Drawn by the promise of 1.3 billion potential players and fans, sports associations from all over the world are courting the Chinese market. Organizations from mixed martial arts leagues to the National Basketball Association, the National Football League and the English Premier League are working to build their fan base in the country. They are entering a market, however, that involves a new set of fans with unique tastes, features heavy government involvement and offers no straightforward recipes for success.
"Everyone looks at China and their population and they say, 'We have to be there,'" says Sean Chu, a consultant at Finish Line Research, a sports consultancy located in Shanghai. "But, when you get there, how are you going to make your money? This is a much more complicated question. It's one I think most leagues haven't figured out the full answer to."
In the United States, most successful sports association can rely on a few key sources of revenue — sponsorships, media rights, merchandising and ticket sales. "In China, any one of these revenue sources are difficult to monetize," Chu notes. The nature of the sports and media markets in the country, he adds, complicate all of these factors.
The media market in China, for example, is centrally controlled. China Central Television operates the majority of all nationally-broadcast television channels. Each province in China is allowed one satellite channel that can be distributed nationwide. No two broadcasters are going to fight for the rights to broadcast a sports game. "The way they value content is different than in the United States," explains Chu. "It's only in the last four or five years that you're starting to hear about channels here in China that are willing to actually pay rights for content."
Ticket sales are likewise shaky territory for sports promoters. For a group like the NBA, which already has a large following in China, it is easy to fill up the stands at the promotional games that are occasionally held on Chinese soil. If those games were to become regular events, however, Chu doubts the sales numbers would continue to be so robust. "At this point in time the general public in China are still not as willing to pay a significant amount to go watch a sporting event," he says. Domestic sports associations, no matter how successful they are, regularly have trouble filling up stadiums.
Finding the market in China, however, is particularly difficult if you have no fans, and have to build a base of support from the ground up.
From the Ground Up
There are sports that have a natural advantage in China: Soccer and basketball both have large followings and a long history in the country. But for many American sports, particularly team sports, gaining a sizable audience is an upward battle.
"Because of the history and some of the turmoil that has been a part of recent Chinese history, people did not grow up with a lot of free time," notes Richard Young, managing director at NFL China. "Playing catch with your dad in the backyard is not a traditional kind of memory in China.
"The tradition of following teams is not something that is embedded in the culture," he says. "But patriotism is."
Traditionally, Chinese athletes have excelled in what they term "small ball" sports such as badminton and ping-pong. Their strengths have been, in part, dictated by a system that put sports associations — training programs and competitions — in the hands of the government. "Olympic sports," Chu points out, "get a lot more government focus and a lot more spending."
In addition to a presence at the Olympics, sports can get a boost in China from featuring ethnically Chinese stars or from serving as a outlet for gambling. Betting on European soccer games is a popular pastime in China. According to Chu, with the low scoring and straightforward system of advancement in tournaments, soccer is an easy fit for international gamblers and has benefitted from this in China.
In addition to bets being placed underground on European and international soccer leagues, China's National Administration of Sports runs a lottery that allows fans to purchase tickets and make small wagers on games in certain international leagues. The lottery allows participants to place wagers on games held both by the English Premier League and the NBA.
The NFL, however, is trying to build a presence in China without either of these advantages. American football is not an Olympic sport and has been lumped with China's "small balls association," rather than having its own association or being joined with the "big balls" sports that include soccer and basketball. "It's an unfortunate categorization," says Young.
Young is focused on trying to build the NFL's fan base in China slowly from the ground up. Before Young joined the China team in 2010, the NFL had planned to hold an exhibition game in Beijing but saw those plans fall through. "I think in the beginning the thought was to come in and start off in a big fashion," Young notes. "I don't feel that that is the right path. It's something you want to work up to — first, you need to build a strong connection with your avid fan base."
Rather than hold an exhibition game or promote itself on a national level, the NFL is focusing its efforts on specific groups. "Of the total population in China, 612 million are urban," Young points out. "Of those, 320 million are between [the ages of] 15 and 54. That's our key market."
The market Young has in mind focuses past the initial 320 million young people. There are 100 cities with a population or more than one million and the NFL is targeting 19 of them — those that are categorized "tier one" cities. Of the 120 million people living in those cities, about 67 million say they are interested in sports. Thirty eight million of that group is male.
