lot of rights holders will go over the cliff if they don’t get investment.”

The most popular sports have attracted ownership from high net worth individuals for decades, but institutional investment in teams is a relatively new phenomenon. “They were once seen as risky ventures that wouldn’t get past an investment committee – this has changed,” says Nic Couchman, Head of Sport at international law practice Charles Russell Speechlys (CRS).

Private equity investment in sports federations

Private investment in international sports federations is also on the rise. One of the earliest adopters was the World Professional Billiards and Snooker Association (WPBSA), which set up World Snooker in 2002 as a self-perpetuating commercial model to fund the not-for-profit WPBSA. 

“Private equity is very interesting to sport right now," says Jason Ferguson, Chairman of the WPBSA and Director of World Snooker Ltd. "International federations can do things differently; many are not running as proper businesses.”

Much more recently, the International Table Tennis Federation (ITTF) set up World Table Tennis as a new commercial arm. “Establishing World Table Tennis as the rights holder has enabled us to get equity, which has positioned us well through the pandemic,” says Matt Pound, Director of World Table Tennis.

The latest federation to buoy its governance function with a commercial arm is the International Volleyball Federation (FIVB), which at the start of February 2021 announced the launch of Volleyball World with backing from private equity giant CVC Capital Partners.

Rugby is also attracting a wave of private investment. CVC, having invested £200m in a 27% share of Premiership Rugby in 2018, is now closing in on a major investment into the Six Nations. Meanwhile, Silver Lake have reportedly offered US$330m for 15% stake in New Zealand Rugby.

The sport’s international federation, World Rugby, has been relatively fortunate in that the cycle of its World Cup events have so far avoided being impacted by Covid. The men’s event in Japan in 2019 broke attendance and viewing records despite Typhoon Hagibis, while the largely Covid-free New Zealand hosts are expected to fill stadiums in 2021.

But financial challenges remain. “With Covid, many of our Union members are struggling due to a lack of crowds and matches,” says Mihir Warty, Director of Strategy at World Rugby. “We have drawn down on our reserves to actively support several in managing their cashflow issues’.

“We are conscious that some organisations within the sport have attracted external investment. This appetite from investors points to the potential of rugby to continue growing as a global sport.”

Sport gets serious

“Investors normally look for strong commercial fundamentals – predictable, annual revenues, strong brand loyalty and market share –  and the ability to use cash and expertise to increase market share and accelerate growth,” adds Robert Datnow, Managing Director of The Sports Consultancy. “For decades, sport has been seen as a complex and impenetrable investment – with a few notable exceptions – but now, the right opportunities, at the right price, and with the right execution plans are serious business.”

Recent years have also seen the rise of strong challenger brands within the sport event space. Super League Triathlon was set up with venture capital funding from triathlon fan and co-founder Leonid Boguslavsky – a model that CEO and co-founder Michael Dhulst says is others will no doubt replicate. “There will be growth of new events with passion-driven investors. Private investment is going to become more important for rights holders.”

It’s not just immediate financial concerns that are driving the trend towards private investment: the media landscape is shifting the foundations of the industry. The sport event industry is reliant on broadcasting revenues, which has become increasingly problematic as the internet draws audiences away from TV.

“Sport at its core is a media enterprise. It was inevitable that it would confront forces of changes due to new technologies and evolving consumer habits. The pandemic accelerated all of that,” says Scott Novak, Head of Global Communications for Bruin Sports Capital.

As Giles Morgan, global sports industry veteran and executive vice president of Pumpjack Dataworks puts it, “Sports has reached a perfect storm. The sports industry was created around the eyeball; TV ratings were the gold standard. Sponsorship is the most valuable form of marketing, but it’s quick to fall in a downturn – and it relies on TV.”

Future growth of sports events 

All this disruption brings an opportunity for private equity. But investors are not only looking for distressed assets; they are looking for future growth.

“We have been approached by investors from a variety of sources. There’s clearly a lot of interest in investing in sport," says Mihir Warty. "However, the crucial thing is to identify properly what the money is needed for. All federations and rightsholders need to ensure that investment is seen as just that – a way of growing the entity and driving sustainable revenues. Not as a windfall.”

