If The Rules Have Changed, Can The Football Business Of Real Estate Developers Continue?

In recent years, real estate companies have become the most important "gold owners" of professional football in China. Among the 16 participating clubs of China Football Association Super League (hereinafter referred to as "CSL") in 2020 season, the main sponsors of 15 clubs have real estate background, and 11 of them have real estate as their main business. The Chinese Super League was once called "China real estate League".

The capital intensive characteristics of the real estate industry are quite suitable for the current high investment of football industry. In addition, the combination of real estate and football has become the current trend for the purpose of maintaining local government relations, spreading brand image and even the interests of investors.

But now, that may change.

Recently, the Chinese Football Association has launched a series of new reform rules. It is stipulated that the name of a football club shall not contain the name of any shareholder, shareholder related party or actual controller of the club, and shall not use similar or similar Chinese characters or phrases. In other words, the club name should be "neutral".

The football association also stipulates that the annual salary of domestic players of the first-line Chinese Super League teams shall not exceed 5 million yuan before tax, the average annual salary shall not exceed 3 million yuan before tax, and the annual salary of foreign aid shall not exceed 3 million euro before tax. This is also known as the "pay limit order.".

The introduction of these two regulations has made sponsors mixed. On the one hand, the "salary restriction order" will greatly reduce the salary expenditure of players and help the club to operate healthily; on the other hand, the neutral club name will greatly reduce the brand promotion effect of sponsors.

The purpose of this move is to curb the bubble of false prosperity of Chinese football, promote the healthy operation of the league and improve the level of Chinese football. But from a practical point of view, sponsors are obviously more concerned about the team's performance and their own rights and interests.

How will the overall situation and small profits be coordinated in the end?

The rise of real estate League

Real estate companies have invested in football for a long time. Jianye, green city, Yatai and other real estate enterprises have invested in football since the 1990s and have been operating since then. Wanda was also one of the earliest investors of Chinese football. It withdrew in 2000 and returned again in 2011.

Generally speaking, in the early years, the sponsors of football clubs were quite diverse. In addition to a few real estate developers, there were also enterprises from manufacturing, energy, trade and other fields.

It is the last 10 years for real estate enterprises to enter the football field. Since 2012, the regulatory authorities have gradually released the signal to reform the football industry. In 2015, the overall plan for China's football reform and development was printed and issued, which proposed that China's football would eventually reach the first-class level in Asia through "three steps". In this process, the development of football industrialization and the promotion of football social image contain huge business opportunities.

In recent years, a number of real estate enterprises, such as Evergrande, Fuli, Greenland, Huaxia Xingfu and jiazhaoye, have invested in football and become an indispensable force in Chinese football.

The marriage of real estate and football has an important background of the times. On the one hand, China's football has entered the "golden era". Taking into account the introduction, logistics support and echelon construction, the actual investment of CSL clubs each year exceeds 1 billion yuan, several times that of previous years. In addition, sponsors have to invest a lot of manpower and material resources. This makes the traditional manufacturing enterprises flinch, but it will not bring too much pressure to the real estate industry which is characterized by capital intensive and with the magnitude of 10 billion.

On the other hand, Bai Wenxi, vice president of the China enterprise capital alliance, pointed out to the 21st century economic reporter that the good social image and government relations urgently needed by the real estate industry can be satisfied with the help of football. And government departments can also use real estate funds to establish the city's football brand.

The reporter of 21st century economic report learned that before a northern real estate enterprise invested in football in 2015, local government departments had contacted many times and expressed their wish to accept the offer.

In 2019, Wang Jianlin, chairman of Wanda Group, also mentioned in his speech that "under the invitation of the municipal Party committee and the municipal government, Wanda agreed to take over the football club..."

Of course, investors' love for football can not be ignored. In addition to Wang Jianlin, in the real estate industry, Hu Baosen, chairman of Jianye group, Zhang Li, chairman of Fuli group, and song Weiping, chairman of Lvcheng group, are all famous fans. In the era of a, Wang Jianlin also personally directed the competition on the coach seat.

Brand effect and loss paradox

From the commercial point of view, real estate companies invest in football, mainly focus on its brand awareness and good government relations.

In 2011, Xu Jiayin, chairman of Evergrande group, once calculated an account, "we only give Guangdong sports 40000 yuan for each game, but in return we get 90 minutes of brand exposure. If you have an impression, you can see that the billboards of Evergrande's main stadium are three floors inside and three floors outside. Many sponsors hope that through the live broadcast of Evergrande's competition, the brand spillover and reputation can be improved. You know, CCTV's advertisement is 150000 a second, and I can get such a return with 40000 yuan. Do you think this investment is worth it? "

But as a football club itself, profits are still extravagant.

On November 6, 2015, Guangzhou Evergrande Taobao club was officially listed on the new third board, and its stock was referred to as "Evergrande Taobao", becoming the first football club in Asia to land on the capital market. Through the financial report, it is not difficult to see the difficulties in the operation of the club.

