Fan or fortune?

Alibaba gets into football as buying spree continues


“You up for another drink?”: Evergrande’s boss Xu Jiayin with Ma

China’s billionaires generally dislike publicity although Alibaba’s Jack Ma welcomes it more than most.

He was in the headlines again last week, this time for buying the ultimate billionaire’s plaything – a football club. That led to some speculation about where Ma ranks within the elite global group of team owners. By Bloomberg’s latest estimates Ma is worth about $12.5 billion, which may seem a lot to most folk. But it’s middling in this particular league. Indeed, based on a ranking compiled last year, Ma would slot into a mid-table position slightly above Roman Abramovich (at Chelsea) and just below Lakshmi Mittal (at Queens Park Rangers).

All three tycoons trail table-topper Carlos Slim (owner of Club Leon in Mexico) by some distance.

Ma grabbed his spot after his e-commerce giant Alibaba Group announced that it is buying half of the football club Guangzhou Evergrande for Rmb1.2 billion ($192 million).

The team is also owned by property firm Evergrande and coached by World Cup-winning manager Marcello Lippi of Italy. Last year it clinched the prestigious AFC Champions League, the first Chinese side to win the competition in its current format (see WiC216).

Then again, Ma may not have watched Evergrande’s victory as he admits to knowing very little about football. That doesn’t worry him at all. “I think not understanding soccer doesn’t matter,” he told media. “I also didn’t understand retail, e-commerce or the internet but that didn‘t stop me from doing it anyway.”

Ma is confident too that the purchase is going to be transformative for Chinese football, claiming “amateurs are needed to make things different”.

His deeper motivations for buying into soccer are harder to pin down. On the one hand he classed it as an emotional investment. “My lack of understanding for football is the very reason why I have to get in touch with it,” he claimed. “Football is something that represents happiness. It is happiness that has deceived me.”

Yet the decision looks hard-headed too, as Ma turned down the chance to invest in Hangzhou Greentown, the team in Alibaba’s home city. He had seemed to be on the verge of buying a 49% stake, so news of the swoop for Evergrande was a bitter disappointment for Greentown’s fans. “He double-crossed us,” one told the China Daily. “Last month he approached Hangzhou Greentown and now he has purchased another team. Emotionally, I cannot accept this.”

Greentown’s chairman was furious, sniping that Ma chose Evergrande over his local team because he hates the poor and wants to curry favour with the rich.

That sounds like sour grapes, although Hangzhou’s supporters were convinced that Ma’s interest is more in football’s financials than fandom. “For businessmen, Evergrande will surely bring in more profits than Greentown,” another fan told the China Daily. “But I think soccer should not be a tool for businessmen to make money.”

Ma might think differently. At the very least Alibaba can expect a branding boost from ownership of China’s best team, something that Evergrande has already exploited by launching a line of its own mineral water (see WiC233). But the prospects for the club also look promising as a standalone business. “Evergrande are a fascinating case study of the pace in which a business can grow in the country,” Chris Atkins, a football analyst based in Guangdong province, told ESPN. “Since taking over a second division team valued at just $16 million four years ago, Evergrande have built a club now worth more than all but the top tier of sides in Europe. They quickly capitalised on continental success by agreeing a $17 million one-year sponsorship deal with Dongfeng Nissan, while also subsidising the club’s running with a new multi-million dollar partnership with Nike. Such deals were unthinkable in Asia just a year or two ago, but Evergrande have set about making them possible.”

Atkins believes that Evergrande is only just becoming aware of its commercial potential because current merchandise sales are poor and the league’s TV rights are nowhere near their full value. Maybe that’s why Xu Jiayin, chairman of Evergrande, thinks that an IPO should be on the horizon. The club will issue 2% stakes to 20 other investors first, he says, with Evergrande and Alibaba keeping 30% of the remaining share capital.

The purchase is the latest in more than $6 billion of investments made by Alibaba this year in the lead-up to its New York IPO, which is expected in August. The targets have been wide-ranging but analysts say that Alibaba is repositioning itself as millions of internet users turn away from desktop PCs to access the web on their smartphones. Determined to deepen its connection with mobile users, Alibaba has snapped up stakes in content providers like Youku – China’s biggest streamer of internet video content – ChinaVision Media, which owns film and TV rights, and even the digital mapping service AutoNavi. This week it topped up its investment in UCWeb, taking full ownership of China’s most popular smartphone web browser.

Buying into Evergrande could help secure the rights to club-based content from the Chinese equivalent of Manchester United. Forgetting his ‘soccer is happiness’ principle for a moment, Ma alluded to his content-driven goals, advising: “We’re not investing in football, we’re investing in entertainment”.

The media has also had fun reporting how the deal came about. Apparently, the idea was raised during a bout of boozing two weeks ago. “I got Jack drunk in Hong Kong and afterwards asked him if he’d invest, and he said ‘okay’,” Xu explained. Discussions about the scale of the investment were finalised in just 15 minutes the following day. “People at the company [Evergrande] were having a meeting, I broke them off and said just give me five minutes, we can make investments happily,” Ma confirmed. “China’s soccer industry needs somebody to help stir up things.”

Stirring things up is a feature of Ma’s mercurial style – something that prospective investors in Alibaba’s IPO might well experience themselves in the near future. This year’s spending spree underlines his determination to lead from the front. That status will continue thanks to provisions in the IPO documents that give control of Alibaba to 28 people, the so-called Alibaba Partnership, with Ma at its head (see WiC237).

Meanwhile the Alibaba founder made plain he won’t interfere with how Guangzhou Evergrande play, leaving the picking of the team to Marcello Lippi, its manager.

“My responsibility is to manage the club, not to replace the coach,” he assured the team’s supporters.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.