Basketball star Yao Ming wants to privatize Chinese basketball and model the national league on the NBA. Of the league’s 20 teams, 18 are behind him. Can he manage to sink this basket?
Yao Ming has not been idle in retirement, and the Chinese basketball legend is once again making headlines, but now for attempting to change the game, not win it. The 35-year-old has been negotiating with the government-backed Chinese Basketball Association (CBA) to reform the State-run sport. After a particularly fruitless round of talks on April 19, he exclaimed to the press: “If sports cannot be marketized, what can?” The Shanghai native, who ended his professional career in 2011, now heads up China Professional Basketball Club United Inc (CPBCU), a private company he founded in February that has since been joined by 18 of the 20 Chinese professional men’s basketball teams, including the Shanghai Sharks, which Yao owns. As CPBCU chairman and general manager, Yao has been pushing the CBA to further develop the league and increase its market value. But this latest round of talks was a complete failure. The CBA rejected the conditions proposed by CPBCU as unacceptable.
The deadlock has triggered a flurry of commentaries and debates on the subject amongst sports industry insiders and fans alike. Basketball is perhaps the most popular team sport in China; having a national hero like Yao at the center of this issue simply ramps up the spotlight’s wattage. Yao and some experts and fans have criticized the CBA for sticking to obsolete, rigid “planned economy” thinking, while the CBA has reasserted its power and control over the national league.
But just as observers started to worry reform was a hopeless endeavor, the CBA broke the ice in late April by putting forward a new proposal that would be a compromise for both sides. The two parties have now returned to the table for new rounds of negotiations, but nobody knows how feasible reform will be, especially when the core interests of both sides are fundamentally opposed.
Yao’s Dream In China, all team sports and leagues are overseen by organizations under the massive umbrella of the country’s General Administration of Sport of China (GASC). Governmental orderliness and bureaucracy is evident in every aspect of Chinese professional sports.
Potential players cement skills in special sports schools. Coaches, who are judged by their teams’ performances much like city officials are evaluated based on their handling of the local economy, hesitate to try new things for fear of repercussions.
Yao Ming knows all about this – he played for the CBA’s Shanghai Sharks from 1997- 2002. When he bought his former team in 2009, the NBA All-Star turned his attention toward reforming the Chinese league. Yao frequently complained about the teams’ massive debts and attributed them to the league’s lack of professional management and almost nonexistent marketization. In the 2015-16 season, only one of the 20 teams reportedly managed to turn a profit.
Forming CPBCU helped Yao get in position, and, once the 18-team alliance was established, he was ready to take his shot.
Shortly after its February founding, Yao announced CPBCU’s objective: to reform the league by making it more market-oriented and profitable. Changes would include giving teams more say in their business development, hiring professional referees and making players’ salaries transparent.
“Although the [CBA teams] have seen their incomes increase every year, their debts are growing at a faster rate,” Yao said in an interview with Party paper People’s Daily. This instability “will make investors flit in and out of the league, which is not a sustainable development model for Chinese basketball.” China’s professional men’s league is currently operated by the CBA, with support from a Chinese subsidiary of Infront Sports & Media, a Swiss sports marketing company.
Every year, Infront reportedly invests US$6.5 million in league operations and gives 85 percent of its net profits to the CBA, while the teams themselves only enjoy a tiny sliver of the commercial rights pie. For example, the teams earn revenue from title sponsors and ads in limited advertising space. The CBA allocates a sum of money to each team, but it doesn’t come close to covering the cost of each franchise. Yao told the West China Metropolis Daily that in the past few seasons, the 20 teams’ expenses hit an average of about 70 million yuan (US$10.8m) each. After the 10 million yuan (US$1.5m) they receive from the CBA, as well as the earnings from tickets and title sponsorships, most franchises still ended up with a 40-50 million yuan (US$6.1-7.7m) annual shortfall.
“A successful pro league requires hard work from different groups: the players, the teams, the managers and the investors,” Yao told People’s Daily. “We should better coordinate each group’s resources and allow their voices to be heard. In this way, each group’s efforts will be rewarded in time.” Chinese basketball franchises have struggled for more autonomy since as early as 1998, when seven of them, led by the Shanghai Sharks, announced they were establishing an organizing committee to represent a team alliance. Many media outlets that reported on the new committee viewed it as a rebellious move against the government’s control of the league.
