Investing in European football? Don't push fans away

This month, Fininvest announced it had agreed to sell Italian football club AC Milan to a group of Chinese investors for 740 million euros ($825 million). Once the deal is complete, the Chinese buyers will control 99.93 percent in a club with a glorious history that stretches back more than a century.

This is the latest in a streak of high-profile overseas acquisitions by Chinese companies targeting world-class football clubs.

A couple of months ago, Suning Commerce Group became the largest shareholder in Inter Milan, and in January last year, Wanda Group, the largest commercial property developer in China, secured a 20 percent stake in Atletico Madrid, a club with remarkable track record in the La Liga, the top tier of Spanish football, and the elite UEFA Champions League.

It's reported that other Chinese companies are on the lookout for similar opportunities.

This shopping spree is not as perplexing as it seems. Football is one of the most popular sports in China, attracting large television audiences. However, the performances of the men's national team have long fallen short of people's expectations.

Since 1978, China has qualified for the World Cup only once, in 2002, when it lost all three games without scoring a single goal. Moreover, the Chinese football league has failed to produce stars able to compete in the international arena, making it hard for domestic clubs to expand their fan base and profit from related businesses.

Football perfectly exemplifies how supply-side deficiencies ail China's booming sports industry. Some people estimate that the size of China's sports market could reach 5 trillion yuan ($752 billion; 674 billion euros) by 2025. While the prospects are bright, supply-side constraints could prevent China's football industry from tapping this alluring market. The acquisition of leading European clubs has enabled shrewd Chinese investors to exploit the growing domestic sports market indirectly.

Thanks to the expanding coverage of broadcast TV, top leagues in Europe have gained a significant fan base in China. After becoming the controlling shareholder of these clubs, Chinese buyers are better placed to introduce related products to the world's second-largest economy.

So far as we know, these investors have already developed plans to boost the domestic market after these high-profile acquisitions. In addition, owning a famous club also gives Chinese investors leverage to quickly integrate into the local business community and build up their brand overseas. As such, these deals can also be understood within the broader go-global strategy.

But notwithstanding the advantages mentioned, becoming the owner of an overseas football club is a decision that incurs some degree of risk. Generally, there is a high chance that the target being acquired is not in sound financial shape, a tendency that could be exacerbated by a volatile operating environment. In the context of persistent sluggishness in the European economy, as well as the growing uncertainties surrounding political and geopolitical tensions, this is something that requires careful consideration.

Here are some cues to help Chinese investors do a better job.

First, a club's most valuable resource is its fan base. A change in ownership can affect fans' confidence in the club, and in some cases can drive them away. For clubs with a long and glorious history, this could be more pronounced if the new owners are foreign.

Under such a circumstance, winning performances are the best guarantee to retaining a fan base. Of course, this is easier said than done, as winning a football game is the result of a confluence of factors, ranging from coaching to infrastructure. But in general, the winners tend to be the teams with the best players. New investors need to set aside enough frontloaded investment to attract top-tier players and improve teams' performance in a short time.

This will translate into tremendous financial pressure, particularly in the first few years. Investors need to prepare well in advance, undertake long-term financial planning and secure adequate access to financial resources.

Second, it's imperative that new investors preserve the club's long traditions and culture to retain local fans. Chinese overseas investments are still a relatively new phenomenon, and sometimes the companies lack the business acumen to operate seamlessly abroad.

As if this were not enough, international football is an extraordinarily competitive global industry and managing a leading club is no small feat. Cultural differences could prove counterproductive at first.

The optimal strategy would be for the new owners to entrust local management with the daily operation of the club and minimize interference. Chinese elements should be introduced only gradually. These could facilitate commercial gains by granting the club access to one of the world's largest and fastest-growing sports markets. However, new marketing efforts should not marginalize local fans.

And, last but not least, Chinese investors should strive to better understand political trends in recipient countries and cities. As previous examples show, business plans can easily fall prey to local political wrangling, even in European countries with good social institutions and established rule of law.

The author is chief economist for Asia at BBVA Research and a senior research fellow at Renmin University of China's International Monetary Institute. The views do not necessarily reflect those of China Daily.