[Note: below is Chapter 8 from Great Wall of Numbers]
In 2011 I was teaching at a college in Zhongshan, Guangdong – a mid-sized city in the Pearl River Delta manufacturing region of southern China. During lunch I would regularly eat at the campus cafeteria. The faculty dining area was in a separate room connected with the main student dining area. Throughout the month of June, the students – typically men but also women – would pack their dining area to catch a glimpse of the NBA playoffs on TV’s hanging from the ceiling (and also because it was one of the few rooms with reliable air conditioning – unfortunately their dormitories only had fans). For nearly an entire month the area was crowded almost shoulder-to-shoulder, even during final exams. And on numerous occasions, my students, including one named Jason Xu from Dongguan, asked me repeatedly to bring back basketball ‘high tops’ whenever I traveled back to the US. This task typically involved looking through Eastbay catalogs with them and listening to their dreams of one day wearing “authentic” NBA apparel.
Is this just an isolated group of NBA fans? No, according to sport consultant Matt Beyer, “the NBA has close to 30 official corporate partnerships specific to China.” Thus while you may see Chinese apparel companies advertising in the background during an NBA game – if the student body at the college in Zhongshan is any indication – there is a similarly large potential for US brands to advertise in the Chinese Basketball Association (CBA) as well.
In fact, commissioner David Stern estimated that the NBA’s revenue generated from China will reach $150 million in 2012 (based on television and digital broadcast rights). And according to Stern, “NBA viewership in China rose 18 percent last year ” and will grow 10% a year for the foreseeable future. Furthermore, CCTV 5, a state-owned TV station that focuses on sports recently signed a new agreement with the NBA to increase its live-coverage, programming and analysis based on content “produced exclusively for China.” The NBA’s relationship with CCTV 5 dates back to 1987 when the All-Star game was broadcast on the mainland.
What kind of sponsorships takes place in this cultural-sport trade?
For instance, while Yao Ming has a $10 million contract with Reebok, in 2006, Shaquille O’Neal signed a five-year sponsorship deal worth $1.25 million with Li-Ning (and later expanded to $6.2 million and again to $10 million). Li-Ning is one of the largest sports shoe and apparel companies in China, with $1.4 billion in revenue for 2011. Similarly, O’Neal’s teammate, Dwayne Wade recently cancelled his sponsorship with Nike and signed for a percentage of equity stake with Li-Ning. Yet for comparison, Nike did more business in China alone in 2011 ($2.1 billion) than Li-Ning’s total global revenue. And for perspective, according to Boston Consulting Group, the apparel market in China is expected to generate $204 billion by 2020 (triple from 2010).
How popular is basketball on the mainland? According to Ying Wushanley, a professor at Millersville University:
It is estimated that more than 300 million people play basketball throughout China; NBA games are watched by more than 30 million viewers per week; retail stores are saturated with NBA merchandise; NBA.com/China has become the most popular single sports website in China; and NBA is consistently the most searched sports term on China’s top search engine Baidu.com.
The Chinese Basketball Association (CBA) is the top professional league in China. It has been around since 1995 but has had its share of growing pains. According to FORTUNE magazine, the league incurred a loss of nearly $17 million in the 2008-2009 season because a significant portion of the expenses go towards recruiting overseas talent. For example, in October 2012 Tracy McGrady, a seven-time All-Star for the Houston Rockets signed a $1 million annual contract with the Qingdao Eagles of the CBA. Two weeks later he was greeted at the airport by a huge fanbase, which itself attracted media coverage. Even non-CBA players are sometimes hot commodities. For example, this past summer, Jeremy Lin (林书豪 of ‘Linsanity’) signed a two-year sponsorship agreement with KFC, both of whom have huge followings on the mainland (see Chapter 16).
And while the domestic league continues to grow and recruit global talent (of note, in the 2009-2010 season, 19 of the top 20 scorers were foreigners ), this is not the only sport being played on the mainland.