The seven teams soon launched their first offensive, and Nike was the target. At that time, all CBA players wore Nike-branded uniforms because of a five-year contract signed between the CBA and the sportswear giant. The alliance believed that Nike had paid too little for its sponsorship and objected to the brand’s additional sponsorship of certain stars, a practice that led to a wide income gap between players. The conflict finally ended when Nike compromised shortly before its contract expired, and afterward the teams were free to choose their own gear suppliers.
The alliance’s organizing committee, however, was deemed “illegal” by the GASC and forced to disband two months later. Despite its short life span, the committee was heralded by media reports at the time as the basketball franchises’ first step toward shaking loose from government administration.
Yao Ming meets with Chinese Basketball Association committee members and investors, Taiyuan, Shanxi Province, April 27, 2016
“Teams should work together to develop Chinese basketball,” wrote Sun Baosheng, a sports journalist with the Beijing Evening News. “An alliance is helpful to jointly protect the rights and interests of the teams and to discipline and supervise each other.” CPBCU is an echo of that first alliance.
The 18 member teams invested so readily because of Yao’s unremitting appeals. Although he has tried to avoid directly facing off against the CBA and has denied media labels like “reformer” or “rebel,” the formation of the company is still widely viewed as a milestone in the process of removing league operations from governmental control.
Deadlock Pressured by the Chinese basketball league’s overall lackluster performance, the Chinese government itself has defined “separating operations from the government” as the focus of basketball reform since 2014.
But the government’s idea of what this separation looks like appeared to differ greatly from Yao’s. Last January, after the 18 teams had already agreed to form the CPBCU, the country’s sports authority approved a reform scheme developed by the State’s CBA. The CBA planned to establish a private arm in which all 20 teams would join, then CBA would empower its own new company to operate the league, just as Yao wanted CPBCU to do.
When asked if the CBA’s new company would conflict with CPBCU, Zhang Xiong, head of the CBA’s competition department, replied that the association’s private enterprise had no relationship with CPBCU, but the two companies could cooperate if both sides were able to reach an agreement.
All parties involved knew this agreement could come soon, as the CBA’s contract with Infront expires in 2017. This would be a key moment for CPBCU – if Yao’s organization could swoop in and steal the rights to manage the franchises’ operations, it would be a big step toward realizing Yao’s dream of fully marketizing the league.
With this in mind, in the mid-April round of negotiations, CPBCU had two demands for the CBA: allow CPBCU to join the CBA’s new company as a whole entity, and empower CPBCU to operate the league.
To Yao’s disappointment, the CBA refused both requests, immediately killing the talks.
“We hoped that the CBA could negotiate in good faith,” Yao said to media afterward.
“However, establishing this CBA company [with no other changes] is like wrapping our current system up in a company’s shell.” The CBA stood firm on its reasons for refusal.
Its loss of power would be too absolute.
According to the GASC-approved reform scheme, the CBA would hold 30 percent of the new CBA company, while each of the 20 teams would hold 3.5 percent. However, given that Yao’s CPBCU unified 18 teams, if it were to join the CBA company it would control 63 percent of the enterprise. To the CBA, this was unacceptable.
As for the second request, the CBA said it would not give CPBCU the power to operate the league unless the two non-CPBCU teams, the Zhejiang Golden Bulls and the Shanxi Brave Dragons, also participated.
While the CBA professed equality, third parties saw this conflict as a mere power struggle. “Under the current system, all [parties] are losing money except for the CBA – how could it give up the meat already in its mouth?” Sports journalist Wang Zhiling posted through the WeChat account of Shanghai-based news site Xinmin Sports.
Following the talks, the CBA reiterated that the league is defined as a State asset and cannot be handed off to a private company for an unreasonably low price – CPBCU has a registered capital of only 45 million yuan (US$6.9m). Although the CBA is nominally a nongovernmental organization, it is closely connected to the GASC’s basketball management center and even shares some staff. According to China’s Sport Law, CBA effectively owns the professional basketball league.
