The dragon lays in wait: China's dormant football power

3 January 2018 |
The launch of the Soccerex Football Finance 100 this week, providing a new global ranking of clubs’ financial potential, in many ways reinforced football’s hierarchical status quo, with Europe’s petrodollar-driven nouveau riche joining the continent’s established elite in the top 10. There were, however, a few surprises with the North London duo of Arsenal and Tottenham sitting above the likes of Manchester United and Real Madrid.

Perhaps the biggest “surprise” came in the fourth place ranking of Guangzhou Evergrande, the Chinese Super League (CSL)’s most successful club who boast the financial backing of both the Evergrande Real Estate Group and e-commerce behemoth, the Alibaba Group. While some may not have expected a Chinese club to feature so highly, this really should not come as a surprise given they once achieved a market value of £2.5 billion on China’s National Equities Exchange and Quotations, putting them ahead of Real Madrid and Manchester United.

Evergrande have dominated Chinese football since they first invested in the club, winning the CSL for seven consecutive seasons and the AFC Champions League in 2013 and 2015. While they are undoubtedly the standard bearer for the league, they are not alone in representing China within the Soccerex Football Finance 100, with a further eight clubs appearing in the rankings making it the fourth most featured nation ahead of countries like Italy, France and Germany.

Football & the Real Estate Market

China’s strong showing in the rankings is driven by the ownership and investment in clubs by a swathe of immensely wealthy Chinese individuals and corporations, the bulk of who have made their fortunes from the booming Chinese real estate market. Of the 16 clubs that compete in the CSL, 10 are owned by real estate companies or businesses linked to property industry.

It should come as no surprise that this dominance of Chinese football by property companies has run in tandem with the meteoric rise of the real estate market in China, something which was virtually nonexistent 25 years ago and is now one of the main pillars of the world’s second largest economy.

Such has been the rapid growth China’s housing market over the past few decades that it is often been viewed as a bubble waiting to burst but, every time there seems to be a dip, prices start to climb again. Despite soaring prices making it very difficult for buyers, there is an intense cultural pressure to own, and with parents able to concentrate their financial support due to the single child policy mean this means there is always demand in the market. According to a recent HSBC survey, 70% of Chinese born between 1981 and 1998 own property compared to 35% of the equivalent bracket in the USA.

Interestingly, the move into club ownership by China’s big real estate players largely coincides with the government’s public endorsement of football as a social, cultural and soft power tool. Investing to support these federal objectives will undoubtedly have other benefits and, with President Xi Jinping’s passion for the game showing no sign of waning, and China’s national football plan now being implemented, it is unlikely that the real estate market’s support for the game will be diminishing any time soon.

Spending power

The immense financial power of these clubs was first evident in 2011 when Guangzhou Evergrande pumped significant funds into the team on the way to winning their first CSL title. Its potency peaked in 2016 when, according to the Financial Times, the CSL spent more money on new players than any other league in the world; a period of transfer market activity that had European Clubs sitting up and taking notice with players like Oscar, Hulk and Alex Texeira all moving to Chinese clubs for fees of around £50m.

At the time, this lavish spending seemed to be in line with China’s football development plans which expressed the need to strengthen the Chinese football industry as a key part of China’s football ecosystem. However, this spending was dramatically curtailed by the introduction of new government regulation this summer regarding the transfer market in China. The aim was to ensure that any investment was not made at the cost of the overall objectives of the football reform plan, namely the development of the national team. A 100% levy was introduced on the transfer of foreign players which, if over 6m Euros, will go into a CFA development fund. This meant that for Tianjin Quanjian who were strongly rumoured to be interested in signing Diego Costa from Chelsea at the time, his cost suddenly went from £76m to £152m overnight!

While this new regulation has stopped the mega bucks deals for now, these clubs still have the financial muscle to spend big if they want to and may now be inclined to target less recognisable foreign imports that are cheaper and have traditionally proved more successful and better value for money.

It is also worth noting that clubs are still able to invest big in foreign managers. Over the past five years big name “super coaches” like Filipe Scolari, Sven Goran Ericsson, Fabio Capello, Marcelo Lippi and Andre Villas Boas have all been tempted to China with huge salaries. An example of CSL clubs’ willingness to invest in coaches is Gregorio Manzano the manager of Guizhou Hengfeng Zhicheng. Largely unknown outside his home country of Spain, where he achieved moderate success with likes of Atletico and Sevilla, Manzano is reportedly on same salary as Antonio Conte, manager of Premier League Champions Chelsea!However,this spending on coaches is less likely to be checked by the government as ultimately they are passing on their expertise to domestic players and in so doing supporting the overall development of China’s national game.

The future

So what does the future hold for CSL clubs? While their rapid global rise to prominence, and the spending that underpinned it, has been curbed for now, they continue to remain an attractive proposition for investors. They remain a strategic investment for China’s burgeoning real estate market, particularly since the government turned their attention to investment in international football properties by the likes of Wanda and Suning.

In Guangzhou Evergrande, China boasts a club that has achieved dominance on both a domestic and continental scale and, as the Football Finance 100 shows, one that has the financial muscle to do make a real global impact.

The Government policy regarding foreign player transfers was introduced at great speed when they felt action needed to be taken to protect the interest of national football development. If these relatively new restrictions placed upon the CSL turn out to impact its quality and competitiveness, thereby damaging the competitive environment for China’s national team players, the majority of whom are domestic based, then it is easy to envisage the Chinese government moving with the same agility to remove these barriers to club investment. If this were to happen then Chinese clubs have the financial strength to take advantage and really stamp their authority on the global game.

 

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Soccerex Football Finance 100 is an exclusive annual report that compiles a ranking of the world’s most financially powerful clubs.

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