SPORTS: Soccer Investing Reaches Fever Pitch with IDG Joint Venture

Bottom line: IDG’s new investment in a French soccer club and related joint venture providing soccer training and consulting in China looks like a savvy move to monetize growing demand for sports-related services.

IDG brings French soccer to China

Corporate China’s recent love affair with sports shows no signs of easing as 2016 winds down, with word of a new investment that will see IDG Capital form a joint venture to bring European-caliber soccer training to China. This particular deal was first reported back in August, but it seems a formal agreement has just been signed between IDG, one of the most successful foreign venture capital firms in China, and France’s Lyon Group.

I’m personally a big fan of IDG, as they have one of the strongest track records among foreign venture capital firms for investing in Chinese tech and media companies. IDG appears to be continuing that trend with this latest partnership, which looks a bit better conceived than the many random investments we’ve seen from Chinese businessmen simply buying stakes in foreign sports clubs over the last year.

We’ll look at that part of the equation in more detail shortly, but first let’s review the latest cross-border investment that is part of the recent love affair between China and European soccer. The deal will see IDG Capital buy 20 percent of Lyon Group, which owns the well-known French soccer club based in the city of Lyon. (English article) Reports earlier this year had indicated IDG would pay about 100 million euros ($106 million) for the stake.

That particular investment appears to be aimed at providing money for Lyon, which will use the funds to form a joint venture with IDG in China as part of the bigger tie-up. That partnership will open soccer training schools, and provide club consulting and sports tourism services.

This particular tie-up is the latest investment in European soccer involving China. One of the latest such investments came around the same time the IDG deal was first reported, when Britain’s West Bromwich Albion became the first English Premier League soccer club to be purchased by a Chinese buyer. (previous post) Other teams that have received Chinese investment over that period include Italy’s Inter Milan, Britain’s Aston Villa and Manchester City and Spain’s Atletico de Madrid.

Herd Mentality

The soccer frenzy is partly due to the Chinese herd mentality, and in this case it appears soccer clubs have become the flavor of the day for rich Chinese businessmen. That’s not hugely surprising, since Chinese President Xi Jinping is a big fan of the sport, and has called repeatedly on China’s corporations to help improve the level of play in the country. Despite soccer’s huge popularity in China, the country frequently fails to qualify for World Cup tournaments and is generally considered a global laggard at the sport.

All that said, I quite like this latest investment by IDG, which looks aimed at providing services that should enjoy strong demand in the next decade. Another similar investment saw the equally savvy Wanda Group purchase European sports marketing company Infront Sports & Media for $1.2 billion last year. It’s now using that expertise to try and build up some world class sporting events in China, including a new cycling tour announced 2 weeks ago in scenic southern Guangxi province. (previous post)

These kinds of investments set themselves apart from the other soccer club stake purchases in that they have much better earning potential. By comparison, sports club ownership is a famously difficult business in the west, and many owners are wealthy businessmen who make such investments for simple reasons of vanity.

I suspect many of the European soccer club purchases over the last 2 years will ultimately get sold after the Chinese owners realize how difficult the business is. By comparison, this investment by IDG and the earlier one by Wanda have real potential to import European sports expertise to China in a meaningful way. Accordingly, I expect this new sports school joint venture could ultimately be quite profitable and may even make an IPO in the next 5-10 years once it gets up and running.

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