There aren’t many people who would claim that “football” was the reason for their first trip to China.
Kevin McCabe can. The British entrepreneur and founder of the Scarborough Group has since built a Chinese business with interests in property and supermarkets – as well as ownership of a Chinese football team.
Back home in England, he made his fortune through savvy property investments. McCabe also owns one of the country’s oldest football teams, Sheffield United. He ranks as one of Britain’s richest people. So why is he less bullish on China’s business opportunities today, preferring Australia?
How did you first get involved with business in China?
I’d been to Hong Kong and Singapore on many occasions over the years. But because of my football interests – as chairman of Sheffield United – somewhat out of the blue in 2002 our commercial director got a Chinese company interested in becoming our shirt sponsor. It was called Desun, and was based out of Xi’an making apple cordial. It was getting close to the new season and the deal hadn’t been concluded so I went to sign them up.
That trip took me to Beijing to look around, then Shanghai and Xi’an – a city I’d never heard of.
I probably had a week in China, and being a real estate guy, it was a revelation. This perception I had of China – difficult to travel round, people in grey smocks etcetera – was overtaken by what I saw. There were amazing roads and airports, Westernised cities and it became obvious to me that if you could move into Chinese real estate you could make a lot of money. Probably much more than in the UK.
I’ve been doing real estate for a long time, and while I’m a developer in the UK, I realised it was no good thinking I could do the same in China, due to culture, language, legal system and techniques. So I set out to do what I’d done in other international markets: find partners. We initially opened an office in Shenzhen, then in Hong Kong. We set out to replicate the corporate structure we have in the UK – some of it being the servicing of property, some property development, via joint ventures.
Since 2003 we have been active in real estate. All of our partnerships have turned out well, other than one. I admit we have had one experience we lived and learned by. But on the whole it has been good, and we took minority stakes in partners who were developing property in places like Shenyang. But eventually we ended up with a partner called Top Spring. We transferred interests in land we had in Chengdu, and they put in interests of their own, to form a 50/50 joint venture called Scarborough International – with a plan to eventually IPO it in Hong Kong.
Like many things in life, circumstances overtook planning, and Top Spring itself was approached by an investment bank to list. During the due diligence, the lead manager concluded that the joint venture could prove bigger than the parent and needed to be consolidated as a wholly-owned subsidiary. So we converted our shares in the JV into Top Spring. It’s an interesting company with projects planned in six or so cities, and we now own 15% of it.
Top Spring also has a major holding of Rainbow Department Stores, which is due to IPO on the Shenzhen Stock Exchange. So indirectly we have a stake in that business too, which has seen tremendous growth.
We also have a serviced office provider called Forsyth, which started in Glasgow and which we have rolled out in Hong Kong and China.
How have you managed this push into China?
I’m happy to say we now have a good team in China and Hong Kong that brings together a cross-breed management team, with UK knowledge and culture, but understanding the Chinese way. My colleagues have to understand how to conduct meetings with government officials, and help me understand what is best for our interests in various ventures. So we’ve made a fascinating route into China, and now have an interest in a company that is about to list and is probably worth £100 million to us. That IPO may be delayed given current market volatility – it’s scheduled to list in September.
The relationship with Top Spring works well. When I come to China they use me a lot to bring something that is different to their competitors – anything from my UK background and experience, to the fact that I am involved in English football. For example, one upshot of this is that I have helped twin the city of Chengdu with Sheffield.
It’s that unusual ingredient of having Top Spring partly owned by a Western firm like ours that helps distinguish them from others; perhaps embellishing their reputations for governance, credibility and trust. I have a good friendship with the owner, CH Wong.
What’s your take on the recent government-led slow down in the property sector?
I have been investing in Chinese property for seven years, and I know the government can bring in new rules that effect the market. In this case, the moves are designed to cool down the property sector. Listening and debating with my colleagues at Top Spring, there is a belief that it won’t last for that long – it may even have a short-term impact of no more than a year.
Via Rainbow you have exposure to the China consumer story. Is that still high growth?
It’s a department store business, the principal part of which sells food. It’s like a mini-Tesco [a UK supermarket chain], and has seen phenomenal growth. It’s now got 40 stores, and all of them are very profitable. The Chinese are spending money they’ve earned; they’re not spending on credit cards; and food is generally always the strongest area of retailing. Rainbow’s roots are in Shenzhen, and is now opening in Chengdu. It tends to open where our properties are.
The other thing – which is the head-scratching part of my China portfolio – is football. I have this football background, and own this team in England. That acts as a magnet and makes you interesting to partners. So we got this call four years ago that Chengdu’s football team was for sale – the government had changed the rules and Five Bulls, the tobacco company, was compelled to sell it. So we bought it and renamed it Chengdu Blades – based on Sheffield United’s nickname.
It has had its problems! Last year there were all these allegations of match-fixing in China. All 20 clubs were embroiled. I’ve been trying to learn about football in China, which is still a mess. It’s sad: you’ve got a Chinese population that’s crazy about football, and on the other hand, there’s an organisation that is fractured and doesn’t work. It can be sorted out. It needs a strong football association.
We have built a strong football academy in China, and we can harness that to produce good players.
What is your strategy for the Chengdu Blades?
On balance, owning the team has been a benefit for our local businesses in Chengdu and Sichuan. It opens doors. But on the football side, we see it as part of a bigger strategy. Apart from Sheffield United, we own one of central Europe’s strongest football teams, Ferencvaros (in Hungary), as well as a stake in Central Coast Mariners in Sydney. The concept is to move the players around. For example, the Australian team can send some of their talented young players to Chengdu Blades. So I’ve created a family of clubs, which can share talent, and eventually lead to profits from player trading, as we bring players to the UK.
It’s starting to work: we have a couple of Australians coming to Sheffield this coming season. We’ve also had a few veteran Chinese players come over.
Is there much of a fanbase for Sheffield United in China?
We haven’t done enough to harness it. If we were in the Premiership the answer would be yes. It’s a hard task. Getting Chengdu to win the Super League is achievable, as is success with Ferencvaros both in their league and qualifying for European competitions. But getting Sheffield United promoted back into the Premier League is tough, and to play in Europe is even more so. There is so much money at the top of English football, and it’s hard to compete with people throwing billions around.
It would be wonderful if I could find a partner to invest in Sheffield United who has billions to spare… Perhaps in China! Because we are in China, logic says it should be easier to find such a billionaire investor there. We’ve actually got a great business model – our Sheffield stadium has a hotel, a huge conference and banqueting business, a great academy. Plus there are our stakes in three other teams.
Your other China-related interest is Gex Tech?
I invested in it last year. It’s got a great product called Fantastic League, which is a virtual football game – launched in Siberia, then rolled out to Germany and other parts of Europe – and on which you can bet. Before we bought in, the management of Gex Tech had almost sold a stake to a Chinese firm – and that company, AG Tech, still wants to joint venture with us in China. The game has a lot of potential to be launched in the casinos of Macau and via AG Tech – which has a lottery license in Hunan – in various parts of China.
Are you broadly optimistic on the China story?
I travel around and have interests in many places; including Australia and Canada. So you tend to compare. If you asked me a year ago, I would have put China at the top of my list. Perhaps now I’d put Australia top. China’s growth has been so phenomenal, and I think things may be getting overpriced. While I’m not worried, that makes me a bit more cautious. Having said that, I’d still put China ahead of the UK and Europe in my investment list.
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