CPBCU, however, did not buy this line of reasoning. “The reform would not just improve the league; more importantly, it would give the teams that are struggling more confidence and room to grow,” CPBCU spokesman Zhang Chi told China Youth Daily.
“Both sides should seek a path that leads to more balanced benefits for all of the franchises.” According to Zhang, the CBA has been making its every decision unilaterally, even those directly related to the teams’ interests.
The teams want to have more say in their own operations.
Although basketball is one of the most popular team sports in China, only one of 20 professional men's teams reportedly turned a profit in 2015
Turning Point?
Just as sports fans fretted that the reform process would freeze due to the icy relationship between the CBA and CPBCU, the tide turned at an April 27 meeting of CBA committee members and investors. The CBA proposed a different form of cooperation that focused on restructuring Yao’s company. The CBA wanted CPBCU to merge with a separate company under the CBA’s umbrella, and also convince the Zhejiang and Shanxi teams to join the organization. The newly restructured company would elect a new board, president and managers. In return, the CBA pledged to cover no less than 90 percent of the teams’ expenses.
At the conference, Xin Lancheng, director of the GASC’s basketball management center and vice president of the CBA, stressed that the CBA shares the goal of separating the league’s operations from government administration, but added that preventing the loss of State assets is paramount as well. The reform must be conducted under the guidance of the government and it must benefit the State, the teams and other related stakeholders, he said.
Yao told Xinhua News Agency that he was glad that the CBA had changed its attitude, and he felt that the new proposal provided a solid foundation on which the two parties could resume negotiations. “Let’s say the league is a house – CPBCU and the CBA now agree on its height, and only disagree on some details of its construction,” the basketball star said. “I believe those details can be worked out through negotiations.” CPBCU seemed resigned to the likelihood that it would never attain full autonomy.
In fact, during the first round of negotiations, Yao’s company announced that it acknowledged and accepted the guidance and leadership of the CBA and the GASC.
Although CPBCU’s acquiescence to possible restructuring was mocked by some columnists who saw it as kowtowing to the government, insiders believed it was the company’s best option.
“If CPBCU cannot obtain the league’s commercial rights, it will be of little value,” a team investor who chose to remain anonymous told the West China Metropolis Daily.
“CPBCU restructuring and entering into the CBA company would be the best possible outcome for the teams that have already invested in [Yao’s company].” The paper also reported that many CPBCU insiders are leaning toward accepting the CBA’s new proposal.
Analysts, however, did not view it as a breakthrough for Chinese basketball. “The new proposal does not mention the new company’s stock distribution,” Yang Yi, a well-known sports journalist, posted on We- Chat. “If CPBCU joined the new company intact, it would have a dominant share of [63] percent. If not, the CBA’s 30 percent share will give it decisive power.” To many experts, the root problem holding Chinese basketball back is franchise management.
“The GASC’s basketball management center has interfered in the league too much, and CBA’s deep involvement with the government department has made it hard for CBA to represent the interests of the teams,” wrote Ningbo University faculty member Li Tingyu and two colleagues in a paper titled “Discussion of the Property Rights System of CBA League [sic] from the Perspective of New Institutional Economics.” Much like many other academics and experts, the Ningbo University faculty members called on the CBA and relevant government departments to gradually reduce their control over the league until eventually the teams can manage league operations themselves.
The CBA itself has actually pledged to do just that. Earlier this year, the CBA claimed that it will empower the teams to manage themselves and the league in the future. However, many analysts think this is just lip service, and believe it would be nearly impossible for the government to keep its hands off the league completely.
“The league is like a plot of Chinese land on which the government allows each team to build a house,” wrote sports journalist Su Qun on bbs.huqun.com, China’s most popular basketball portal. “But, remember, the land always belongs to the State, even if the houses one day belong completely to the teams… So, the key difficulty [in reforming the system] is coordinating between public and private interests.” Perhaps the most important bargaining chip still left on the table is whether or not the largest shareholder will have veto power.
If that is the case, the CBA’s 30 percent share, as guaranteed by the GASC, would give it absolute power. If not, Yao’s dreams of reform have a greater chance of coming true.
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