Kicking and skating
While Yao Ming is probably the best known Chinese athlete abroad, the domestic basketball industry – while large (according to both FORTUNE and Ying, more than 300 million play it) – is just one of several sport markets. As I discuss below, in addition to soccer and tennis, both badminton and table tennis, while seemingly pedestrian in the West, are each have the potential to become multibillion dollar sports in China.
The Chinese Super League (CSL) is the highest level of professional soccer in China has been around since 2004. While its ticket gate revenue is relatively low, at an estimated $33 million a year, its 17,651 in average attendance is the highest in Asia. Soccer, as I note below, is a popular sport played by large portions of the population through pick-up games and several organized leagues (especially in high school and college).
As part of a new 10-year deal with CCTV (the state broadcasting company), in 2012 IMG (one of the largest sports and media firms in the world) was brought in to help market, brand, develop and manage the CSL into a topflight global league. Similarly, in March 2013, it was announced that David Beckham will be paid several million euros to become the new CSL Ambassador in an effort to bolster the CSL image overseas. Yet despite having a poor national soccer team (plagued by scandals) that has failed to qualify for the World Cup all but once (2002), an estimated 700 million Chinese watched the 2006 World Cup and 24 million Chinese fans watched the 2010 match between Greece and South Korea. The 2004 Asian Cup final between China and Japan drew 250 million viewers in China, making it the “most watched single sports event in the history of Chinese television.” Thus US brand awareness firms on Madison Avenue (such as IMG) have a potentially large audience with which they can position their clients’ products.
Sport agents could look at the CSL market as a new venue for their clients. Guangzhou’s Evergrande team hired Marcello Lippi of Italy for $12.5 million, the third highest ever for a coach. And Shanghai’s Senghua team signed Nicolas Anelka for $13.3 million, coincidentally the third highest for a player. All told, “forty three percent of the [league’s] revenue goes to foreign players.” Similarly if you are a Western trainer or coach, you may find large monetary incentives to train and coach Chinese athletes. China’s meteoric rise in the Olympic swimming events is in large part due to Australian coaches who were lured over in part by financial incentives. For example, Ken Wood noted that China pays four times the amount he would get in Australia.
Other non-traditional sports have begun to make inroads as well. Skateboarding, for instance, has begun to spread throughout the larger cities of China and as of 2009, there are between 40-50,000 active skateboarders. At 12,000 square meters, SMP Skatepark in Shanghai is purportedly the largest skate park in the world and home to around 2,000 members.
Playing without nets
My first apartment in China was next to the outdoor basketball courts at the college I was teaching at. During the daytime there were relatively few students on the courts. But after 5pm, all 20 hoops were roughly jam packed with mostly young Chinese men (and sometimes women). Just next to the courts was a soccer field, also filled with several soccer teams comprised of a similar demographic distribution.
Yet despite the popularity of soccer and football, at dusk many students, faculty and families would take to the campus streets and play badminton just like a scene out of The Sandlot, sans James Earl Jones. Hours after sunset, up and down these streets the groups continued to play – until the mosquitoes became too much to bear. And they did it all without nets.
With similar enthusiasm, the numerous ping pong tables at the student union and faculty centers were continuously occupied by both young and old alike. None of the equipment was new, or the best – it simply was good enough as Voltaire might say. And nearly identical recreation patterns are found across the entire country. As a consequence Chinese athletes have dominated the medal table at nearly ever badminton and table tennis event over the past decade at the summer Olympics and World Games.
For example, Lin Dan is a household name and the first person to ever win the Super Grand Slam in badminton (winning all 9 major badminton events). His image now graces the cover of numerous marketing campaigns – from Red Bull to Gillette – netting him at least $1.9 million in sponsorships annually (and ranking him the 33rd “most marketable athlete”).
Table tennis (ping pong) is the national sport of China and the Chinese Table Tennis Association manages the largest professional table tennis league, China Table Tennis Super League (CTTSL). Zhang Jike, currently the reigning Olympic and World champion, is sponsored by Coca-Cola (his image actually appears on the cans). Domestically Jike is sponsored by Yanjing Beer Group (netting a $70,000 bonus for his Olympic win) and State Grid.