To build up support among that group, the NFL is organizing flag football leagues, convincing schools to include American football in their physical education programs, and making NFL games available for fans to watch on TV or digitally. There are 19 channels in China that currently run NFL games, three of which are digital nation-wide channels. "I would argue that CCTV wouldn't be a huge advantage for us," says Young. "Seventy percent of their viewership is rural and we can't follow up with marketing anyway."
During the Super Bowl this year, the NFL counted around 70 million viewers in China. In the future, Young hopes to expand the league's viewership and perhaps run the Super Bowl on CCTV. With the growing popularity of football, he notes, sponsorships will become more lucrative. NFL merchandise is now available in China, offered in Nike stores and through the companies New Era and VF.
While Young is admittedly slow-moving, he expects to build football into a top ten sport in China by the year 2020. Of the adopter market that Young has targeted, he hopes one third of the 38 million will be interested in the sport and somewhere between five and six million will become avid fans.
"We want to know who the people are that are watching our games, who are purchasing products. We want to know what they do and how much education they have," says Young.
The NFL is not the only league that is taking on the twin challenges of building a fan base and cracking the Chinese market. Major League Baseball is also working slowly, trying to build up a fan base and encourage people in China to play and watch the game. But there have been roadblocks along the way. A baseball stadium that was built for the 2008 Olympics, for example, the only standard baseball venue in Beijing, was demolished soon afterward to make way for a real estate project.
How Basketball Hit It Big in China
If there is one sports association that has made its mark in China, it is the National Basketball Association. The NBA held its first exhibition game in 1989 and at least some of its audience was already familiar with the game.
"Basketball entered China about 100 years ago — basically five years after it was invented," according to David Yang, senior vice president of business affairs at NBA China. "My father, who just celebrated his 80th birthday, grew up in the countryside playing basketball barefoot."
With its 1979 entry into the Chinese market, the NBA itself has had a relatively long-lasting relationship with its fans. Today, the association claims 330 million fans in China.
Building this fan base and capitalizing on it has taken decades of work. CCTV started airing NBA games in 1987, but didn't start paying the NBA for the games until the 1990s. Advertising revenues grew slowly as the games increased in popularity. In 2002, when Shanghai native Yao Ming was the first pick in the NBA draft, CCTV5 started airing NBA games live throughout the week.
Looking back, Yang sees 2004 as a turning point for the association in China. Yao Ming had gone to Houston in 2002 and another Chinese player named Liu Wei was playing for Sacramento. In 2004, the NBA held two games in China, pitting Yao Ming and the Houston Rockets against Liu Wei and the Sacramento Kings. "These were the first real NBA games staged in China — they really narrowed the geographical gap between the fans and the NBA," says Yang.
These games marked the start of a tradition for the NBA, which has held six "China Games" since then, with a seventh scheduled for October of this year. For the 2012 games, the NBA had a record 14 marketing and promotional partners.
In addition to the games, sponsorships and television rights, the NBA has footwear and apparel available in 2,200 Adidas stores around the country and offers online shopping on Taobao Mall, a popular online shopping center. Even the NBA, however, has suffered setbacks.
In 2008, the NBA formed a joint venture called NBA China, with backing from five strategic partners: Disney/ESPN, Bank of China Group Investment, Legend Holdings, China Merchant Group and Li Ka Shing Foundation. Collectively the firms invested $253 million in the venture. At the time, Goldman Sachs estimated this investment represented only 11% of the new company, which would mean the total value was $2.4 billion.
As part of the new launch, the NBA had let slip plans to develop a league in China. The league would be complimented with the development of training centers and arenas — projects that the NBA has gone ahead with. Forming a league, however, would require government approval and, despite high expectations from fans, an NBA league never materialized.
The NBA is also challenged by having to negotiate a contract with CCTV every year, says Matthew Beyer, the founder and managing director of Altius Culture, a sports-focused consultancy and management agency based in Beijing. "Sponsors sign multi-year contracts, but the NBA renews its contracts with CCTV annually."
With China challenging the long-standing revenue model of sports associations, the NBA has turned to some less traditional sources for making money in China. In October of last year, the association announced a partnership with Yatai Lanhai Investment Group to jointly design, develop and build the first-ever NBA Center in the world in Northern China.
The company is also focusing on building up its digital presence, with an account on Sina Weibo, China's equivalent to Twitter, and an increase in the number of games available through Internet and mobile platforms convenient to Chinese users.
"China is a unique market," Beyer notes. "You have to be entrepreneurial; you have to think outside the box."