Why Asian tycoons invest in sports
MANILA, Philippines – Asia is growing in importance both as a market and as source of investment for global sports, said the billionaire founder of the Berjaya Group of Companies, Vincent Tan.
Asia’s growing importance to global sports is most apparent in its most economically powerful country, China and its rise in football, the world’s most popular sport.
“I believe that over time China will definitely win the World Cup. First of all, it has a huge population and a growing amount of resources to invest in it. [Current world champion] Germany better watch out,” he said in an interview during the Forbes Global CEO Conference 2015 held in the country from October 12 to 14.
“China is now very big into football with more and more wealthy Chinese getting interested in it. The Chinese President Xi Jinping himself loves football," Tan said.
The president, he added, has championed a new reform plan in March this year that will serve as the blueprint for development of Chinese football with the ultimate aim of hosting the World Cup.
The increased investment in recent years is immediately apparent in the fact that Chinese football clubs spent more than double on attracting top foreign players this year compared to last.
Tan himself owns 4 football clubs across the United Kingdom, Belgium, Bosnia, and Herzegovina, and the US. The Forbes billionaire lister is also well-known to fans as the somewhat eccentric owner of Wales-based Cardiff City Football Club (Cardiff) that plays in the English second division.
Investing in football clubs
Tan is joined by a burgeoning pool of high-profile tycoons from the region that have invested in global sports organizations in recent times.
Indonesian media tycoon Erick Thohir is the president and majority owner of Italian football team Internazionale, also known as Inter Milan, as well as Major League Soccer franchise the LA Galaxy.
Thohir also previously owned a stake in the Philadelphia 76ers of the National Basketball Association (NBA) which he sold to focus on football investments.
AirAsia founder Tony Fernandes has also ventured into sports investment, notably founding the Caterham Formula One (F1) team in 2011 which he has since sold to a Swiss and Middle Eastern consortium.
Fernandes also serves as the chairman and has a 66% majority stake in Queen’s Park Rangers, a London-based football club that also competes in the English second division.
“Investing in football clubs and sports itself is pretty new for Asian entrepreneurs, but I think it's an interesting area and it can be pretty profitable contrary to what many people think," Tan said.
Most people think it is just hobby for rich people but you can make money on it, he said. But just like in any other business, wise investment and proper management are a necessity.
“Initially at Cardiff City Football Club, we didn’t manage it so well and we let a few things slip through our fingers. We got cheated by football agents as well,” Tan recalled.
Tan invested in the Cardiff at a time when it was in the English first division or “Premier League,” the world’s richest football league, according to global consulting firm Deloitte.
In the 2013 to 2014 season, the league generated £3.26 billion (P231.1 billion) in revenue and operating profits of £614 million (P43.55 billion).
Cardiff, which was the lowest ranked club out of the 19 in the league, recorded revenue of £83 million (P5.89 billion).
Due to its last placed finish that season however, Cardiff has since been placed or relegated to the English second division where it has remained since.
This drop in division is estimated by Deloitte to carry with it a loss of between £40 to 50 million due mostly to the loss of TV broadcast revenue.
Tan has also tried to change the club’s colors from its traditional blue to red and added a dragon to its crest, in part to increase its marketing appeal to Asia. (READ: Brands with soul key to worldwide success – Global CEOs)
He was swiftly forced to reverse these moves, however, following an outcry from the clubs local fans.
Undeterred by these initial bad experiences, Tan has since purchased 3 others football clubs which he said are all promising investments.
His second club, FK Sarajevo in Bosnia and Herzogovina was bought when it was unprofitable but “we have since returned it to profitability,” he said.
He also purchased a club in Belgium, KV Kortrijk, and together with partners, founded the second franchise in Los Angeles after the LA Galaxy.
An elite club
The franchise in the US presents a much safer investment to sports investors, Tan said, in part because tno matter how badly a team performs, they will always remain in the same league.
This differs greatly from European football where a team can be relegated or dropped to lower divisions and thus lose out on the massive revenue from TV rights and merchandise opportunities that being in the top competition brings.
“You stay forever in the league which means your asset, your club, will appreciate in value. It’s like an exclusive club and you will always be there,” he said. – Rappler.com
£1 = P 70.93