In tennis, Li Na became the first Chinese national to win a grand slam tournament. She won the 2011 French Open and subsequently signed 10 sponsorship deals including those with Hagen-Daz, Rolex and Nike as well as a three-year contract with Mercedes Benz and is on track to be the highest earning female athlete globally. And in swimming, Sun Yang broke an Olympic record in London last year and has signed 10 million RMB ($1.6 million) worth of sponsorship agreements including those with Yili Dairy, 361 Degrees (a sports manufacture) and Coca Cola. The 361 Degree deal was purportedly for 1 million RMB ($157,000).
Thus along with a social media strategy that I outline later in Chapter 12, if you or your company plans to sell goods and services to consumers on the mainland, it is important to look at potential sponsorship deals with popular athletes in leagues across the country. And once again, if you do not, your competitors (both US and Chinese) could very well be looking to sign the next Yao Ming or Lin Dan.
What other services could you provide that are not available or are in scarce supply in China?
In his book Red Flags, Matt Garner notes that because Westerners – and specifically Americans – are exposed to the best advertising campaigns, the most concerted marketing efforts and the most methodical media plans, Westerners are by-and-large the most sophisticated and savvy consumers on the planet.
How can you use this to your advantage?
Colin Colenso is an Australian businessman who illustrates how Garner’s “saviness” can be put into practice. He is the CEO of Human Action Media and with no qualifications or work experience in marketing, media or event managing, within 18 months of pursuing his dream to start a business in Shanghai running billiards events, Colenso’s small company – aided by two English speaking Chinese friends – managed the first nationally televised snooker event in China with a western multinational brand as sponsor.
In an October 2012 interview I had with Colenso, he noted that “this national snooker event was actually presented to me by the government officials as they hadn’t the marketing or public relations skills or resources to sell sponsorship packages to professional westernized companies in China. Such gaps in skills and knowledge in sports and many other aspects of China are numerous, as services and products adapt to a growing and freer market. This market phenomenon occurs everywhere, but the gaps in China’s rapid evolution to a market economy have been wider and deeper than in developed countries where such obvious opportunities had been snatched up long ago.”
So where does this leave a sport marketing expert in the developed world? Is there a way you can translate your experience to the Chinese market? Or is it too late?
I asked Colenso these same questions and he advised that while, “the development of sports business in China has been rapid, particularly in the last decade, so the gaps may be narrower and shallower for beginners. Thus opportunities may not be obvious or easy to discover. But in a market of dozens of cities with millions of residents whom have a growing desire and capacity to procure sports entertainment and products, I have no doubt Chinese sports will be grabbing headlines around the world in years to come, not just in athletic performances, but in business developments related to sports. In fact, sports, as well as other markets are maturing to the point that they are more capable of providing opportunities for experienced professionals and companies from the West. Snooker provides but one example of this, as China has become a key ally in World Snooker’s strategy for international expansion. I’m sure the same is true for golf and various other sports, as the various organizations and companies involved have evolved.”
And remember, just because you might not know who Lin Dan or Li Na are does not mean that Chinese consumers are equally unaware. For perspective consider that the English Premier League generates almost the same revenue as the NBA ($3.5 billion versus $4.3 billion) yet it would be foolish to ignore the marketing potential of sponsoring teams like Manchester United or players like Wayne Roonie (the League’s highest paid player) just because you did not like the sport. In fact, due in part to its large fan base on the mainland, Manchester United recently signed a 3-year sponsorship deal with China Construction Bank and Wahaha, the largest soft drink producer in China. Could your firm or clients find similar opportunities?
