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The big league?The business of sport in China

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© Economist Intelligence Unit 2009 1

Contents

Preface 3

Executive summary 4

A new playing field 7

Basketball 10

Golf 12

Tennis 15

Football 18

Outlook 21


2 © Economist Intelligence Unit 2009

© 2009 Economist Intelligence Unit. All rights reserved. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.

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Preface

The big league? The business of sport in China is an Economist Intelligence Unit briefing paper, sponsored by Mission Hills China.

The Economist Intelligence Unit maintained full editorial control of the report, and the findings and views expressed in the report are those of the Economist Intelligence Unit alone.

A.E. Beere was the author of the report. The editor was Laurel West. The cover image was created by David Simonds. Gaddi Tam was responsible for design and layout.

We would like to thank the many people who took the time to share their views on the future of the sports business in China. In particular we would like to thank Pierre Justo of TNS Sport China/CSM Media Research for providing us with data.



Executive summary

The 2008 Beijing Olympics proved that China has what it takes to host world-class sporting events—and to produce world-beating athletes. The Games went off with hardly a hitch. There were dazzling ceremonies held in state-of-the-art venues and the host country won 51 gold medals, more than any other nation. The event served to intensify already-huge interest in the business of sport in China—from international sport marketers to municipal officials seeking to host major events to help put their cities on the map.

Beyond its gold-winning national athletes, what does China’s sports business look like? How does it compare—and how might it compare in future—to the billion-dollar, star-laden sporting leagues in Western markets? To examine these questions we have focused on four sports: basketball, football, golf and tennis. We have interviewed a wide range of industry players, both local and foreign, from all levels of the business—from athletes and coaches to league officials, equipment suppliers, sport-marketing consultants and broadcasters. Among the issues we have examined: Is China creating its own model for development of these sports? Who is driving that process? Which companies have succeeded in crafting business models out of sport in China, and what lessons can be drawn from their experience?

The main findings of our research include:

• Though the state still dominates sport, commercialisation is taking root. Though China has liberalised and globalised many of its industries, sport has remained largely sheltered from commercialisation. Almost all of China’s top athletes are products of the state system. The official sport federations still control their respective sports, acting as de facto professional leagues in the sports we have chosen to study.

But commercialisation is taking hold, and, some would argue, gathering pace. In basketball, for example, several teams in the Chinese Basketball Association (CBA) league are now privately owned. The US National Basketball Association (NBA), which has been active in China for the past 20 years, has set up a company called NBA China to promote the sport and its own business in the country. More athletes—recent examples include tennis players Zheng Jie and Li Na—are stepping away from their sport associations to become free agents, choosing their own coaches and keeping more of their winnings. With the state focused on elite athletes, major equipment suppliers from China’s Li Ning to international giants Nike and Adidas are trying to build the market by pouring money into training programmes for young players at the grassroots level.

• For China’s sports industry to reach its true potential, much more grassroots development is required. In most of the sports examined in this report, China has not yet created the virtuous circle found in more developed markets, where popular events expand the fan and participant base, which in turn attracts sponsors and creates more demand for merchandise and more events. With basketball this circle is beginning to form—the emergence of a Chinese star in the NBA, Yao Ming, has led to basketball becoming the common man’s sport in China, with courts found in the yards of many export factories. But



this contrasts with golf, where industry players are fervently hoping that the sport’s potential inclusion in the Olympics will encourage the government to spend more on public facilities, thereby raising its profile and also putting what is currently one of China’s most expensive sports within reach of more potential players.

• Sport marketing is in its infancy—and is taking some interesting turns. According to most industry players interviewed for this report, few of the sport federations in China are focusing on issues like branding and marketing, or are cognisant of the fact that they are competing with other forms of entertainment. Few Chinese athletes have agency representation, and consumers have yet to show the obsession with teams or individual players that their Western counterparts do—or at least to translate this into purchases of apparel or equipment emblazoned with team logos. All this may eventually change as China follows the path of development seen in other countries, but for now it is leading to some interesting attempts to promote sport. For example, the US National Football League (NFL) has created a reality show for Chinese TV featuring a popular band from Taiwan touring the US, observing, and sometimes participating in, the sport’s rituals.

• Broadcasting presents a bottleneck. The dominance of the state-owned broadcaster, CCTV-5, of the national television market means that it can pay less for the rights to broadcast domestic sporting events than broadcasters in other countries. Indeed, there are already more events than it can reasonably cover. This means less money for sport, and for sport development. Overall, China accounts for just a fraction of the global sport-sponsorship market—US$1.5bn-2bn out of US$60bn, including broadcast rights, according to Pierre Justo, Asia director for sport and media research at TNS/CSM Media Research, a market research group. Yet TV is widely perceived to be more important in reaching audiences in China than in other countries.

• Local heroes are needed—but so is the expertise to make them stars. Industry insiders point to the need for local stars to inspire more Chinese to take up their sport at the grassroots. While the rise of Yao Ming to star with the NBA’s Houston Rockets is seen as a key factor in the popularity of basketball in China, it is notable that he only became a star with the help of Western marketing expertise. Indeed, while basketball fans mob Los Angeles Lakers’ star guard Kobe Bryant when he visits China and NBA games can draw television audiences in the hundreds of millions, China’s own basketball league does not have the same hold on local fans. A similar situation prevails in football, with the popularity of England’s Premier League far eclipsing that of the local equivalent. Industry observers blame this partly on a lower calibre of domestic play—but also on a lack of marketing savvy and management skills. Creeping privatisation in the sport could help to rectify this.

