MEDIA: CMC Follows Beijing Sports Call with UK Soccer Buy

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Bottom line: CMC’s purchase of a stake in the parent of the Manchester City soccer club looks at least partly political, and could be followed by similar purchases by Alibaba or LeTV next year as companies try to earn goodwill from Beijing.

CMC buys into global soccer

Anyone who thought the entrepreneurial China Media Capital (CMC) might represent a new breed of market-oriented Chinese investors will be disappointed to learn the company’s latest purchase looks quite political and aimed at pleasing Beijing. That investment has the Shanghai-based CMC teaming up with the financial giant Citic Group, another highly political animal, to buy 13 percent of a company whose prize asset is the Manchester City soccer club.

I’m probably being slightly unfair in calling this move purely political, since China is certainly a soccer-crazy country that could benefit from the expertise that CMC will get through its investment in City Football Group (CFG). But the timing of this deal looks quite suspicious, as it comes just weeks after Chinese President Xi Jinping visited the team during a tour of Britain, where he released a plan to turn China into a soccer powerhouse.

CMC is certainly a political savvy outfit, based in China’s commercial capital and controlled by the local Shanghai Media Group (SMG), the nation’s second largest traditional media company. It has major partnerships with many of the major Hollywood studios, who consider it the the most commercially-oriented and well connected of a very limited number of potential partners in China’s fast-growing filmed entertainment market.

But of course SMG and CMC realize that as state-owned entities, they have at least a partial duty to help carry out Beijing’s objectives. That appears to be one of the driving factors behind this new deal, which is seeing CMC and Citic Capital pay $400 million for their new stake in CFG. (English article; Chinese article) The Chinese group bought their stake from the Abud Dhabi United Group, which was previously CFG’s full owner.

Manchester City is clearly CFG’s prize asset, though the group also owns soccer clubs in New York and Melbourne, as well as a stake in a Japanese team. The deal values CFG at about $3 billion, and is the latest in a string of high-profile sports related investments by Chinese companies.

Another aggressive company in the space has been real estate giant Wanda Group, a similarly political company that earlier this year paid $1.2 billion for European sports marketing company  Infront Sports & Media. (previous post) Around the same time Wanda also purchased 20 percent of Spanish soccer club Atletico Madrid, and in August it paid $650 million for US-based World Triathlon Corp, the world’s biggest organizer of triathlons.

Improving China’s Game

Less cynical people might argue these investments make good commercial sense, since China’s sports market is woefully underdeveloped and plagued by corruption and broader lack of professionalism. But anyone more familiar with CMC and Wanda will know they are headed by 2 very political people, Li Ruigang and Wang Jianlin, respectively, who know that marching to Beijing’s orders is necessary to thrive in China.

It’s interesting to note that to date Wanda and now SMG have been the most aggressive on the global sports scene, and we have yet to see any of China’s dynamic private companies make similar purchases. But I suspect that could change next year, and its just a matter of time before some of the country’s equally aggressive and politically savvy Internet and media companies make similar moves, partly to win brownie points with Beijing.

Two companies that have already made moves in that direction are e-commerce juggernaut Alibaba (NYSE: BABA) and similarly aggressive online video company LeTV (Shenzhen: 300104). Alibaba’s founder Jack Ma previously purchased a major stake in one of China’s leading soccer clubs, and LeTV has been aggressively building up its sports programming unit. (previous post) I wouldn’t be surprised to see one of these 2 companies, or perhaps another big name like Tencent (HKEx: 700), follow Wanda and CMC onto the international stage next year, in their own bids to cultivate good relations with Beijing.

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