SPORTS: China Moves Down Sports Food Chain With UK Soccer Buy

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Bottom line: A Chinese group’s latest purchase of British soccer club shows China’s appetite for overseas sports teams is moving to smaller entrepreneurs and lower profile assets, in a trend that could expand to North America over the next year.

Perhaps it’s Olympic fever that’s behind China’s latest global sports purchase, with word that yet another local entrepreneur has taken over a western sports club. This time it’s UK soccer club West Bromwich Albion that’s being purchased by a Chinese group led by a local entrepreneur named Lai Guoquan that’s making headlines, in what one report is calling the first purchase of an English Premier League soccer club by a Chinese buyer. (English article; Chinese article)

Of course I’m being a bit facetious by tying this latest sports sale to the Rio Olympics, which opened over the weekend in Brazil. That’s because this latest Chinese soccer purchase has been in discussions for a while, and the team has been on sale for nearly a decade. The reports say this particular deal was actually reached back in June, and that it still requires approval from the Premier League.

The recent flurry of similar sports purchases by Chinese buyers extends across Europe, and has included deals in the UK, as well as Italy and Spain. We even saw the first such sports deal announced in the US, where a Chinese buyer purchased a small stake in the Minnesota Timberwolves, the first such investment in a team from the NBA, which enjoys huge popularity in China. (previous post)

A major subtext that’s often overlooked in this string of purchases is that most of these clubs are only marginally profitable or even losing money, underscoring the reality that sports club ownership is a difficult business. Another subtext is whether or not this wave of Chinese buying might stoke some anti-foreign sentiment, similar to what happened in the US when Japanese bought a number of iconic properties and companies in the 1980s.

We’ll discuss some of those elements of the story shortly, but first let’s review this latest deal that will see the Chinese group purchase the 88 percent of West Bromwich Albion held by the club’s chairman Jeremy Peace. The Briton, West Brom’s chairman for the last 14 years, had been trying to sell his stake since 2008, and last summer was reportedly near a deal with a Chinese buyer that ultimately collapsed.

No purchase price was given for this latest deal, but previous reports had indicated Pearce was looking to sell his stake for about 150 million pounds. Perhaps the British currency’s recent nosedive following the Brexit vote helped to seal the deal this time, since that sum in pounds would be much more affordable for a foreign buyer now than it was a year ago.

According to the reports, West Brom recently recorded a pre-tax profit of 7.6 million pounds, equal to about $10 million at the latest exchange rates. That’s relatively respectable for a club of that size, though the club’s net profit is probably quite a bit lower due to high tax rates in the UK. What’s more, the fact that Peace has been trying to sell his stake for nearly a decade suggests that he might be using aggressive accounting to make his club look more profitable than it really is.

European Shopping Fest

This particular purchase is just the latest in a growing string by Chinese buyers in the last 2 years. Other teams that have received Chinese investment over that period include Italy’s Inter Milan, Britain’s Aston Villa and Manchester City and Spain’s Atletico de Madrid. A Chinese group is also reportedly near a deal to buy a controlling stake in Italy’s AC Milan, in a deal that would probably be the biggest ever by a Chinese buyer, valuing the club at 750 million euros ($825 million). (previous post)

Most of the earliest deals involved major Chinese corporations and often their billionaire founders, such as retailing giant Suning (Shenzhen: 002024), media investor China Media Capital (CMC) and real estate giant Wanda Group. But a growing number are also being backed by smaller entrepreneurs like Lai’s group, whose net worth may be in the hundreds of millions rather than billions of dollars.

I previously wrote about the potential for backlash from host countries, especially the UK where fans are quite passionate about their teams. But a look at the reports and some online fan comments about the West Brom deal doesn’t seem to show a lot of concern just yet. Instead, the reports I looked at focused more on elements of the deal, and fan comments were most concerned about the club’s outlook under new ownership.

In terms of what’s next, this latest deal does seem to indicate that China’s appetite for foreign sports teams will continue moving down the food chain to smaller wealthy entrepreneurs looking at less costly clubs like West Brom. That could limit my previously predicted move across the Atlantic into the NBA, since clubs there are quite costly. But perhaps we could see some investments in more affordable teams from the US-based MLS soccer league in the next year or two.

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