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Volume 6 No. 213

Finance

When Chinese businessman Li Yonghong bought Serie A side AC Milan, "virtually nobody in Italy had heard of him," according to Wee, McMorrow & Panja of the N.Y. TIMES. Nevertheless, Li "seemed to have what mattered most: money." He bought the club in April for $860M from former Italian PM Silvio Berlusconi to clinch China's "biggest-ever" football deal. Today, Li's acquisition of AC Milan "appears to be emblematic of a string of troubled Chinese deals." The club, "bleeding money after a spending spree on star players, is seeking new investors or a refinancing of the high-interest loan" that Li took to buy the club. That loan "comes due in a year." Chinese corporate records show that -- "on paper, at least -- someone else owns his mining empire." That company's offices were empty on a recent visit, and a sign on the door from the landlord cited unpaid rent. A spokesperson for AC Milan said that Li's control of the mining business was "verified by lawyers and banks involved in the transaction." China's emergence as a world economic power came with a "ready checkbook for major brand names." Then, Chinese officials "began to worry that the spending was simply part of an exodus of money from China so vast that it once threatened to destabilize the country's economy." Outside China, some of the deals "led regulators to ask questions about the tycoons behind them." In the case of Li, the mines that he told AC Milan he controlled have been owned by four different people since last year, according to Chinese corporate records. The business "changed hands twice for no money," documents show. Li declined an interview request through AC Milan. The club spokesperson defended Li on his business disputes, saying that "sometimes he was a victim and that sometimes he was not aware of complicated rules." Mark Dreyer, who tracks Chinese football investments on his website, China Sports Insider, said, "There's a lot of ways to invest in football and the sports industry for much less money. People were basically using the government's previous push for sports as a way to diversify into different industries and get their money out of China" (N.Y. TIMES, 11/16).

Ferrari Formula 1 is "on track to get a boost" of around £100M ($132.2M) to its profits if it pulls out of F1, an analysis of its latest filings revealed, according to Christian Sylt for the London INDEPENDENT. Earlier this month, Ferrari Chair Sergio Marchionne "sent shock waves through the sport when he revealed that the Italian marque is considering pulling out after 67 years of racing." Ferrari's contract expires at the end of '20, "when F1 is expected to introduce a new engine and balance the prize money payments to teams." As well as "facing a fall in prize money," Ferrari's costs are "on track to rise" as F1 is due to introduce a new version of its 1.6-litre V6 engine in '21. It will be "cheaper for teams to lease but will cost manufacturers like Ferrari more as they will have to design it." Ferrari is already F1's biggest spender, "though its precise budget is shrouded in secrecy." A detailed analysis of its latest filings "shed light for the first time on how much Ferrari is spending on F1." The single biggest expense is found in the £450.7M ($595.7M) of research and development costs. Like Mercedes, Ferrari is believed to be spending around £80M ($105.7M) on staff. The annual expense for running the team comes to an estimated £55M ($72.7M), bringing Ferrari's total F1 costs to £473M ($625.1M). This does not mean that Ferrari would "bank all of this as a profit if it gave the red light to its F1 project." Ferrari’s F1 costs are "partially offset" by its £160M ($211.5M) of prize money, sponsorship and income from leasing its engines to other teams (INDEPENDENT, 11/17).