• Facilities construction is key. Although the Olympics raised awareness of sport in China, facilities remain scarce and expensive. A survey conducted by China’s General Administration of Sport in 2004 found that only 8% of sporting venues were in villages and towns, highlighting the concentration of resources in urban areas. China needs more public venues for sport in order to expand the fan base and grow the market. The Chinese government has taken note and is investing in more facilities, as are foreign



companies such as AEG, a US-based sports and entertainment group. But this will take time.

• The complete privatisation of sport is not assured. Though commercialisation is taking hold, does this necessarily portend the end of state control? The timing and likelihood of a privatisation of China’s sport federations are subject to heated debate among sporting industry executives in the country. Though the onslaught of private-sector investment in sport would seem to indicate a tilt towards privatisation, the federations could continue to operate as state-owned enterprises but gradually become more market-oriented—sport marketing with Chinese characteristics, if you will. This seems to be what is happening with the Chinese Tennis Association (CTA), which says it already derives 60% of its income from commercial activities and sponsorship. But this may not bode well: there are few examples of competitive state-owned enterprises in any industry. Indeed, many private-sector participants in the sport industry report difficult relations with, and little co-operation from, their respective federations.

Although the absolute number of participants in sport in China may seem high—as many as 300m Chinese play basketball, for example—in percentage terms the number is small for most sports. Industry executives may differ in their views on the development path China’s sporting industry should take, but everyone can agree on one thing: there is huge room for growth.



A new playing fieldThe Olympics marked a turning point in the business of sport in China. But the concept of sport marketing is still very new and much remains to be done for the industry to reach its full potential

The 2008 Beijing Olympics marked a turning point in the business of sport in China.China dominated the Games, winning 51 gold medals, more than any other country. It built world-

class facilities, including the 91,000-seat Bird’s Nest stadium and the futuristic Water Cube aquatics centre. And it learned what it takes to organise a huge international sporting event.

The Olympics were a coup for China in other ways. The opening ceremony drew a local television audience of 842m people, according to Beijing-based TNS Sport China/CSM Media Research. More than 100m Chinese watched the Olympics online, according to CCTV, the state-run network. Homegrown sportswear giant Li Ning, which was not an official sponsor, nonetheless managed to outfit all broadcasters on state-run CCTV-5, the official sport channel, during the Games.

The success of the Olympics has raised curiosity about China as a market for sport. In fact, the sport business is not new to the Middle Kingdom: as we detail in the coming pages, many international sporting organisations have been in the Chinese market for at least two decades, and Chinese athletes have been negotiating contracts with international sporting organisations for almost as long.

Although in many industries China has embraced capitalism and globalisation over the past three decades of its extraordinary economic growth, many of the country’s elite athletes, teams and sporting events remain largely sheltered from commercialisation. China views its performance in sport, particularly in the Olympics, as a matter of national strategy and pride. As a result, government officials are responsible for the administration and funding of sport, lavishing monies for food, housing, coaching and healthcare on its elite athletes. Almost all of China’s top athletes are products of the state system, which has schools and teams in every province. At the same time, state broadcaster CCTV-5 has a much larger influence over the Chinese market than any single broadcaster in Western markets.

While the strengths of this system are obvious in China’s medal tally and massive television audience, it makes it harder for a free market to develop around sport, as it has in other countries. CCTV-5’s dominance of the national television market means that it can afford to pay less for the rights to broadcast domestic sporting events than networks in other countries, according to industry executives. (Provincial and city networks, such as Shanghai Media Group, and channels dedicated to a particular sport, such as the Golf Channel, also air sporting events, but none have the national reach of CCTV-5.)

Spending on sponsorship is still a fraction of that in the US and Europe. Pierre Justo, Beijing-based regional director for Asia for sport and media research at TNS/CSM Media Research, estimates that global sponsorship spending (including TV rights) will reach US$60bn this year, of which China will account for between US$1.5bn and US$2bn. About half of the sponsorship dollars in China come from domestic companies, he adds.

Sport sponsorship is still new to China—executives say the market only took off after 2001, when



What they’re watchingSports most aired on TV so far in 2009 (Jan-Aug), broadcast hours

Football

Basketball

Tennis

Snooker

16,374

8,046

4,056

2,400

badminton1,515

table tennis1,487

boxing/combat sports

Volleyball

Golf

Motorsports

X Games

Source: TNS Sport China 2009

1,055

916

776

644

485

the country won its bid to host the Olympics. While companies now sign marketing deals with athletes, sponsor sporting events and place television advertisements just as in any other country, the industry still differs from its international counterparts in several important ways.

Very few Chinese athletes have agency representation. Some sponsors enter agreements at the behest of the government, according to several industry executives. Sponsors tend to flock to big events, such as the Olympics and football’s World Cup, and anything that garners television coverage. TV is widely perceived to be more important in reaching audiences in China than in other countries. And yet, industry executives say broadcasters do not always honour their contracts to the letter, changing the time slots for advertisements at the last minute and making it harder for sponsors to measure the effectiveness of their ads, for example.

