Guangzhou Evergrande agreement latest sign of Chinese football growth
Understanding and drawing wider meaning from anything in Chinese football remains a remarkably difficult skill to master. Indeed, even among the nation's most experienced and battle-hardened football journalists there are few who can claim to possess true behind-the-scenes insight on a regular basis. Whatever the story, there is always a deeper understanding to events that may only become clear with the benefit of hindsight.
It is this layer of opacity surrounding all dealings in China that ensures the true meaning of any news story can take months or even years to discover. China is a unique country in many ways and never more so than in the politics of how business is conducted.
Thus, the news on Thursday that online commerce giant Alibaba is set to purchase 50 percent of Guangzhou Evergrande for a fee of $193 million (1.2 billion yuan) has put the cat among the pigeons of the footballing community. The announcement came from nowhere, with the deal reportedly agreed in principle via a 15-minute phone call and wrapped up within 24 hours. Such astonishing speed of action is what makes China so unpredictable.
World Cup bids aside, there has been no bigger story in Asian football than the rise of Guangzhou Evergrande. For the best part of two decades, European clubs have been relentless in trying to unlock the potential of the football market in China and have been almost entirely unsuccessful. China was seen as a gold mine, but the expectation of easy money was a myth. So, why has Alibaba now chosen to enter the football industry in such dramatic style?
The e-commerce firm and its owner Jack Ma are two of the biggest names in Chinese business, with its Internet shopping hubs Taobao and Tmall accounting for an astonishing 70 percent of all package deliveries in the country, with sales amounting to around two percent of China's GDP. A forthcoming IPO in New York, meanwhile, is set to value the business at more than $150 billion. "We're not investing in football, we're investing in entertainment," Ma told a packed press conference on Thursday. "Alibaba's future strategies are health and entertainent."
In the short term, though, such a deal will change little for Chinese football other than the Evergrande Group and owner Xu Jiayin earning a return on their significant investment of the past four years. They will still dominate matters domestically and there is still no guarantee that their extraordinary new academy infrastructure will bear fruit. In a wider context, though, there is deep significance in the deal. That an Asian club is valued in the region of $380 million says much of what Ma and his advisors see as the potential of football in China ahead of their crucial floatation.
Evergrande are a fascinating case study of the pace in which a business can grow in the country. Since taking over a second division team valued at just $16 million four years ago, they have built a club now worth more than all but the top tier of sides in Europe. They quickly capitalised on continental success by agreeing a $17 million one-year sponsorship deal with Dongfeng Nissan, while also subsidising the club's running with a new multi-million dollar partnership with Nike. Such deals were unthinkable in Asia just a year or two ago, but Evergrande have set about making them possible.
For the best part of a decade, football had been a dirty word in China. While many stay awake into the early hours to watch their favoured European side, the local game was treated with contempt as match-fixing scandals and issues of professionalism ravaged the sport. But there are now signs of major change, with Evergrande handing back respect to Chinese club football once more. They have tapped into the fierce national pride that runs deep in the country, harnessing fans' craving for international success stories. And they are reaping the benefits.
Domestically, both Evergrande and Beijing Guoan now regularly sell more than 40,000 tickets to league games, while the AFC report that a total of 68 million viewers watched the club's AFC Champions League final on CCTV5 last year. That same game was witnessed by 56,000 spectators inside the Tianhe stadium, with tickets selling at more than four times face value in the run up to the clash (around $300 each). As the bandwagon built, their moniker of "China Evergrande" was no exaggeration with fans flocking from across the country to witness the big event.
It is clear that there is significant untapped potential within Asian football. Evergrande have only just begun to realise their sponsorship potential, while official merchandise sales are primitive and TV rights contracts are still well below their maximum value. When Ping'an Group agreed a $24 million (150 million yuan) per season deal to sponsor the Chinese Super League earlier this year it was a valuation 2.5 times higher than the previous agreement, yet it was still hailed by analysts as a smart investment. The revenue of the Chinese Super League had doubled in 2013, while Evergrande alone were making $58 million (363 million yuan) from sponsorship of their football and volleyball clubs.
Such figures are impressive, but are merely a start for the sports industry in China as Evergrande learned themselves. In November last year they launched a "high-end spring water" line as part of their diversification scheme, based around football advertising with coach Marcello Lippi as their spokesman. Within two months they had amassed $950 million (5.7 billion yuan) worth of orders and, only last month, signed a deal to enter the European market in 13 countries. It has been an unprecedented success, despite selling at four times the cost of rival Chinese brands.
“Guangzhou Evergrande have tapped into the fierce national pride that runs deep in the country, harnessing fans' craving for international success stories.”
As ever, though, nothing is certain. The Chinese economy is heavily dependent on construction and property development, yet that market is showing signs of slowing as bad debts grow. Yet, Alibaba is among a new wave of internet-based businesses currently thriving and they feel confident in the future of Evergrande as a footballing power. If the club continues to grow as a brand, so will audiences and, in turn, Asian football can only benefit.
Since the Cantonese side's success on the continental stage, for example, Tsingtao beer has become the AFC Champions League's title sponsor while other Chinese brands have followed. Meanwhile, with Manchester City investing in both Melbourne Heart and Yokohama F. Marinos, there are signs elsewhere that the potential for football's growth in Asia is beginning to be realised.
Asian football has a long way to go if it is to become a real power second only to the might of UEFA. Football in North America is also developing at a significant rate, while South America boasts talent and tradition that are the envy of all emerging nations. Yet, if football as an industry was to mature in China alone, it would significantly alter the balance of power in football. The scale of growth in China can be so quick that it becomes difficult to comprehend.
Evergrande are, for the moment, largely ploughing a lone furrow, while there are still any number of ifs, buts and maybes to overcome. Experts, though, are beginning to see a viable future in Chinese football that seemed some way off just a year or two ago.
If it is to happen, it will be led by the rise of domestic footballing powers and other clubs with significant financial backing are now looking to follow the example of those in Guangzhou. What still separates Evergrande from their rivals, though, is that the majority have been unable to translate investment into stability and success.
It remains the case that the only way the Chinese Super League will become a viable international product is through the production of better domestic talent and, while work is being done to make that a reality, it is still some way off coming to fruition. There is real determination from the very top of the government to make China a footballing power, but it will all take much time and effort.
The establishment of Asia's first superclub is a major step in the right direction, though, and with the events of the past 48 hours, Evergrande have continued to further separate themselves from all continental rivals. Continued success and growth is, for the first time, a realistic possibility and the next few years represent a critical time in football's development in China. After so many false starts, it may well be that they have finally found a path to success. As ever, though, we are left to wait for the benefit of hindsight to reveal the true fate of football in China and, indeed, the outcome of Evergrande and Alibaba's footballing adventures.