U.S. sports saw China as a gold mine. Will politics drive them away?

The powerful commissioner stepped to a lectern. Chatter died down, and cameras zeroed in. Unrelenting controversy had followed him here to Atlanta. It peppered him throughout a tense news conference until, several questions in, softballs granted reprieves.

“Where does China rank when it comes to international expansion?” a reporter asked.

“China,” the commissioner said, “is a priority market.”

He went on to rave about “double-digit growth” and “potential.” He teased “some very exciting ideas, not just around a regular-season game [in China], but using media and using partnerships” to promote his sport. He described, essentially, the type of commercial strategy that would soon draw scrutiny, as the backdrop to a showdown between the NBA and an authoritarian government, a spat that altered the relationship between U.S. sports and China for good.

This, however, was January 2019, nine months before the Daryl Morey tweet that brought that relationship to the fore.

And the commissioner wasn’t the NBA’s Adam Silver. It was the NFL’s Roger Goodell.

In fact, it might as well have been any Western sports executive. For years, they’d coveted the Chinese market. They dreamt of limitless growth and untapped riches. They craved what the NBA and a select few European soccer clubs had. “I envy the ability of Manchester United and those teams to have those fans in China,” Dallas Cowboys owner Jerry Jones said in 2017. “I envy it enough to always be willing to go to China. I’d be willing to take trips. I’d be willing to noodle in it.” Throughout the U.S. and Europe, across most major sports, similar sentiments existed.

And then they went quiet.

Today, they still exist. But as geopolitical tension between the U.S. and China heightens, and as the NBA’s Morey Affair illustrated, commercial ambitions in China now come with what experts call “two-way political risk.” On one side, there’s a repressive foreign government that controls access to 1.4 billion consumers. On the other, there are domestic politicians accusing that government of crimes against humanity, and domestic consumers who expect the sports world to speak up.

Between them, there is a middle ground that sports organizations have found increasingly perilous. Only the WTA, responding to China’s censorship of Peng Shuai, has pulled business out of the world’s most populous country. Others have continued to operate, but largely in silence, afraid of offending either side. According to one China-based director at an agency that works with Western teams and leagues, “a lot of them now try to do more internal training throughout their organization,” educating staffers on “taboo subjects” that could rile China, and on the potential costs of mentioning them.

“Everyone is walking on eggshells,” says a former NBA China employee who still works in the industry. (This former employee, like many others who spoke with Yahoo Sports for this story, requested anonymity because of the topic’s sensitivity. One U.S.-based source said she’d worry for her family’s safety back in China if any quotes were perceived as critical of Chinese authorities.)

Several sources said the NBA can and will continue to profit in this middle ground — or “in the crosshairs,” as a former industry executive said. They’ll allow players like Enes Kanter Freedom to express personal views, and politick behind the scenes “to mitigate the situation.”

In response to questions about the league’s strategy in China moving forward, NBA spokesman Mike Bass said via email: “Our approach with regard to China and other countries where we operate emphasizes engagement and the value of sports. By supporting every member of the NBA family’s right to free expression, we have learned that taking those positions has consequences and we have accepted those consequences, including substantial financial losses in China and the removal of NBA games from China’s national broadcast network. We continue to believe in the importance of engagement and have consistently stood by our values, which are more important than the negative impact on our business.”

For other leagues, however, the future seems murky. “They’re definitely still eager [to grow in China],” said the former NBA China employee. But the geopolitical tension, the former employee said, “will have an impact.” The path to profits, said Neil Thomas, a China analyst at the Eurasia Group, is “an increasingly tricky path to try and tread, because of this increasing pressure in the West to take a stand against Chinese human rights abuses.”

So, he said, “it’s hard to see any really major new ventures into the Chinese market, at least none that would potentially open up these leagues to huge losses.”

In this photo taken on May 25, 2021, a couple wearing National Basketball Association (NBA) jerseys visit the promenade on the Bund along the Huangpu River in Shanghai. - One hundred years after the Communist Party of China was founded in Shanghai, Chinas largest city offers a striking contrast with Marxist ideology; a financial district displaying some of the tallest towers in the world; and young people spending fortunes in fashion and luxury shops. (Photo by Hector RETAMAL / AFP) (Photo by HECTOR RETAMAL/AFP via Getty Images)

A couple wearing LA Lakers jerseys visit the promenade on the Bund along the Huangpu River in Shanghai, China. (Hector RETAMAL / AFP via Getty Images)

Entering the Chinese market

This conundrum began, decades ago, as a purely economic calculus, at a time when the Chinese government was less blatantly oppressive and the average American was less aware. “If you go back to 2000, 2001, 2002, [human rights] wasn’t part of the conversation,” says Ricardo Fort, a sports marketing consultant who previously led sponsorship divisions at Visa and Coca-Cola.