Unlike Western companies, whose longer experience with marketing sport has prompted them to create dedicated divisions to oversee sponsorship, Chinese companies typically lump the business in with other marketing activities.

At the same time, sales of apparel, caps, bags and other products emblazoned with team logos—commonly known as fanwear—are still a relatively small part of the business in China. “Consumers are more lifestyle-driven and trend-inspired, and are not as team- or fan-based in their sport-apparel choices as Western consumers,” says Christophe Bezu, Adidas’s head of Asia Pacific operations. Without widespread participation in sport outside the state-run system, there is less demand for sports equipment.

But sponsorship dollars may well go farther in China. Not only are sponsorship deals typically cheaper



in China than Western markets, but Chinese fans also appear to appreciate them more. While most Western fans take a sceptical view of sponsors’ motivations, 75% of Chinese consumers surveyed by TNS who were familiar with sponsorship said they felt either neutral or good about sponsors. “Chinese people really perceive sponsors as helpful towards the development of sport” by lightening the government’s burden and making it possible for fans to see more of their favourite sport, says Mr Justo.

That positive impression makes business models that might be hard to pull off elsewhere possible in China. Sportswear giant Anta recently began sponsoring a programme called “Basketball Garden” on CCTV-5, aimed, its executives told local media, at encouraging the spread of the sport throughout the country. Sports marketing giant IMG helped the NFL create a reality show for CCTV in which a popular Taiwan band tours the north-eastern US, observing—and sometimes participating in—some of the sport’s unique rituals. The programme, called “NFL Blitz”, is intended to stimulate interest in American football.

Coca-Cola’s highly successful marketing push during the Olympics also included elements that might have been viewed more cynically elsewhere. The world’s largest beverage company hosted a national contest for folk artists to decorate giant Coke bottles in ways that reflected their local culture, for example. But Coke also assembled a “dream team” of China’s star athletes—Yao Ming, Liu Xiang and Guo Jing Jing—to take part in its promotions. When CSM Media Research and marketing consultancy R3 interviewed 1,500 Chinese consumers about brands that made an impression on them during the Olympics, 50% spontaneously mentioned Coke and, on average, they remembered 2.3 Coke promotions—more than the second- and third-ranked companies combined.

IMG itself has signed a joint venture agreement with CCTV, unveiled on the eve of the Beijing Olympics, to develop events, sell sponsorship rights, and broadcast them on television. The first event organised by the group, the Chengdu Open on November 5th-8th, will be the only Asian event in the ATP Champions Tour circuit (on which former tennis champions such as John McEnroe compete).

Players, too, are starting to move out from under the umbrella of the state’s sport associations. Top-ranked female players Zheng Jie, Li Na, Peng Shuai and Yan Zi have left the CTA to become free agents, choosing their own coaches and keeping more of their winnings. Ms Zheng now keeps 92% of her prize money, compared to the 65% she retained when she played under the state system, according to Chinese state media. In fact, golf, soccer and basketball players have been stepping away from their sport associations to play internationally and keep more of their earnings for years, according to Ma Guoli, the founder of CCTV-5 who is now the CEO of Infront China, a sport-marketing consultancy.

China’s sport business has ample room to expand. At a time where spending on most things is shrinking, the business of sport in China is growing—though industry executives cannot say exactly by how much. Every company interviewed for this report said that China occupied a growing share of their business. “Every sporting organisation we speak to in the world wants to know about China. Every advertiser wants to know about China,” says Martin Jolly, managing director of IMG for Asia. “The audiences and the potential are like something that we’ve never seen.”



BasketballBasketball has become the common man’s sport in China. But the local professional league has a long way to go before it looks anything like the NBA

Basketball is the poster child for China’s sports business: backed by deep-pocketed sponsors and a savvy foreign league, it has produced the country’s biggest international celebrity—2.29m-tall

Houston Rockets centre Yao Ming. Between 250m and 300m Chinese are believed to play basketball, according to government estimates.

Basketball’s roots in China extend across the oceans. Christian missionaries brought the sport to China more than a century ago. In the 1990s, David Stern, commissioner of the NBA, sought to popularise the sport by giving away the television broadcast rights to CCTV. Later, Nike helped bring Yao Ming to the US.

Today, basketball has emerged as the common man’s sport in China: many of the country’s export factories have basketball courts, and it is common to see pick-up games played on courts in big cities. Los Angeles Lakers’ star guard Kobe Bryant is mobbed by fans when he travels to China and as many as 200m people are estimated to have watched one 2007 game between the Milwaukee Bucks and the Houston Rockets. In the 2008/09 season, CCTV broadcast 39 NBA regular-season games, including 13 Rockets games. The NBA is forging ahead with plans to build 12 basketball stadiums in China in partnership with AEG. In 2005, the government announced it would build basketball courts in 800,000 villages.