The Great Outdoors
As I discuss later in Chapter 11, according to the China Daily, in 2011 more than 60,000 Chinese children traveled to the US and participated in various summer programs. While educational attainment is the primary motivation, another reason is that some middle class families have begun looking for outdoor activities for their children. Why? According to a recent survey, “Chinese kids under six spend less than an hour outdoors every day, only a quarter of the global average.” Thus in an effort to educate their children about nature, some are opting for day-trips to nature preserves and even summer camps. In fact, according to a McKinsey & Company survey, “Chinese consumers who identify “retail-tainment” as a favourite pastime has fallen from more than half a few years ago to about 40 per cent now, and will be less than a third by 2020.”
This kind of change in consumer behavior could provide an opportunity for both domestic and foreign companies to provide outdoor services and entertainment to children and adults. For example, two years ago Club Med opened its first ski resort near Beijing. During the summer it doubles as a golf course and theme park and was built to accommodate 18,000 customers a day. And according to one estimate from Justin Downes, a ski resort advisor, “there are about five million ski tourists in the country” – a number he estimates could reach 20 million by 2020 once new ski resorts are built. There are even ski resorts in relatively remote Urumqi, in the northwest province of Xinjiang. All told there are over 400 ski resorts nationwide and companies like Mountain China Resorts are investing several billion RMB to develop and build additional resorts and hotels to cater to a customer base which is now about 70% Chinese. Thus both foreign and domestic turf experts, course and resort designers, and even ski trainers may find a new revenue source.
Yet one area both foreigners and domestic firms and investors should be cautious of is golf courses. While the ban on golfing was lifted in 1984, construction of new courses has been officially banned since 2004 (e.g., “it is an elitist game” and “uses scarce fertile land”); there has been a cat-and-mouse game of subsequent construction followed by investigations. To get around this ban, new golf courses typically use other names like “health clubs” or “country clubs.” Those that are discovered (typically via satellite imagery) are sometimes dug up. For example, several years ago the Anji King Valley country club (southwest of Shanghai) received a 10-day visit from bulldozers who subsequently redesigned the landscaping (tore up the turf and sprinkler system). Yet there are others that thrive and generate purportedly large sales; the Qinghe Bay club that opened in 2008 charges 880,000 RMB ($141,000) for lifetime membership.
In fact, one estimate is that the Chinese golfing industry generated nearly $10 billion in revenue in 2008 (from course costs and equipment) and is expected to grow from 700 courses in 2012 to 2,700 in 2015. Even Mission Hills, the world’s biggest golf resort operator has opened several courses in the face of legal uncertainties. Their largest course is the size of Manhattan and is located in Hainan province which is exempt from the ban. Yet as I mentioned at the beginning: caveat venditor. This boom may only be temporary.
Six Minute Abs
As China both ages and develops (see Chapter 6 and 19) the demand for professional recreational facilities may also increase. For example, water aerobics is generally considered a healthy, physically beneficial activity for elderly consumers in the West. Yet aquatic facilities do not exist in China at the level as they do in some foreign countries. And it is not due to a lack of popularity as anyone who has visited a public pool can attest; these facilities can become very crowded. Similarly, just as all other developing countries go through growing pains, one literal example that is increasingly relevant is physical stress. Or rather, many segments of the mainland do not feel they have enough time to both work hard at work and exercise afterwards. In fact, according to the World Health Organization, the obesity rate for those 15 years or older in China reached 38.5% in 2010 (up from 25% in 2002) and another study by the General Administration of Sport (国家体育总局) found that “overweight rate among students between the age of 7-22 climbed to a new high.” And as I mentioned in Chapter 6, in terms of overall numbers China is now the capital of diabetes, with 92.3 million or 9.7% of the population suffering from this affliction compared with 11% in the US.
