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SBJ/20100524/This Week's Issue
After two years, NBA China on steady course
Published May 24, 2010
It’s been more than two years since the launch of NBA China, a venture that has proved to be full of broad ambition, steady accomplishment and untapped potential as the entity looks to live up to David Stern’s grand global vision.
The NBA’s strategy so far has been to develop the game in China through a broad media play along with sponsorships, promotions, events and an arena management venture, all of which are part of a business that Goldman Sachs valued at $2.3 billion when NBA China was launched in January 2008.
League officials are bullish on NBA China’s progress in a country of more than 1 billion people, citing gains made on the ground and bolstered with a growing fan base. While NBA executives will not disclose specific financial information, the NBA’s international business generates a high-single-digit percentage of the league’s $4.3 billion total revenue. NBA China revenue accounts for roughly half of the international revenue, according to NBA Deputy Commissioner Adam Silver.
That could put the NBA China revenue at roughly between $150 million and $170 million, according to SportsBusiness Journal estimates.
“In the two years since we started, we have had double-digit revenue growth [in NBA China],” said Heidi Ueberroth, the globetrotting president of NBA International. “We have doubled the number of staff to manage an incredible media business in China and we have a list of impressive marketing partnerships that has evolved into a real mix of multinational and Chinese brands. That has been important as we look to build the business in the long term.”
Two years may be a short window to draw any hard and fast conclusions, but the proliferation of media and sponsorship deals, the steady increase in fan interest, and the increasing sales of Kobe Bryant and LeBron James jerseys signal the league’s deepening footprint. And though few question the league’s profitable strategy, most experts on the ground in China say that the prospect of an NBA-affiliated league is key to accelerating long-term growth.
“Mediawise, NBA China is doing a wonderful job, but to really capture a large fan base and more sponsors, the NBA is going to have to have more live programming,” said Terry Rhoads, managing director of Zou Marketing, a Shanghai-based sports consultancy. “Having a few exhibition games is not the answer because all it does is whet the appetite. How the NBA gets involved is the big question.”
There can be little argument about how far the NBA has surpassed any other U.S. sports property in expanding not just its China footprint but its overall international growth, as the league has offices operating in 16 countries.
While the NFL postponed efforts to host a preseason game in China due to a lack of organization, the popularity of basketball in China has given the NBA a unique opportunity, and the league is taking advantage through NBA China. The entity was launched with a $253 million investment from Walt Disney Co., Bank of China Group Investment, Legend Holdings Ltd., Li Ka Shing Foundation and China Merchants Investments, who collectively bought 11 percent of the company.
While they are quiet about their role, the person behind the global vision says the plan is on course.
“We are happy with our television arrangements, and our online and sponsorship business,” Stern said, pointing to specific areas where a foundation has been developed.
NBA China now has a staff of more than 150, with at least 40 new employees added in the past year, who work in three offices in Beijing, Shanghai and Hong Kong to fulfill Stern’s mantra of broadening exposure of the NBA product.
“The No. 1 priority is to grow the game in China,” said Tim Chen, who, as chief executive officer of NBA China, is responsible for the entity’s day-to-day business operations.
The major growth has been as a media property. The league today counts 51 media deals in the country and this year saw the launch of the League Pass in China that allowed for streaming games live online for the first time.
The total number of NBA games broadcast and streamed nearly doubled during the 2009-10 season, up to 1,937 games this year from 1,072 last year, with the sheer volume of programming dwarfing the media presence of any other U.S.-based league in China.
In addition, the increase in web traffic is staggering. Since the creation of NBA China, the number of page views on NBA.com/China has grown by 60 percent and video usage on the website has increased 385 percent compared with the 2007-08 season as NBA fans in China begin adopting more consistent viewing patterns of NBA programming.
In addition to its media business, one of NBA China’s notable components is a joint venture with AEG to develop and manage arenas throughout the country. It’s a move that Stern & Co. see as a way to further develop the NBA’s business on the ground in China through live event programming.
The long-term partnership calls for an equal split of revenue generated from operating the facilities.
The NBA/AEG deal includes management of the Wukesong Arena in Beijing that recently was retrofitted after the 2008 Olympic Games. Arena content is slowly increasing, with the arena hosting events such as the 2009 NBA preseason games, a Harlem Globetrotters tour, the 2010 Chinese Basketball Association All-Star Game and a handful of concerts, including Beyoncé and the Backstreet Boys, along with a large number of major private corporate events, league officials said.
A few months ago the partnership sealed a naming-rights deal with Mercedes-Benz to put the carmaker’s name atop the new Shanghai arena, a facility the NBA and AEG will jointly operate after the World Expo ends in September. The arena naming-rights deal is the first of its kind in China and signals a new maturation of the sports business within the country.
The NBA/AEG partnership will also manage a new 18,000-seat arena to open later this year in Guangzhou. The first event will be the preseason NBA games in October reportedly between the New Jersey Nets and Houston Rockets. Those teams feature two Chinese players, Yao Ming with the Rockets and Yi Jianlian with the Nets. Guangzhou also will host the 2010 Asia Games in mid-November.
With three arenas to be jointly operated by the end of 2010, the NBA/AEG venture will look to book more live programming to drive the business, with discussions under way with Disney to bring in live acts and concerts to the three arenas.
“There is a lot more content that we can bring in,” Silver said. “Certainly sports is what we are most focused on.”
But any further development of the league’s arena business hinges upon the success of the three arenas, and the NBA is reluctant to commit to arena projects in other markets.