Companies, both foreign and local, have courted basketball stars for more than a decade. Swiss watch brand Tissot inked a five-year deal starting with the 2007/08 season to sponsor the Chinese Basketball Association (CBA) league, joining UPS and local brands China Mobile and Du-Bang Insurance. Since 2006, Li Ning has sponsored the China Basketball Draft Camp, an annual training camp for young players in the CBA system. The NBA, whose ties to Chinese basketball date back to its hosting of the national team in the US in 1985, has relationships with 51 Chinese TV and media outlets, including CCTV. It sells branded merchandise, stages games and organises events to promote the sport through NBA China, its Chinese arm (which has several prominent Chinese investors—Bank of China Group Investment, Legend Holdings Limited, Li Ka Shing Foundation and China Merchants Investments).

Nike and Adidas organise events to help find and develop young players with potential. “Basketball sponsorship is more mature than other sports due to the significant investment, goals and objectives of NBA China,” says Mr Bezu of Adidas.

Indeed, the most successful elements of China’s basketball business are imported, not homegrown. The CBA lacks the recognition and professionalism of the NBA; games between China’s teams are poorly advertised and therefore poorly attended, and allegations of bribery and game-fixing have dogged the sport in recent years.

Brook Larmer, author of Operation Yao Ming: The Chinese Sports Empire, American Big Business, and the

Making of a Superstar, says the popularity of the NBA stems from its higher level of play. “Chinese audiences are left with a choice: do you watch your local CBA team, which has a much lower



calibre of play, or do you watch Kobe Bryant and LeBron James, these global stars?” Mr Larmer says. “The Chinese audience is very sophisticated in terms of basketball. They know what good basketball is. They see it every year. They want to watch the best.”

The same is true for high school and university basketball. Few Chinese high schools field teams to compete in league play. The China University Basketball Association (CUBA) includes teams from more than 700 universities and its games are well attended, in part because the players are fellow students. But the state system takes almost all of the best basketball players before they make it to the CUBA. Little wonder, then, that CUBA games, which air on state-run CCTV-5, attract fewer viewers.

Mr Larmer and others argue that the CBA league’s relative weakness reflects the fact that it is torn between two masters: the old state-run sport system and the demands of the market. “In their current mode of operation, you can describe China’s professional sport leagues as state-owned enterprises that have their annual losses subsidised by the government,” says Terry Rhoads, a former Nike executive who helped nurture Yao Ming and now runs sport consultancy ZOU Marketing. “The CBA league doesn’t see itself as an entertainment company competing against movies, restaurants, karaoke, shopping, sport on TV, or even the Internet.”

The CBA, which lost US$17m in the season that ended in May, has also struggled with basics like marketing. “It takes a lot to find out where they’re playing basketball,” says Zachary Franklin, a Shanghai-based contributor to Sports Illustrated.

Though training methods have improved in recent years, the emphasis on repetitive drills, valuing the team over the individual and following orders still constrains Chinese teams’ potential, Mr Larmer argues.

While transfer rules in the state-run system have been relaxed, many players remain with the same team for their whole lives. The introduction of foreign players has also produced mixed reactions: the fact that the top 15 scorers last season were foreign did not sit well with Chinese fans or authorities. “Foreigners should play supporting roles, not dominate the game,” the New York Times quoted Zhang Xiong, the CBA’s director of operations, as saying.

Even as the CBA struggles, there are hopeful signs of change, including Yao Ming’s purchase of his old team, the financial loss-making Shanghai Sharks. Several clubs in the CBA are now privately owned. Privatisation could well be the way forward for basketball in China.

Hoopsters% of urban population* playing basketball

Never83.8

Less thanonce/month4.1

At least once/month4.8

At least once a week5.5

* Coverage: Urban China—major 11 markets/all aged 15-54 years old/representative by gender and age (market of around 300 M Chinese aged 15-54 years old)

Source: TNS Sport China “China Sports & Sponsorship Barometer Survey”TM

Everyday or 21.8



GolfGolf is still in its infancy and industry players are hoping that its potential inclusion in the Olympics will lead to more rapid development

Twenty-five years after the country’s first modern golf course opened in Guangdong province, China counts approximately 500 golf clubs and thousands of driving ranges, according to the Chinese

Golf Association (CGA). Though still in its infancy, the sport is spreading—the number of golf courses is growing at 30% a year.

While golf is considered an elitist activity—an impression reinforced by high initiation and green fees—it has deep local roots: some Chinese scholars claim the game originated there, as chuiwan (literally, “ball hitting”) in the 12th century.

Estimates of the number of golfers vary: the CGA counts approximately 5m people playing golf in China and a television audience at least ten times that size, but consultancy KPMG contends the country could have as few as 300,000 golfers. By comparison, there are about 18,000 golf courses and 26m players in the US.

Only 1.1% of urban residents aged 15 to 54 say they play golf, according to a TNS survey in early 2009 (there are 300m urban residents in this age group, so extrapolation would imply there are 3.3m golfers). Jack Nicklaus Design, founded by the golfer of the same name, estimates the country will eventually need 1,000 to 2,000 courses. Even the CGA, in written answers to questions, anticipates there will be only 2,400 golf courses in China in 10 years’ time if current trends continue, a fraction of the number in the US.