Part of the predicament leading to this rise in obesity is that quite simply, many students are encouraged and required to study more that in the past. The increased competitiveness in obtaining academic placement (see Chapter 9) has led to many primary, secondary and even tertiary students to typically attend school from 7:30am to 5pm and then spend an additional 3-4 hours doing homework. As a consequence they have little time to play or participate in physical activities. In fact, according to a recent Global Times report, “[i]n comparison with data collected in 2005, scores in men’s 1,000 meters fell by 3.37 and 3.09 seconds for urban and rural students, while breathing capacity of college students as a general dropped by nearly 10 percent from the 1985 level.” According to Qiao Xiaoshan a physical education researcher, “[f]rom 2002 to 2010 in China, more than 40 participants in long-distance running events aged 16 and over died suddenly.” In 2012 two more college students died from heart exhaustion after participating in a marathon in Guangdong and another student died in Shanghai while playing basketball. This has led to cancellations of running-based tests and competitions across many cities and provinces. In fact according to Qiao, “more than 30 universities in Xi’an no longer held long-distance races because of the decline in students physical fitness, leading to concerns the students may suffer injury or even death if they took part in intense physical activity.”
In other cases, the consumer may not feel comfortable at existing facilities. For example, in my own anecdotal experience at participating in gyms in China, one common concern I have heard by female patrons is that they would prefer to work out in their own women-only gym so they can receive train in a more supportive, focused environment. Thus foreign, women-oriented firms such as Curves may find opportunities to cater to niche clientele. Similarly, specialty gyms like CrossFit may be able to capitalize on its status as a non-traditional, unconventional training program that could market itself towards the insatiable demand for wushu (e.g., Shaolin kung fu) which similarly involves training in creative ways and carrying, throwing, contorting and kicking unusual apparatus. However, all told, by one estimate, the penetration rate for fitness facilities is a mere 0.3% on the mainland compared with 16% in the US and 13% in the UK.
For perspective, in 2011, there were 29,365 fitness-related businesses providing 43.6 million gym memberships in the US. Yet just because there is potential in one country does not mean there is instant success in another. For instance, Bally’s Total Fitness has actually reduced its fitness centers in China from 44 in 2008 to less than 30 today. And 24-Hour Fitness sold its centers to a local Chinese group (Ansa) in August 2012. Why? Because according to Walter MacDonald, a wellness management consultant, “[a]ll the ideas that work in the West mostly don’t work here. Fitness is not like fast food chains that can easily change the menu according to local taste.” Similarly Theo Hendriks, the CEO of Sports and Leisure Group explains that “[t]he international clubs that have a difficult time in China are franchises, and they just have one concept for their gyms in different countries and cultures.”
And again for those willing to stick with the mainland, the revenue potential could be rewarding. According to Walter Macdonald, in terms of market size only $11 billion is spent on fitness in Asia compared to $21 to 25 billion in the US. For example, Hosa Fitness Clubs is one of the largest on the mainland with more than 500,000 members and plans to increase its centers “from the current 82 to 300 by the end of 2013.” Thus perhaps if foreign firms can figure out how to localize and cater fitness to specific consumer behavior (e.g., group based activities like tai chi, yoga, cycling) instead of the traditional Western model commonly tried they may be able emulate Hosa’s success.
In my conversation with Kirt Greenburg (see Chapter 1), he also noted that foreign firms should conduct research to specifically discover consumer behavior patterns regarding scheduling preferences at the gym. For example, based on his cursory research he has found that many local gyms do not cater to consumers who prefer to work out in the morning, that gyms are typically only open beginning at 8:00 am. According to him, “because the gym itself and formal fitness culture have not been established in most urban regions, customers and entrepreneurs are still adjusting and learning how to utilize and cater to peak hours. The idea that you can take your work clothes to the gym, workout, shower and then head straight to work is still not fully embraced by urban workforces.” Thus it may take some long-term planning and even education to cater to this new segment of time-conscious customers.
Takeaway: China’s sports base and sport development continue to create world-class athletes. Professional leagues are beginning to mature and have attracted significant fan bases. As a consequence, sponsorship and advertising revenues continue to climb both for sport franchises and athletes. If you plan to sell your products and services in China you should also consider looking for potential athletes and sports – even those seemingly unpopular in the US such as badminton or table tennis – because if you do not take the opportunity to sign them, your competitors (both Chinese and American) very well might.