From 2015 to 2019, Evergrande Taobao has always been in a deficit state, with losses of 953 million yuan, 812 million yuan, 1239 million yuan, 1804 million yuan and 1.943 billion yuan respectively. The main reason for the loss is that the salaries and transfer fees of players and coaches remain high, while the income growth of tickets and advertising is weak.

According to the annual report, in 2019, the advertising revenue of Evergrande Taobao was RMB 566 million, accounting for more than 70% of the total revenue. Among them, Evergrande real estate group contributed 463 million yuan, which is the largest customer of the club. In the same period, the proportion of commercial operation income such as ticket and fan commodity income was less than 13%.

From a worldwide perspective, football clubs are generally faced with the problem of profit. But at present, the well run large clubs can still achieve balance of payments and even make profits.

According to a KPMG report, the business income of football clubs mainly comes from three aspects: first, the income from tickets for competitions; second, the income from broadcasting and television and network; third, the income from commercial advertising. The main source of income of European elite clubs is commercial advertising revenue, but the proportion is rarely more than 60%. The rest is mainly supported by ticket and television broadcast income. Small and medium-sized clubs are mainly from broadcast television and network, which is closely related to team performance.

In addition, in order to regulate the operation of the club and curb the "arms race", UEFA issued a financial equity act in 2010, stipulating that the total income of players and team staff should not exceed 70% of the total income of the club.

In contrast, in the income of Chinese football clubs, commercial advertising accounts for a large proportion, ticket and TV broadcast income is small, and the source of income is single. Some analysts believe that this reflects the low level of marketization in the operation of Chinese football clubs.

At the same time, the club's recruitment and salary expenses remain high, greatly raising the cost. On December 14, China Football Association (CFA) released data showing that the average salary expenditure of CSL clubs in 2019 season is RMB 1.177.9 billion. Among them, the average income of domestic players is 5.535669 million yuan, and the average income of foreign aid is 58.47 million yuan.

Chen Xuyuan, chairman of the Chinese Football Association, said, "our club's investment is more than three times that of J League (Japanese professional football league), more than 10 times that of K League (Korean professional football league), and the player's salary is 5.8 times of that of J League and 11.7 times of that of K League

As a matter of fact, due to the excessive accumulated losses and the negative net assets of the club, from May 3, 2018, the regulatory authorities have implemented a risk warning on Evergrande Taobao, and its stock abbreviation has also become "St Hengbao".

Is enthusiasm still there?

This round of reform initiated by the Chinese Football Association is not a whim. In the past two years, relevant reform measures have been in the pipeline, such as setting up "wage cap", forcing investment into the field of youth training, standardizing the neutral naming of clubs and so on.

The reason for this round of reform is that although the club has made certain achievements in the international arena, the achievements of national brand teams at all levels have not been improved, and the level of Chinese football has not really improved. At the same time, the constant upgrading of the investment makes the player's value virtual high, the club is also unbearable.

An investor of a Chinese Super Club once told the reporter of the 21st century economic report that the increasing investment of each club in domestic and foreign aid has made the team face the dilemma of "no advance or retreat". In order to keep the team competitive, the club has to increase investment.

Therefore, the "salary limit order" has been unanimously supported by investors. Some insiders estimate that if the "salary restriction order" can be fully implemented, the club's expenditure on player's salary will be reduced by nearly half.

For the neutral name of the club, investors have different attitudes.

In May 2019, the name of Dalian professional football club will be changed to "Dalian people's professional football club". In December 2020, Guangzhou Evergrande Taobao Football Club removed the names of Evergrande and Taobao and renamed it "Guangzhou Football Club".

But for now, there are still some teams that want to keep investors' names in their club names. 21st century economic reporter learned that a club in the north is applying to the Football Association, hoping to keep its original name in consideration of the "tradition of the team".

In any case, this round of reform will change the way real estate companies invest in football. According to Bai Wenxi, the new rules may lead to the differentiation of investor groups. "Those real estate enterprises that just want to improve the brand awareness and reputation may not continue to invest in football; in order to maintain the relationship between the government and investors who are fond of and have feelings for football, they will continue to play."

In short, the requirements of neutrality, "will certainly affect the enthusiasm of some developers to sponsor the team."

An insider of a Chinese Super Club told the 21st century economic reporter that the club has been preparing for the new rules since the last few months. Although the "salary limit order" is quite recognized, the club is still worried about the loss of excellent foreign aid due to the decline of salary, which will affect the team's performance. As for the neutral name of the team, we can only "try to keep the original name", but at the same time, we have made a good choice.

The source said that the new rules are expected to change the previous "money burning" investment and reduce the operating burden of the club. But inevitably, it will be at the cost of the decline of team performance and the decline of League viewing. If the "labor pain period" is too long, it may affect the enthusiasm of investors.

Yan Yuejin, director of the think tank center of Shanghai E-House Real Estate Research Institute, also believes that after years of high investment, the enthusiasm of developers to invest in football will gradually decline. In addition to the impact of this round of reform, in recent years, the real estate regulatory policies have been continuously increased, and the introduction of "three red lines" and other policies will have an impact on the financing, investment, operation and other strategies of enterprises.

He told the 21st century economic report reporter that some real estate enterprises could reduce their investment in football or take the opportunity to withdraw.

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