Industry executives say the inclusion of golf in the Olympics would give the sport new importance in the eyes of medal-conscious central authorities, prompting Beijing to increase spending on junior player development and to construct more public courses. The International Olympic Committee’s (IOC) executive board has recommended that golf and rugby be included in the 2016 games and the full IOC is to vote on their inclusion in October 2009. Currently, golf is given scant official attention by Beijing, falling under the Small Ball Sport Management Centre of the General Administration of Sport, which also looks after the hugely popular table tennis and badminton.

“It will be a mammoth boost” for golf in China, says Michael Payne, a former IOC global marketing director, who compares the inclusion of golf in the Olympics to the return of tennis to the Games in 1988. “The reason golf authorities are going after the Olympics is not because they think it would be good for America and Europe, but because they think it would be good for the development of the sport in Asia and the rest of the world,” he says.

A key to the expansion of the sport in China will be lower prices. Because almost all Chinese golf courses are new, privately owned, and offer extensive amenities, golf is among the most expensive sports to play in China. Initiation fees at golf courses in the country run to US$53,000 on average, according to KPMG. While on par with other “new” golf markets such as Dubai, this compares to fees of only about



US$7,500 in developed markets such as Ireland. Weekend green fees are also more expensive—an average of US$161 in China compared with US$152 in Dubai and US$98 in Portugal.

China is already home to the world’s largest golf club—Mission Hills (the sponsor of this report), whose 12 courses are located in Shenzhen in southern China. The club has been heavily involved in junior player development, establishing internationally-sanctioned and telecast tournaments and hosting a series of junior player development programmes, including one through the Chinese Athletes Educational Foundation (CAEF) since 2006. With 20 students, many of whom are the children of Olympic athletes, the three-year scholarship programme aims to groom the next generation of players and coaches. Intriguingly, it starts from scratch, with teenagers who have no golf experience.

The offspring of Chinese Olympians are already producing results in golf. In August 2009 An Byeong-hun, the son of Jiao Zhimin, who won a silver medal in women’s doubles table tennis and a bronze in singles at the 1988 Seoul Olympics, became the youngest player and first Asian national to win the US Amateur Golf Championship. His father, South Korean An Jae-hyung, has a bronze in men’s doubles table tennis from the 1988 Olympics.

The CAEF’s programme sends its players overseas during their third year of training, mostly because there aren’t enough tournaments at home. There are about 100 junior and amateur golf tournaments in China a year, and only six professional tournaments. By comparison, the US’s Golf Channel Amateur Tour includes more than 600 tournaments every year. It’s little surprise, then, that most of China’s best young golfers live overseas. For example, 19-year-old Hu Mu, who won the 15 to 18-year-old division of the China Junior Golf Open when he was only 11 and has been called “China’s Tiger Woods”, lives and trains in Orlando, Florida.

Making golf more accessible in China will also require more courses—and in a country with GDP per capita of just over US$5,400, public courses will be essential. Currently, golf courses are concentrated in wealthy urban areas—about half of China’s courses are in Beijing, Shanghai and Guangdong province.

Technically speaking, there has been a moratorium on conversion of agricultural land into golf courses since 2004. But local governments are still keen to support new course development to promote economic growth in their regions. Jack Nicklaus Design has 22 courses in development in China, in addition to the 14 already in use. Most of the new contracts the company has signed this year have been in China, according to Paul Stringer, the company’s executive vice president. Brian Curley, who has been designing courses in the country for more than a decade, says his company’s revenues from China have “doubled, if not tripled” over the past five years.

China will also need to host more tournaments, not only to raise the level of play for junior golfers, but also to build public interest in the sport. The CGA counts improving junior talent among its priorities.

On the links% of urban population* playing golf

Never98.9






Everyday or 20.1



Mission Hills hosts half a dozen junior golf tournaments annually, including the Asian Amateur Championship, the only tournament in Asia and one of only four amateur tournaments in the world to offer an exemption to the US Masters and final qualifier of The Open Championship. In 2007, the club secured the rights to host 12 editions of the World Cup of Golf.

The market for broadcasting rights for golf tournaments still has a long way to go. CCTV has been broadcasting golf since 1995, and has steadily expanded the time it devotes to the sport. There are two dedicated golf television channels in China—Guangdong Golf TV and CCTV’s Golf & Tennis channel—but, in part because of golf’s modest television viewership, it is still not profitable to sell broadcasting rights for tournaments in China.

Since golf attracts a large proportion of relatively affluent consumers, sponsorship has been easier to come by, with many traditional sponsors of the sport in other countries, such as Omega, Volvo and HSBC, already established as annual sponsors of events in the nascent China market. Chinese brands are also starting to take an interest: appliance-maker Midea, for example, sponsors a tournament that is part of the OneAsia Tour. Some say that what the sport really needs is star power on the scale of Yao Ming.

To be fair, golf talent does not develop overnight. The term “pro golfer” didn’t even exist in China until 1994. Matthew Coote, one of two foreign coaches at the CAEF programme at Mission Hills, argues that China is only five years into its development of golf as a professional sport. Typically, it takes at least twice that time to start producing results on the international stage.