The loyalty of sports fans is an important, untapped asset. Although younger people are becoming more fluid about which teams they support, tending to follow the individual athlete as much as the team, there are still few industries that have as unique a hold on their customer’s hearts as sport.

“The reason that investors see potential returns in these properties is fundamentally because of the unrealised value in the fan bases,” says Charlie Greenwood of Sports Loft. “If the teams can start to know that fan base better, engage with them more through great content and sell them more products – all of which requires better technology than what has been previously used – then the investors can increase the value in the property.

“As investors are looking at investments into teams and leagues, there is much more appetite for investing in the technologies that support sports organisations - and in many cases there is an opportunity to use the sports property to help increase the value in their tech investment.”

A challenge for investors will be how to value companies coming out of the pandemic, and the rate at which fans will return – not only buying tickets to live sport, but also subscriptions and merchandise during what could be a prolonged economic downturn. A rapid rebound would represent a great opportunity for investors. According to Ian Clayden of BDO, “Private equity views sports as a sector that can mobilise quickly post-lockdown.”

Where future growth will come from is a question that applies not only to sport. Asia – particularly China – is emerging fast and strong from the pandemic. There are large, young populations with growing disposable incomes representing plenty of headroom for growth in the entertainment industries.

Sports are not the only events that have been hit by the pandemic. “Trade shows enable the discovery and furthering of commercial relationships and long-term partnerships in a way that no digital business has been able to replicate online so far. At the right entry price, this asset class could deliver quite attractive returns on the 2023-2025 horizon,” wrote Alfonso Marone of KPMG in a recent insight piece.

Music festivals have been equally badly hit, with no viable digital alternative to the real thing. Before the pandemic, private investment was growing in the live entertainment sector, which could enjoy a similar rebound to sports post-Covid.

“As the owner of Host City, the world’s largest meeting of sports, business and cultural events, we know these properties have perennial value to a variety of stakeholders,” said Matthew Astill, CEO of Cavendish Group, which also owns leading China-Europe investment forum International Capital Conference. “As the events industry opens up around the world, the opportunities are immense for anyone investing in these vital sectors.”

But private equity won’t go in with its eyes closed. Large, structured investors want detailed data on a business and its customers. Fan bases are a massive untapped resource of data – the sports and entertainment organisations that can show business acumen and a deep knowledge of their customer base will be the ones that are most attractive to investors. And in this area, sport and entertainment have a lot of homework to do.

Private investment will be a central theme of Host City Asia on 14 April and Host City Americas, set for 30 June (both virtual). Host City's global series of events climaxes in Glasgow with the hybrid Host City 2021 on 7-8 December 2021. For more information ask ben.avison@hostcity.com

[Source: Formula E] Formula E Holdings has announced that CMC Capital Partners are to become a shareholder in the company, adding to the growing list of investors joining the electric street racing series.

The investment is led by CMC Capital Partners - China’s leading investor and operator in media and entertainment, sports, internet and mobile, and lifestyle sectors - whose consortium also includes SECA (a CMC portfolio company).

Alejandro Agag, Founder & CEO of Formula E, said: “We are excited to welcome CMC Capital Partners, led by Mr. Ruigang Li, to the increasing list of investors joining Formula E and the electric revolution. China is an important player in the potential of electric vehicle manufacturing and production, and this partnership reinforces our intentions to promote sustainable mobility across Asia and Mainland China. The opening round of each season has been hosted in this region - Beijing and Hong Kong - and we have teams and drivers such as TECHEETAH and Ma Qing Hua already competing in the series. We look forward to working closely with CMC Capital Partners, and continuing to grow the profile of Formula E in key territories across the globe."

Ruigang Li, Founding Chairman of CMC, said: “The global automotive industry is now undergoing profound changes with the power source shifting to renewable energy from traditional petrochemical. China is playing a central role in promoting these changes with its vast auto market. The evolution of the auto industry has also brought historic opportunities for motorsports. Since its inauguration three years ago, Formula E has quickly evolved into a premium global sports IP under a first-class leadership, with remarkable progress in promoting sustainability, innovation, and market penetration of electric vehicles, as well as in media partnership, sponsorship and tourism. CMC has been focusing on investing in premium global and local sports IPs, and we look forward to working together with Formula E both in China and globally.”