“We are in a watchful waiting period about how the markets accept the booking of Western-style content,” Silver said.
The league isn’t nearly as cautious in leveraging its sponsorship and licensing business, using its NBA China entity as a gateway to Asian-based corporations while cashing in on the growing connection between Chinese consumers and the NBA.
NBA China’s sponsorship portfolio is sold locally and boasts a balance of both local and multinational partners. The league would not disclose how much sponsorship revenue contributes to NBA China’s total revenue, but the latest deal is an agreement with China Everbright Bank that was signed in April.
This year, the NBA also renewed its athletic footwear category with China-based Peak in a multiyear deal valued at $6 million, according to one source familiar with the sponsorship.
Another key piece of the puzzle is the league’s effort to further establish the NBA brand with the Chinese consumer.
“Similar with the U.S., Chinese companies promote the fact that they are the official computer, television or cell phone of the NBA, and branded association has created value for them as well as deliver us a whole new group of consumers,” Silver said.
Local grassroots activation is a major part of the marketing strategy as the league and its partners look to introduce and promote the game to young fans.
and showed off a commemorative poster (left)
before a preseason game between the Nuggets and
the Pacers at Beijing’s Wukesong Arena last
October. The NBA opened its eighth retail store
(center, right) in Shanghai this spring.
So far, league officials are pleased with the efforts that extend far and wide. The league, CCTV and China’s largest beermaker, Tsingtao, recently held a press conference touting the second season of “Dance Passion,” a cheerleader reality show, with the winners getting to perform at a Los Angeles Lakers game.
An NBA-themed movie, produced by a Chinese film company, is under discussion while the league continues to focus on youth basketball clinics, grassroots events and basketball camps, many of which feature appearances by retired NBA players as the league works to expand the game.
The NBA is even putting its history on display, donating autographed basketballs, jerseys and Michael Jordan memorabilia to the Shanghai Sports Museum this year
More activation on the ground included a program this spring by Gatorade, which held a branded basketball academy at 270 junior high schools in five cities. Amway also recently completed a basketball skills and camp event in various cities with winners awarded a trip to the 2011 NBA All-Star Game.
On the licensing side of the house, this spring the NBA opened its eighth retail store, located in the Shanghai World Expo Performing Arts Center, which is hosting the World Expo from May through September. More stores are planned, but there is no specific timetable.
NBA executives would not disclose the percentage of merchandise sales from NBA China revenue, but China is the league’s top merchandise market outside of the U.S. That figure is expected to grow as the league continues to promote its brand. Adidas, which is the official NBA apparel partner, has nearly 6,000 stores in China. In addition, Nike, the apparel rights holder for the NBA-marketed USA Basketball program, also has a similar number of stores in China.
“The NBA is doing a really good job of marketing the brand in China by selling the mark and increasing the brand’s visibility,” said Bruce O’Neil, who runs the U.S. Basketball Academy and is a consultant to the Chinese Basketball Association. “There is also the expectation of a league.”
Experts agree that having more games on the ground in China is paramount for future growth.
The NBA’s presence in China is longstanding. The then-Washington Bullets were the first NBA team to play in China with an exhibition game against the Chinese national team in 1979. The league’s television deal with CCTV dates back 22 years.
In 2004, the NBA launched its first set of preseason games in China between NBA teams, and then returned in 2007 with the “NBA China Games” as a run-up to the 2008 Beijing Olympics. Since then, the NBA has played preseason games in China each October.
But creating the content comes with the task of not only negotiating with the Chinese government, which controls the Chinese Basketball Association, but also the challenge of operating within a different business culture.
“The role of the government is something we in the U.S. historically have looked at as an anathema or as an obstacle, whereas in China it is a way of life,” said Marc Ganis, president of SportsCorp Ltd., a sports consultant who has spent a decade doing business in China. “The expectation of walking in with a great business card and a battery of attorneys may work in the U.S., but it doesn’t work in China.”
So far, the NBA’s relationship with the government-run Chinese Basketball Association has mainly included coaching and player development programs as both sides try to strengthen their business ties.
“It is getting better and better,” Chen said of the relationship between the CBA and NBA China. “It is critical because we both have to do well to succeed.”
Silver said the NBA continues its discussions with the CBA, but offered no specific timetable. For now, the NBA will go it alone as it ponders the most effective — and profitable — way to link all aspects of its current business with a league in China.
“[A partnership] is something that we have discussed with the CBA and talks are ongoing,” he said. “It’s not clear whether it could be a co-branded league or whether [a partnership] manifests itself with a tournament or a series of tournaments. It is in the future, but not in the immediate plans.”
Experts point to some major business advantages of an NBA-affiliated league in China that reach far beyond the current slate of preseason games, which on their own attract sponsors and fill the local arenas.
Consider a sponsorship deal brokered by Rhoads between UPS and the 17-team CBA.
“The NBA has a powerful brand, but UPS is looking for hospitality to bring its customers and employees together to have a great experience at a game, and the CBA deal provides that,” Rhoads said. “UPS also gets a uniform patch, signs on the court and boards. With the NBA, other than a few nights of exhibition basketball, there just isn’t enough inventory.”
For now, expect the NBA to forge deeper ties in China from its media, merchandising, sponsorship and grassroots marketing efforts to pave the way for a league of their own sometime in the future.
“Basketball is enormously popular in China,” Silver said. “This is not a business of hits. It is a business of steady growth buoyed by a growing middle-class population in China.”