TennisChina now boasts two major international tournaments and three women among the top 50 players in the sport. What it needs now is more co-ordinated grassroots development and a male star

W ith three women—Li Na, Zheng Jie and Peng Shuai—in the top 50 of the women’s professional tour (the WTA), China has been going from strength to strength in tennis. Ms Zheng and Yan Zi,

another top female player, won the bronze in doubles at the Beijing Games, the country’s second tennis medal. China has hosted the tennis world championships five times. Beijing hosts the China Open and, starting this year, Shanghai will host an annual ATP World Tour Masters 1000 event (the only top-tier ATP event in Asia; the other five are in the 500 or 250 series). Until this year, it hosted the ATP season-ending Master’s Cup event, which has now shifted to London and been renamed the ATP World Tour Finals. The WTA, which now runs its Asia Pacific operations from Beijing, has struck a deal with CCTV to broadcast 26 of its biggest events.

Some 8m people are believed to play tennis in China, or less than 1% of the population, according to state media. The number is likely higher in cities: TNS, the market research firm, found in a survey this spring that 4.6% of those aged between 15 and 54 play tennis (there are 300m urban consumers in this age category, with extrapolation implying 13.8m tennis players). That compares with 25.1m tennis players, or 8.3% of the population, in the US. In 2007, China made tennis a mandatory sport in schools, in addition to football, basketball and table tennis.

Like golf, tennis is still relatively young in China. As recently as 1996, China was still hosting international ATP events in an unheated stadium in Shanghai in the middle of winter. Today, often with government encouragement, sponsors and international organisations are bringing more comfortable conditions to Chinese tennis. Mercedes-Benz sponsors a “Swing for the Stars” youth development programme and a grand prix tournament. Chinese sports apparel maker Li Ning has partnered with the ATP since 2006 to co-sponsor two junior tennis events. The CTA, considered by industry executives to be among the most business-minded of China’s sport federations, has said it derives 60% of its income from commercial activities and sponsorship. Industry executives attribute that to the vision of Sun Jinfang, a former volleyball champion now at the helm of the CTA.

Tennis audiences are smaller than those for football or basketball, but they are growing. The 2008 Tennis Masters Cup drew a television audience of 2.2m people. Chinese sportswear brands are also starting to spread their wings internationally: when Jelena Jankovic’s contract with Reebok expired earlier this year, for example, Anta jumped to fill the gap. Back in 2007, only four years after it started selling tennis products, Li Ning inked a deal to sponsor Croatian player Ivan Ljubicic. Anta also sponsors Zheng Jie.

Historically, 85% of revenue streams in the tennis business in China have come from sponsorship, rather than ticket sales, television rights, corporate hospitality and merchandising, which are the major drivers in more developed markets, according to Michael Luevano, director of the Shanghai ATP Masters



1000. This is starting to change, but without a Yao Ming or Liu Xiang of tennis, coaches and industry executives say the sport still struggles to attract the sponsorship and government funding it needs. Observers agree that China needs to improve its grassroots player development, and to expand the opportunities for ordinary people to practice tennis.

One glaring problem is the lack of tennis courts: Lisa Tang, a Chinese player who competed at Wimbledon, the French Open and other major tournaments before retiring in 2000, estimates that because of property development, there are only one-third as many courts in central Shanghai

today as there were a few years ago. In the Shanghai district where she lives, there are only two courts open to the public. This dearth of facilities extends beyond Shanghai: a survey conducted by China’s General Administration of Sport in 2004 found that only 8% of sports venues were in villages and towns, highlighting the concentration of resources in urban areas. Responding to the shortage of facilities, in 2001 the central government announced a national fitness programme under which it would roll out free facilities in both urban and rural areas through 2010. It announced a second phase of the project in August this year.

At the same time, Ms Tang says that in big cities like Shanghai, coaches in the state-run system are increasingly leaving to teach private lessons to office workers, a drain that has a knock-on effect on the quality of coaching in the traditional system. The reason is clear: coaches earn Rmb3,000-4,000 (US$439-586) per month in the state system, but as much as Rmb20,000 per month coaching private students.

While the CTA is increasingly following international norms, allowing more players to compete abroad and bringing in foreign coaches, reforms will be necessary to produce more international champions. Dr Hee-June Choi, the former coach of Korean tennis star Lee Hyung-Taik who is now the director of Mission Hills Tennis Academy, argues that China’s state-run system should consider borrowing the best elements from other countries’ successful grassroots player-development programmes. Dr Choi points to the US as a model China might follow. The US “sectionalises” its tennis master plan by club, city, state and region, creating an interconnected web from private sector to state-level programmes. This web identifies and channels gifted players through the appropriate pathways, while nurturing strong grassroots-level popularity for the sport. China’s efforts, by comparison, remain disjointed and isolated. Rather than being driven by the sport itself, grassroots support is being developed largely by apparel and equipment vendors.

Others suggest that China needs more tournaments, particularly at the ATP Challenger level, which offer a purse of between US$35,000 and US$150,000 and valuable points that allow players to participate

Net play% of urban population* playing tennis

Never95.4








in tournaments on the ATP tour. “This would allow the Chinese players the absolutely necessary competitive exposure to playing up-and-coming international players,” says Mr Luevano. There is an audience for more tennis tournaments in China: TNS found 43% of urban residents surveyed were interested in the sport.

