A good read. LinkedIn please log in to view this image Steve Tappin please log in to view this image FollowSteve Tappin CEO Xinfu, CEO Coach & BBC CEO Guru Which will be the next football club to be bought by the Chinese? Why is this buying frenzy taking place? 1. There are an increasing number of Chinese billionaire entrepreneurs who are becoming more and more wealthy. No one can be exactly sure as to how many billionaires there are in China, however we know that there are a lot of them, and the numbers are only going up. Chinese sources, including the Hurun report (preeminent rich list in China) believe that there are more billionaires in China now than there are in America, counting 596 billionaires in China in contrast to the 537 in the US, giving it the biggest population of billionaires in the world. [1] Forbes were more conservative, counting 335 billionaires in China. Still, it’s a lot and the differences between the various lists are a combination of billionaires created with new listings, together with private holdings where the wealth can’t really be validated. The Hurun report also highlights the rapid increase of self-made billionaires in China: in 2013, there were 64 dollar billionaires in China; in 2014, the number jumped up to 358 and in 2015, it jumped again to 596.[2] "Despite its own slowdown and falling stock markets, China minted more new billionaires than any other country in the world last year, mainly on the back of new listing”. Rupert Hoogewerf, British businessman, founder, chairman and chief researcher of Hurun Report. 2. Chinese premier loves football, wants to improve the Chinese league and wants China to win the world cup. please log in to view this image President Xi Jinping has a grand vision of football which is nothing less than a "…foundation for happiness in modern society."[3] ----------- "He (Xi Jinping) is very happy to see the league is getting better and better but he wants China, as a national team, to be big, to be better in football." Sven-Goran Eriksson Xi Jinping’s “grand vision” for the sport is laid out in a State Council plan stating how China can become a real football nation, and whatever the Chinese government sets out in their five year plans, or significant state council plans, they typically tend to make it happen. This season it's gone crazy, totally crazy…The president of the country is pushing for football. And if the government push for something in China things will happen”. Sven-Goran Eriksson[4] China’s unveiled plans to make the country a “soccer powerhouse” that will be able to challenge the world’s top teams by 2050.[5] Xi Jinping is leading a policy of putting cash to work in the Chinese league, in the hope of one day winning a world cup bid and eventually winning the tournament. As well as this, China’s billionaire club owners have been occupied with improving the Chinese league with “over $300 million spent on foreign players”.[6] The entrepreneurs are making the link between buying Western clubs as a platform for helping the Premier to realise his vision for the country. "This investment will not only provide a golden opportunity for young Chinese players sent overseas…to be selected by leading European football clubs, it will also strengthen the quality of Chinese football and narrow the gap between the rest of the world." Wang Jinlin, China’s richest man, Wanda Group.[7] The Premier’s dreams for the country’s stamp on football may be faster to come to fruition than in other countries due to “Guanxi” – the inter-relationships that are at the heart of Chinese business, making Chinese entrepreneurs motivated to support each other and the Premier. Buying a football club then, would build great relationship credits with the government, and would likely be beneficial in future business transactions with government and the Premier. Read more about Guanxi here. 3. The Chinese love legacy brands with history, as they don’t exist in China It’s only in the last 30 years that China has had a commercial business framework, as previously, most businesses were state-owned. The country doesn’t have any historic businesses older than this, that can be acquired. As a result, for many Chinese entrepreneurs their company’s prestige and legacy are important driving motivators.[8] They now believe in leaving something behind for future generations to remember and earn from. “If I build a great company to last, our brand could be remembered by all future generations. That’s why I don’t think in terms of how big the company is, but I think of how long it will last”. Lui Ruiqi, Chairman of Hengyuanxiang Group As a result, the Chinese have and are continuing to invest in legacy British companies that can then be expanded into China. China’s Sanpower Group bought House of Fraser in 2014, established 1849 making the company 166 years old.[9] After collapsing into administration in 2012, Chinese car manufacturer Zhejiang Geely rescued iconic black cab maker Manganese Bronze, established 1899.[10] Another example: last year Chinese footwear retailer C.banner International Holdings bought Hamleys toy makers for £100m. Hamleys is 255 years old.[11] and cinema chain Odeon, est. 1930, was bought in July by AMC Entertainment (owned by Dalian Wanda). It’s no surprise then, that the English football clubs that have been bought so far also have a long history and heritage - Wolves – est. 1877, Aston Villa – est. 1874, West Brom – est. 1878. 