The conversation, instead, was relatively simple. China, and its millions of sports fans with growing disposable income, “appeared as being something like the new Klondike,” says Simon Chadwick, a British professor who studies the geopolitical economy of sport. “Essentially, you buy a plane ticket, you land, and within a week, you could make millions.”

“But,” he continues, “that clearly isn’t the case.”

Instead, the savvy leagues quickly realized that cracking China required nuanced investment. It required multi-pronged initiatives, grassroots programs to introduce their sport to kids, and digital content made “by locals, for locals.” Chinese fans, says the China-based agent, “really want to feel like they’re being spoken to, cared for, and invested in.”

To varying degrees, the major North American leagues have followed this blueprint. The NFL and Major League Baseball opened offices in China over a decade ago. The New England Patriots established a decently strong digital presence. Tom Brady launched a Chinese show and visited Beijing and Shanghai. The NFL regularly tried to stage a game in China, and although plans never materialized, ambitions remained.

More importantly, the league pushed flag football into schools and youth leagues. “That’s the way, really, to build a passion, to sow the seeds,” the former NBA China employee says. “It’s really about developing local talent.” MLB took a similar approach, expanding its network of youth tournaments. It also partnered with a Chinese state-owned real estate group to build developmental facilities, its goal to drive Gen Z interest and create a sustainable “baseball ecosystem.”

Their bet was that the investment spending would eventually deliver a return. “There’s no way you can come into China and make your money back and more within a couple of years, and then leave,” says the China-based agent. “It’s an absolute long-term play.” The play was to mold fans, nurture them, and then monetize them — via broadcast rights, sponsorships and merchandise. It was a prudent one, experts believed, because there were no time constraints on when returns on investment might arrive.

Then politics entered the equation, and the calculus changed. “The risk profile,” the former industry executive says, “has increased.”

Insiders don’t believe there is anything inherently unethical or problematic about serving Chinese fans. Contracts with private Chinese companies, many argue, aren’t connected to the government’s crackdowns in Tibet, Hong Kong or Xinjiang. They acknowledge, though, that the Chinese government wields both the power to turn Chinese fans against a foreign sports entity in an instant, and the leverage to demand actions or statements in support of Communist Party interests — which would, obviously, be immoral or hypocritical, incite American outrage, and damage a league’s brand back home.

China gains leverage

As Western coverage of the NBA and WTA honed in on that money vs. morals dilemma, some experts began asking a different set of questions. Why had Chinese authorities challenged the NBA in 2019, more fiercely than ever before? And what was stopping it from exerting more pressure in the future?

China had long been wary of Western sports leagues and their self-interest. Some Chinese media portrayed them as “gold-miners” or “exploiters.” But the government, once upon a time, welcomed the NBA, “because it embedded the idea that China was global, modern and ‘belonged,’” says Jonathan Sullivan, a China specialist at the University of Nottingham. There was “symbolic value,” other experts pointed out, but also tangible benefits. The NBA “could help to attract other large global enterprises to invest in [China],” Hanhan Xue, now a Florida State professor, wrote in a paper on the topic. The league’s presence was also “seen as valuable and desirable … because it was associated with modern sport management expertise and knowledge.”

The NBA also took steps to burnish its image. It engaged in community service and goodwill initiatives. It took an active interest in youth development, working with the ministry of education and the Chinese Basketball Association to “grow the game at all levels.” Its “NBA Cares” projects, former NBA China employees say, “always resonate well,” and refuted any arguments that the NBA was violating the golden rule of China business: Don’t just help yourself, help us.

But still, the “gold-miner” narrative lingered. Then, the NBA’s value to China dissipated, as the country rose geopolitically and economically, and the government deprioritized foreign sports. They were once a soft power play, an emblem of prestige, “a way of demonstrating to Chinese people that China had made it,” Sullivan says. Now, says Terrence Burns, an international sports consultant who worked with Beijing on its 2008 Olympic bid, “China doesn’t need the validation of an international sports league or property or event to support or sustain its image in the world.”

“Conversely, there are many commercial organizations, sport and non-sport, who do need that market, and want to be in that market, long-term,” Burns continues. “So I think the worm’s turned, and that leverage has changed.”

The result, Sullivan says, is that “China has become more self-confident,” and “less willing to make what it feels are concessions.” Chinese authorities feel more emboldened than ever to demand political loyalty from foreign brands. At a virtual meeting with U.S. business leaders in November, China’s vice foreign minister, Xie Feng, urged them to “speak up and speak out, and push the U.S. government to pursue a rational and pragmatic policy towards China,” according to one version of the transcript. He called for “positive contributions” to the upcoming Olympics, and said that, on issues highlighted by human rights advocates, such as the Uyghurs and Hong Kong, “China does not have any room to compromise.” He also warned: “If the relations between the [U.S. and China] deteriorate, the [U.S.] business community cannot ‘make a fortune in silence.’”

