MEDIA – LeEco Default Strains China Sports Bubble

Bottom line: LeSport’s reported default on payments for Asian Football Confederation soccer games marks the start of the popping of a bubble for sports broadcasting rights dating back to last year.

LeSports soccer drive on the skids

In what could be the first domino to fall in China’s overinflated market for sports broadcasting rights, the sports unit of cash challenged LeEco (Shenzhen: 300104) has reportedly defaulted on payment for one of several high-priced packages it purchased last year. In this case, it appears that fans of Asian Football Confederation soccer games won’t be able to watch their favorite pastime on LeSports, which reports are saying has been stripped of its broadcasting rights after missing a payment.

This particular development doesn’t come as a huge surprise, since LeEco’s cash problems have been well documented since first splashing into the headlines in November. It’s quite possible, and even probable, that this is a company-specific issue that won’t infect other more responsible sports rights bidders like Tencent (HKEx: 700) and Sina (Nasdaq: SINA). Still, this particular development does mean that overinflated prices that some in China have been paying for such rights could be due for a correction.

According to the latest headlines, LeSports first missed a payment in January for the $100 million contract to broadcast Asian Football Confederation games that it signed last year. Hoping it could salvage the lucrative deal, the league granted LeSports an extension until last week. But that deadline also passed without payment, and now the league has stripped LeSports of the rights, according to a report, citing unnamed sources. (English article)

There’s nothing official from either LeSports or the league just yet, though it does seem like just a matter of time before we hear something. Chinese companies have been bidding up sports broadcasting rights for most of the last year, as a new generation of online video services compete for high-quality exclusive content to lure in more viewers. Last year rival video site PPTV secured 3-year rights to English Premier League soccer for $650 million, more than 12 times the price of the current contract.

LeEco Leads the Pack

LeEco itself was in the headlines for one of the biggest deals of all just a year ago, when it reportedly agreed to pay 2.7 billion yuan ($400 million) for all online broadcasting rights for Chinese Super League soccer. But earlier this month media reported LeSports was in talks to give up some of the rights, after determining it couldn’t generate enough revenue from the business to justify the high price.

In December, LeSports also reportedly came within a whisker of losing its current rights to broadcast English Premier League soccer, and only managed to hang on by making a last-minute payment. LeSports also announced plans last year to pay 2 billion yuan for 50 percent of local football club Beijing Guoan. But that deal was also ultimately terminated after LeSports failed to make any payments.

Anyone reading this is probably quickly getting the idea that LeSports seems to have drunk some super-charged Kool-Aid before embarking on a frenzied spree of buying for sports teams and broadcasting rights last year. So it’s easy, and probably fairly safe, to conclude that this latest default on the Asian Football Confederation games is probably a company-specific issue and not emblematic of a broader wave of similar defaults.

Still, one of the reasons bidding became so heated last year was directly attributable to LeSports, which suddenly seemed to take a “take no prisoners” approach in its thirst for teams and broadcast rights. Accordingly, we can probably expect to see the Asian Football and probably the Premier League rights go back up for bidding after the LeSports default. When that happens, I expect the new winners will pay considerably less than the inflated prices offered by LeSports.


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