Media

Poor sports

The boss of LeEco’s struggling sports-streaming unit is latest to quit

Lei-Zhenjian-w

Lei: the departing CEO of LeSports

After its acquisition by Google, YouTube has continued to grow – roughly 1.5 billion people used it in December, for instance. According to Alphabet’s CEO Sundar Pichai, the company is placing some of its biggest financial bets on the site – along with cloud computing and hardware (think Google’s smartphones and speakers).

For LeEco, a Beijing-based tech company with a want-to-be-everything mentality, a subsidiary called LeSports was supposed to be as significant as YouTube is to Alphabet. Since its inception in 2014, LeSports has been tasked with building a sports-related entertainment empire.

More importantly, as a core unit of LeEco’s sprawling ecosystem, it was meant to be a customer-grabbing machine for LeEco’s wide array of smart devices. The idea was to bundle highly desired programming – often acquired at exorbitant rates – with its handsets, tablets, connected televisions and perhaps even electric vehicles. Some of these gadgets (not LeEco’s futuristic cars, see WiC368) were even offered free to subscribers of LeEco’s packages.

Through these efforts, LeSports signed around 300 broadcasting rights deals, including those for Formula 1, the Asian Champions League, the US Open, NBA games, and the Chinese Super League. Most high profile of all: it paid $400 million to air the English Premier League in Hong Kong between 2016 to 2018. (That deal doubled what Richard Li’s telecom company PCCW paid at the previous auction.)

The buying spree seemed to impress investors. Unlisted LeSports’ valuation grew from Rmb2.8 billion in 2015 to a peak of Rmb24 billion ($3.8 billion) in a fundraising last May. Since then chronic problems with the finances of parent LeEco have proven catastrophic – leading to a cash crunch, a staff exodus and lawsuits. The recent exit of Lei Zhenjian – its founding CEO – has only added to the bad press. (LeEco’s founder Jia Yueting quit late last year. See WiC374)

“It’s really tough struggling alone,” Lei, who reportedly quit LeSports on January 26, said on WeChat. “I have already borrowed tens of millions from my friends on behalf of the company. I myself also put in over Rmb10 million. [It] got to a point where my wife said she is going to divorce me,” he added.

Lei revealed that a fresh restructuring is the only way for the company to survive, but the process has been complicated by LeSports’ convoluted shareholding structure.

More than 40 investors had bought and sold LeSports’ shares during three rounds of fundraising, according to Jiemian.com. They include Jack Ma’s Yunfeng Financial, a crop of state-owned companies, venture capitalists and individual investors from the entertainment industry.

This proved a major liability when its newest big investor, Sun Hongbin, chairman of Tianjin-based property developer Sunac, tried to turn things around. To his chagrin, some shareholders vetoed asset sales. Sun admitted recently he’d made the wrong decision to invest in the LeEco group of companies.

Potential new investors have also been turned off by some problematic connected transactions involving LeEco. Before his resignation, Lei and other senior officers were sued by an investor for diverting Rmb4 billion from LeSports to back its cash-strapped parent, according to Tencent Finance. The money (which now looks unlikely ever to be repaid) went to LeEco’s automobile and smartphone businesses – though Lei told media this deal was not his decision.

So are there any final straws to clutch at? One shareholder, the state-backed Sino-Italian Ningbo Ecological Park, is interested in using LeSports’ assets to build a ‘sports town’ (see WiC373 for how China is encouraging the development of specialised “feature towns”). The theme park developer may now be the last entity willing to put in fresh capital – but only if other shareholders agree with its new ‘vision’ for the once high-flying company.­


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