That, precisely, is what the NBA and others are trying to do. Silence has become the playbook. When, for example, French soccer player Antoine Griezmann controversially terminated a sponsorship deal with Huawei, citing “strong suspicions” that the Chinese company was aiding the government’s surveillance of Uyghurs, his club at the time, FC Barcelona, said nothing. When Kanter released a series of videos lashing out against China’s “brutal dictator” Xi Jinping, Boston Celtics leaders supported his “right to freedom of speech and expression,” but neither they nor the NBA addressed the subjects of his activism.

The Chinese government, meanwhile, quietly censored Kanter rather than attacking him in public, like it had in response to Morey two years earlier. The measured responses, says a source familiar with the NBA’s business in China, were “an indication that [both sides] just want to leave it alone.” Some experts believe it’s a tenable equilibrium, in part because the NBA’s popularity gives it leverage of its own.

Other experts believe silence and vague statements could harm the NBA’s reputation in the U.S., which remains by far its biggest market. But the NBA’s calculation appears to be that the foreign benefits outweigh the domestic costs, and the rewards for decades of investment are still worth reaping.

Hong Kong supporters protest outside Staples Center ahead of the Lakers vs Clippers NBA season opener in Los Angeles on October 22, 2019. - Activists handed out free T-shirts displaying support for the Hong Kong protests after an NBA fan in Northern California raised enough money to pay for more than 10,000 shirts, according to the organizer who goes by the pseudonym

Hong Kong supporters protest outside Staples Center ahead of the Lakers vs Clippers NBA season opener in Los Angeles on October 22, 2019. Activists handed out free T-shirts displaying support for the Hong Kong protests. (Frederic J. BROWN / AFP via Getty Images)

To invest or not to invest in China

The NBA’s business in China has largely recovered from the Morey Affair. It boasts dozens of media and marketing partners, and sells gobs of merchandise. Because of basketball’s longstanding popularity in China; because late commissioner David Stern cultivated the market beginning in the 1980s; and because the league spent heavily to expand its China operation in the 2000s, it can now make hundreds of millions of dollars per year in China while spending relatively little. Some 10% of its yearly revenue reportedly comes from China — between $500 million and $1 billion annually. No moral or political risk, it seems, could compel it to walk away from that.

“The NBA’s not building factories in China,” says the source familiar with the league’s business. “You’re not putting a huge investment in. You’re either selling and licensing [the NBA brand], and running a hugely profitable business, or — your other option is to not do that. In which case you’re leaving a lot of money on the table.

“If you’re profitable in China,” he continues, “then you sit there and say, ‘OK, well maybe it ends one day. But in the interim, if I’m profitable, why not garner those profits?’”

The question of whether to stay in China, he says, is “actually more interesting for some of the leagues that don’t have the same credentials in China. … Leagues with more nascent business in China may want to think twice.”

It’s unclear how much money leagues like the NFL and MLB are making or losing in China. Their spokespeople either did not respond to inquiries or declined to comment. Two sources said it’s unlikely they’re profitable. Each recently extended a streaming partnership with Tencent, and both maintain other media deals, but they’re still at the investment stage, teaching beginner-level classes in their sport, figuratively and literally. They have to spend, like the NBA did decades ago, to profit decades from now — and the worry is that, between now and then, politics will intervene.

They also have other “priority markets,” markets that don’t carry “two-way political risk” and are easier to navigate. So, some experts believe, leagues and teams will begin asking themselves: Why not invest elsewhere instead?

“I don’t think any of them are gonna go, ‘Oh, we give up on China, we’re gonna pull out everything we’ve invested and we’re gonna walk away,’” the China-based agent says. “But on the other hand, I do expect some of them to maybe start investing their marketing budgets in other regions around the world. … Maybe if you’re from Europe, you’re looking at America, or you’re looking at Latin America, or Africa.” Others mention India and other Asian countries as potential sites for heightened strategic focus.

“I think at some point, we will see foreign leagues deciding that it is too difficult to operate in China and cutting their losses,” Sullivan says. “Which ones do will depend on their level of exposure and finances, but in the case of leagues that make huge money domestically or in other global markets, they can probably absorb [the losses] if it makes better sense for the integrity of the brand.

“The NBA is not at that stage yet, and nor are most other leagues,” he clarifies. “We’re still at the point where this stuff can be managed. But it’s getting harder.”


Christin Hakim

Next Post

York County woman survives heart attack and offers advice to all | Health Smart

Fri Feb 4 , 2022
February is American Heart Month, a time to bring awareness to heart disease and stroke. YORK, Pa. — February is American Heart Month. It’s a time to focus on bringing awareness to heart disease, which is the leading cause of death in our country. It’s also the main reason a […]

You May Like