Ultimately, success begets success. Messrs Luevano, Choi and others believe China needs to produce a male international tennis star in order for the sport to gain real momentum. Chinese male players still lag far behind their female counterparts: the highest-ranked Chinese man in the ATP is 28 year-old Zeng Shaoxuan, ranked number 442 in the world.

“If a Chinese male tennis player could break through into the top ranks of the game, that would be the catalyst for tennis to make a tremendous jump, and to reach the mass Chinese market,” says Mr Luevano. “This would make the sport highly relevant for more mass-focused sponsors, broadcasters and media.”



FootballFootball is the most-watched sport in China. But the domestic leagues are stuck in an unprofitable limbo between government control and commercialisation

The beautiful game is China’s biggest missed opportunity. Football in China attracts the largest television audiences of any sport. Despite that, it is stuck in a vicious cycle: the national team’s

dismal performance makes it harder to expand the fan base, the dwindling fan base makes it hard to attract sponsorship and television audiences, and the lack of interest in the sport steels parents against sending their only child into the state system.

Although China claims to have invented football more than 2,000 years ago in modern-day Shandong province and its women were runners-up in the 1999 Women’s World Cup, the men’s national team has qualified for the Olympics only once, in 1988. (The team competed in the Beijing Olympics as the host and was eliminated early.) China has also qualified for the World Cup only once, in 2002, losing all three games without scoring once. The men’s national team has been through seven coaches since 2000. Only 8% of people aged 15-24 surveyed by TNS in the spring of 2009 said they have played football in recent months, compared to the 26.6% who had played basketball.

As is the case with tennis and golf, professional soccer is still fairly new to China. The country has only had a professional league since 1994. Today, there are three leagues—the Chinese Super League (CSL), Jia or China League One and the Yi League—all of which are state-run. The sport is stuck in an unprofitable limbo between government control and commercialisation. Professional teams are still owned by their local branches of the Chinese Football Association (CFA).

In part because of the way the sport is managed in other countries, foreign football leagues have not been as well organised in their approach to China as the NBA, which can represent the interests of the sport generally. When European football clubs come to China, for example, they are often promoting their own business and brand, rather than the sport as a whole.

Unfortunately for the sport’s development, the top-tier Super League, in particular, has been marred by accusations of match-fixing, pitch violence and bribery. Siemens, the sponsor for the 2004 season, did not renew for a second year, forcing a month-long delay in the start of the following season and leaving the CSL without a sponsor in 2005. Iphox, the UK Internet-telecoms provider, lasted only a year as a sponsor, stepping aside to allow Chinese brewer Kingway to take its place. In March this year, Italian tyre maker Pirelli announced a three-year deal to become the CSL’s title sponsor. Domestic media said the deal cost Pirelli €5m, though both sides declined to comment and CFA officials suggested the actual number was lower.

Football games in China rarely fill stadiums and Chinese soccer fans are vicious in their critiques. Xu Guoqi, the author of Olympic Dreams: China and Sports, 1895-2008, has written that fans’ passionate frustration with its soccer team reflects deeper insecurities about China’s place in the world.



David Yang, editor of website China Sports Review, argues that the Super League’s transfer rules, which force players to wait 30 months after finishing their contract at one club before signing another, are a major obstacle to the improvement of the game. The transfer rules “encourage [players] to leave” the game, he says.

Only five foreign players are allowed on each team in the professional league, and there are only a handful of Chinese players abroad. Zheng Zhi, China’s 29-year-old national team captain, played with the London club Charlton Athletic and in September this year became the second Chinese player to sign with Scottish club Celtic. Du Wei played briefly for the Glasgow club.

Back in 2002, CCTV was reportedly paying only US$20,000 a match to broadcast football matches, and only US$12m to broadcast the World Cup to 300m homes. However, Mr Ma, the founder of CCTV-5, says that the amounts CCTV-5 pays for the rights to broadcast international events are now comparable to what its counterparts abroad stump up. It is understood to pay less for domestic events, which is a natural outcome of supply and demand—CCTV-5 is the only national sports channel and there are more sporting events than it has time to air.

Football has got more air time on Chinese television than any other sport so far this year, double the broadcasting hours devoted to basketball between January and August 2009, according to TNS. (During that period, Chinese TV aired 16,374 hours of football, 8,046 hours of basketball, and 4,056 hours of tennis. Golf graced Chinese TV screens for only 776 hours.) Some 135m Chinese watched the entire 2004 Asian Cup final between China and Japan on television. Germany’s Bundesliga, the Italian Serie A, Spain’s Primera Division and England’s Premier League are also popular with Chinese fans. Guangdong’s pay TV channel WinTV, for instance, has been selling the rights to broadcast the Premier League to channels around the country. Portal Sina and QQ.com, the portal associated with the popular messaging service of the same name, will also broadcast Premier League games.

As in the other sports surveyed here, a major stumbling block for football is grassroots development. The lion’s share of the funding for Chinese football goes to elite talent development, rather than to the grassroots. Where other countries have built a pyramid-shaped development structure in football, China’s state-run system is vertical. The questions the CFA should be asking, says one consultant, who asked not to be identified because of his work with the CFA, are: “How is talent identified and developed? How does the CFA create some assets and leverage those assets into commercial opportunities whose revenues can be ploughed back into football?”

