Late last week, the English Premier League (EPL) announced Tencent would replace PPLive Sports International (PPTV) as the league’s digital broadcast partner in China for the balance of the 2020-21 season. The one-year deal will replace the three-year, roughly $650 million pact that the league terminated with the Suning subsidiary last month (for non-payment of $213 million). Terms of the new agreement were not disclosed, but Greg Turner, a 20-year veteran of China’s sports, entertainment and venue management business suggested its value is “pennies compared to the [PPTV deal]” (which had 2 years remaining).
The EPL is not the first rights owner to encounter contractual issues with a Chinese company—no surprise considering contracts in the country are, as Turner explained, “general directions for an agreement that can be renegotiated.” The political, business and reputational risk of investing in China is great. If revenues are uncertain, it’s fair to wonder if U.S. pro sports leagues should be investing in the country. Marc Ganis (president, Sportscorp.), who has been doing business in Asia since 2006, believes it remains worthwhile for the NBA, NFL, NHL and MLB (who all have a presence in the People’s Republic) to continue to build fandom in the world’s most populated country. However, he cautioned that they “think twice or even three times” about their approach to the market and the companies they align with in it.
Our Take: To be clear, Ganis isn’t suggesting business can’t be done in China or that the U.S. leagues will be unable to generate revenue there. “China is a fantastic market, and it’s a consumer market with a growing middle class, experiencing growth in disposable income,” he said. “It just takes a lot of effort [to build relationships] and knowledge [of the culture there]” to achieve success.
Pursuing a joint venture with a local entity that has established relationships and an understanding of how business is done in the country is a smart way for an international company (or league) to gain a foothold in China. It’s also a logical way to mitigate financial risk. Ganis explained that because it is difficult to account for consistency in the country (as we saw with the EPL), companies or leagues should try to avoid investing their own capital—particularly if there is a pretense of how quickly it needs to be earned back. “Partnering with Chinese domestic companies or governments who will shoulder most of the costs within the country is the best way to reduce at-risk costs and still benefit from the consumer society that has developed there,” Ganis said, citing Shanghai Disney as an example of a successful JV.
Ganis suggests leagues looking to do business in China perform “multiple layers of due diligence” on their partners because “there are different categories of companies [in the country] and their commercial legal system is not nearly as dependable as it is in North America and Europe.” (Hence, why the EPL is likely out of luck.) MLB found that out the hard way. Back in 2016, the league signed a three-year deal with upstart LeTV to bring live streaming games to China, Hong Kong and Macau. “[LeTV] made all these big promises about exposure and expansion, and the initial payment was, for the most part, all [MLB] ever received,” Ganis said. The U.S. leagues seemingly took note. “Almost all of their current deals are with [government owned] CCTV or Tencent—two pretty reliable broadcast partners,” Turner said.
Ensuring a prospective partner has the financial resources necessary to honor the deal is just the first layer of homework a U.S. league should conduct on a prospective partner before signing on the dotted line. PPTV has the resources to honor its contract with the EPL—the company simply decided it was in their best interests not to. Turner explains, “contracts [in China] are built more on relationships than the words written on a piece of paper.” So, pro sports leagues doing business in the country need to establish strong relationships if they expect consistency in revenues. “[The] EPL went for the money with the Suning deal without first ensuring the underlying relationship,” Turner said, and as a result, when COVID-19 shut down the sports world PPTV didn’t try to renegotiate terms. By contrast, “the fact the NBA’s relationships with CCTV and Tencent survived the Morey controversy (and no payments were missed) shows the underlying strength of [those] relationships,” he noted.
The threat of government involvement is also “part of the equation in China and [another reason] why it is so challenging to do business in the country—especially enterprises as visible as sports,” Ganis said. It’s been suggested the U.K.’s strained relationship with China may have doomed the PPTV/EPL partnership. As leagues recognize the challenges of operating in the country and realize, despite the size of the opportunity, it may not be as consistent a revenue stream as they would like (particularly during a time of geopolitical imbalance), Ganis expects “smart organizations will start to reduce their reliance on the market and look to increase their presence in other international markets” (including: Japan and India).
It should be noted, neither Ganis nor Turner believed any of the U.S. pro leagues would lose lucrative partnerships in China due to COVID-19. The only league with a contract nearly as large as the one the EPL had with PPTV is the NBA, and as noted, they have strong relationships within the country that should ensure existing agreements are honored. The NFL, NHL and MLB don’t have nearly as much at stake, and all three are investing at a league level in local youth development (something the EPL wasn’t doing). Turner believes that should be enough to keep their partners from walking away.
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