4. Why is there such a frenzy around football clubs? The Chinese famously like to copy and to make money. Historically, Western entrepreneurs have bought football clubs based on passion, sometimes ego and unfortunately lost money, although many lost much more than they expected. However, the “football financial fair play rules” in England stop billionaires putting hundreds of millions in and not caring about financial losses, resulting in football entities becoming more profitable. Share in Premier League bonanza There’s been unprecedented revenue growth since the premier league’s inception in 1992/93; with combined annual revenue of 20 clubs climbing from £202m to over £3 billion in 2013/14 (average 14% p.a). This is boosted by the massive 3 year broadcasting rights for the Premier League of £5.1bn. Each Premier League club is expected to receive between £60m and £95m in respect of domestic TV rights (71% value uplift announced in February 2015), and around £30-35m in respect of international TV rights. Therefore, £90-130m revenue is payable per club p.a. A new era of sustained profitability is encouraging more investor interest in English football. Historically, football clubs have been valued on a multiple of revenue, typically, up to two times for a Premier League club and up to 1.5 times for a Championship club. Over the last decade football clubs are increasingly seen as global brands with huge intangible value, supported by active communities and the assumption is, they can be further monetized in the future. The chart below, demonstrates the increased revenue multiple for some of the most successful clubs: please log in to view this image (figures from http://www.cityam.com/240876/most-v...teams-worth-over-1bn-according-to-new-ranking) The football proposition, regardless of potential property investment and Guanxi benefits, is really attractive to them. 5. Chinese like to invest and develop regions – next stop, the North! When the Chinese invest into an asset, they tend to develop the country as well. Xi Jinping for example, offered a huge $60bn loan and aid package to Africa, aiming to develop infrastructure, agriculture and reduce poverty.[12] We can see similar things starting to happen in the north of the UK, as former British Chancellor George Osborne offered investment opportunities to China. One of these, a bid for £11.8bn of contracts to rebuild the HS2 high speed rail line. “Launching HS2 is key to supporting long-term economic growth across the north and Midlands”.[13] George Osborne “High Speed 2, a railway line running 335 miles from London to Birmingham, Manchester, Sheffield and Leeds. The line is budgeted at £55bn, although late last year its cost was widely reported to be closer to £70bn”.[14] Simon Chadwick The hope is though, that the new government doesn't undo the good work. please log in to view this image https://www.theguardian.com/uk-news/2016/jun/07/hs2-the-zombie-train-that-refuses-to-die In late 2015, Chinese Media Capital acquired a 13% stake in Manchester City, a club at which Osborne has over the years been seen at, watching games. City’s stadium would be directly adjacent to the proposed HS2 route into Manchester. Aston Villa, West Brom and Wolverhampton Wanderers are part of the Birmingham conurbation through which HS2 will also pass. Follow the railway line up to Merseyside, and there are rumours too of Chinese interest in acquiring Liverpool. Then on to Leeds, Sheffield and Hull – the story is the same. There is likely to be some very big, highly lucrative construction, property development and related commercial opportunities that emerge from the proposed HS2 line. The Chinese know this. Often with football clubs, there’s not just a footballing opportunity to develop the stadium, but there’s the opportunity to be a potential partner in developing the cities. 6. Are all Chinese investors “angels”? As some clubs are about to find out, the Chinese investor is not always the golden ticket to success. With Chinese deals, there can be issues around the investor understanding what they’re buying, differences in working practices and sometimes, the promised monies don’t arrive. For example Hui Wang, owner United Vansen International Sports, allegedly promised to invest in ADO Den Haag in 2014, but by 2016 failed to make two vital payments (€3.7m), so the club faced liquidating.[15] The relationship between Wang and the club’s Western management was therefore difficult – it’s easy for the Chinese who haven’t before managed Western investment to have fall outs like these when communications break down. With some billionaire entrepreneurs, the money has gone to their head and they believe they can do anything. Sometimes a “reality distortion field” (similar to Steve Jobs) develops around timelines and results, making them unrealistically impatient, likely to make knee-jerk decisions on managers and players, and meddle in the day-to-day. This can create chaos in the running of the club – similar to other Western egotistical and wild owners. The early signs from Aston Villa’s new owner, Tony Xia, ring some alarm bells. He boldly claimed when he bought the club in June, ‘Okay, good, now it’s time to make Villa the biggest football club in the world.’[16] He’s already taken to social media, tweeting things like, “some players are not worth being given chance."