Urban league% of urban population* playing football

Never91.4






Everyday or 20.3



Merchandising is another area ripe for greater reliance on market forces. Han Xu, a former player with the Beijing Guo’An club who now runs China’s largest football-goods store, says that team sales—of jerseys, shorts and other equipment—are still undeveloped in China. He now acts as a middleman between apparel and footwear brands and his former team, negotiating to purchase the club’s goods so the club doesn’t have to get involved. His store also sells official Guo’An merchandise—badges, mugs and other fan gear—that the team doesn’t have the capacity to handle. “They just don’t have the scale to do it,” he says.

Still, there are signs of change. There has been a grassroots league with a championship in Beijing since 2004. The Premier League also organises youth football and coach training programmes in China. Asked how long he thinks it will take Chinese football to pull itself out of its slump, Mr Han smiled. “Twenty years,” he said. “By the time my child is old enough to play.”



OutlookChina has seen the economic potential of sport—or at least of big sporting events. But for the industry to reach its true potential much more grassroots development, and a bigger role for the private sector, are needed

The end of the Beijing Olympics coincided with the beginning of the sharpest slowdown in the global economy in seven decades, a slowdown that inevitably affected China’s sport business. Though

unwilling to quantify the impact, industry executives say they believe it was muted and temporary. More long-lasting, undoubtedly, will be the impact of the Olympics itself—from the construction and management of world-class sporting venues, to the demonstration of how brands can leverage sporting events to their advantage, to the increase in the public’s overall awareness of sport. China can now see the economic potential of sport, or at least of major sporting events. The country will host a series of international events in the coming years: the 2010 Asian Games in Guangzhou, the 2011 Summer Universiade in Shenzhen, and a string of international tennis and golf tournaments. Harbin is even considering throwing its hat in the ring to compete to host the 2018 Winter Olympics.

And that’s just the beginning. Mr Payne, the former IOC marketing director, says he has been approached by “half a dozen” Chinese cities seeking to attract world-class sporting events “to put themselves on the world stage.” Industry executives say municipal officials in China increasingly see sport as a tool for economic growth. China last year pledged to invest Rmb2.6bn in 87,000 sport and fitness programmes for rural residents, according to state media. But for sport to really reach its full potential, much remains to be done.

Crucially, there must be wider recognition of the potential of sport as an industry, and not just a series of major events such as the Olympics. “Sport marketing has a long way to go,” says Mr Ma of Infront China. While China may be able to compete on a global scale with Western markets in industries such as banking or manufacturing, “the basic knowledge in Chinese sport is not as a marketing [activity]. That’s why, from the top, people don’t care about sports marketing.”

Tom Houseman, Singapore-based chief executive of Wharf House, a sport-marketing group, says the future will hinge on the ability of China’s sport associations to focus on branding and high-quality, professionally-managed events. But how will this come about?

“The long-term solution will be for Chinese sports to be released from absolute government control,” says Mr Rhoads of ZOU Marketing. Sport associations will need to become more autonomous so that they can take a greater interest in marketing and sponsorship. “This will relieve the government of the financing burden and allow the current sport-industry funds to be invested in youth sports in the public schools,” he says. Privatisation of sport associations may take five or 10 years, says Mr Rhoads, but it is inevitable.

Not all agree. The timing and likelihood of a privatisation of China’s sport federations is a subject of fervent speculation and debate among sporting industry executives in China. It is not inconceivable that



state-run federations could continue to exist, albeit with a clearer market orientation. But would this hobble development of a faster-growing, more profitable industry? There are few examples of competitive state-owned enterprises in any industry. As it stands, many private-sector participants in the sport industry report difficult relations with, and little co-operation, from their respective federations.

While China will likely take its own path to developing the business of sport, as has been the case in other industries, it will no doubt look to other markets for inspiration and expertise. Foreign investors with experience in overseas markets will continue to play a role in this evolution.

Regardless of the model followed, it is in the interests of all to grow the market. Helpful here would be an injection of additional capacity—or better yet, competition—into the all-important broadcasting market. Mr Ma of Infront China believes there is room for another national sports channel, and given that the supply of content already exceeds CCTV-5’s capacity to broadcast it, he would seem to have a point (though he says that so far, CCTV has not taken his advice to create one).

As the fan base for sport grows, Mr Bezu of Adidas expects “double-digit growth in apparel, footwear, and accessories in the sportswear industry” in the years ahead, with basketball taking the lead. This presents opportunities not only for foreign and domestic brands, but also for investors willing to partner with sport federations to create merchandise around teams and players. In most of the sports examined in this report, China has not yet created the virtuous circle found in more developed markets, where popular events expand the fan base, which in turn attracts sponsors and creates more demand for merchandise and more events. But there are signs, in basketball in particular, that this circle is beginning to come together.

Ultimately, like any business, the fate of China’s sporting industry lies not with the government, the apparel manufacturers, the golf-course designers or even, really, with the athletes. It lies with the fans. As the NBA and football audiences attest, there is a market for sport in China. But some of the players need to raise their game.

Cover image - David Simonds

A report from the Economist Intelligence Unit

Paper size: 210mm x 270mm


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