[17] However, he has delivered on his promises and he’s bankrolled the club £30m. “He’s been absolutely fantastic from day one. We knew we needed to make some changes". Roberto Di Matteo The challenge is, how quickly will he make further changes if Aston Villa (in 16th place) do not make immediate progress. Some investors however, could be archangels Fosun is a sophisticated investor and is chaired by the “Warren Buffet of China”, Mr. Guo Guangchang. Fosun have a track record of being long term investors. They have deep pockets and will be investing behind a clear, medium term business plan. They have a proper board representative, e.g. Jeff Li, Wolves/Fosun representative, and I believe they will ensure proper working capital to buy players. Since Fosun bought the club on July 21, Wolves have signed 12 players in only 41 days. The new owners also pledged to spend nearly £20-30m in the next two years. Equally, Suning Commerce Group, who own the majority stake in Inter Milan could be a good option. They said that they would pay 280m euros (£220m) for the majority stake as part of an overall £750m euro (£590m) deal, making sure fund commitments are real and timely. "Suning will inject a steady stream of capital investment in Inter Milan, which will help attract more talented players.”[18] Zhang Jindong, Chairman, Suning. In most cases, fans should be happy with a Chinese backer but I forecast that one or two of the recent investments won’t work out. It’s critical then, to have the right partner to rebuild clubs to their former glory and be committed to the short, medium and long term success of the club. Who’s next…sleeping giant? There has been speculation in the media of Chinese interest in both Liverpool and Hull, which makes complete sense given the above. However, I believe the biggest prize in the English football league for the Chinese has got to be Leeds United. Legacy brand - yes Leeds United is the third biggest city single football club and it’s a legacy brand. Leeds City formed in 1904 and Leeds United formed 1919, making it 97 years old. Financial case – yes By the year 2001, the club was 5th in the Deloitte Football Money League, with revenue ahead of clubs such as Real Madrid, Barcelona, Liverpool and Chelsea. In the past 16 years, a succession of owners has mismanaged and underinvested in the club. There are no exact figures on this, but one source put Leeds at the bottom of net investment since 2004/5, with a staggering £97m outflow from the club, although Leeds went into administration so there may be slight "apples and pears" comparisons with other clubs. Based on approximate steady state revenue of £30m, Leeds will be worth c.£45-60m (applying a Championship club revenue multiple of 1.5 or up to two times revenue multiple for a Premier League potential). Yet again, no net investment from the club during the recent transfer window and the sale of a prize young talent Lewis Cook. Further capital to bring in the best would be needed to allow Leeds to go to toe to toe with the likes of Wolves and Aston Villa - in total, potentially, worth up to £100m. The potential of this sleeping giant is massive. To demonstrate this, Leeds’s old rivals, Liverpool, worth less than Leeds in 2001, is according to Forbes now worth $1.56n which is nearly a staggering 20 times the Leeds valuation! Property development There is a definite property upside play to investing in Leeds. In 2015, house prices increases in Leeds were (4.9%) but completely lagged behind London (13.1%) and the average property price in London was £463,872, compared to Leeds - £129,280. In the medium to long term, when HS2 is built, property prices will follow. Right investment partner I expect, in 2017, a new crop of Chinese owners will come in for clubs. Some will be the saving angels, a few won’t be and some of the deals won't work out. I need to disclose my interest, I’m a passionate Leeds United fan. I remain committed to finding the right Chinese investing partner(s) for the club. LIKE: Give this a like if you think there will be more Chinese owners of English football clubs. COMMENT: what’s your view? Is this a good or a bad thing, and which clubs? FOLLOW: Do follow me here on LinkedIn as I bring to life what’s happening in the world of CEOs on a weekly basis, along with regular leadership, social media, career, hiring and productivity insights. By Steve Tappin Chief Executive, Xinfu, Host BBC CEO Guru www.xinfu.com www.twitter.com/SteveTappin www.bbc.co.uk/ceoguru Steve is a personal confidant to many of the world’s top CEOs. He is the host of the award winning BBC ‘CEO Guru’, which features in-depth, on-the-record interviews with the CEOs of the biggest and fastest-growing companies. Steve is the author of ‘The Secrets Of CEOs’, which interviews 200 CEOs on business life and leadership. Sources [1] http://www.cnbc.com/2016/02/24/china-has-more-billionaires-than-us-report.html [2] http://www.hurun.net/EN/ArticleShow.aspx?nid=274 [3] http://edition.cnn.com/2016/02/26/football/china-football-ambition-transfer-window/ [4] http://www.bbc.co.uk/sport/football/36185908 [5] http://edition.cnn.com/2016/04/11/football/china-football-superpower/ [6] http://edition.cnn.com/2016/02/26/football/china-football-ambition-transfer-window/ [7] http://edition.cnn.com/2015/01/21/football/football-atletico-chinese-billionaire/ [8] p. 27 Secrets of Chinese CEOs, 2015. [9] http://www.ft.com/cms/s/0/b7c038c8-2727-11e6-8b18-91555f2f4fde.html#axzz4HgnboAUA [10]http://www.telegraph.co.uk/finance/...s-London-taxi-cab-maker-Manganese-Bronze.html [11] https://www.theguardian.com/busines...se-footwear-retailer-confirms-buy-toy-company [12]http://knowledge.wharton.upenn.edu/article/chinas-investments-in-africa-whats-the-real-story/ [13] http://www.telegraph.co.uk/news/ukn...bidding-for-11.8bn-HS2-contract-in-China.html [14] https://www.theguardian.com/uk-news/2016/jun/07/hs2-the-zombie-train-that-refuses-to-die [15] http://www.dutchnews.nl/news/archiv...ag-finally-gets-its-money-from-chinese-owner/ [16] http://www.dailymail.co.uk/sport/fo...r-Tony-Xia-plans-make-club-biggest-world.html [17] http://www.skysports.com/football/n...ia-hits-out-at-squad-after-luton-efl-cup-loss [18] http://www.bbc.co.uk/sport/football/36458237 LikeWho is the next trophy Club for Chinese football investors? 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