Global outrage, broken contracts and shifting politics could change the calculus for leagues and teams that once raced to do business in China.
Nov. 24, 2021
The rewards for international sports leagues and organizations are plain: lucrative broadcast deals, bountiful sponsorship opportunities, millions of new consumers.
The risks are obvious, too: the compromising of values, the public relations nightmares, the general atmosphere of opacity.
For years, they have surveyed the Chinese market, measured these factors and come up with the same basic math: that the benefits of doing business there outweighed the possible downsides. The N.B.A. might blunder into a humbling political crisis based on a single tweet, and rich contracts might vanish into thin air overnight, but China, the thinking went, was a potential gold mine. And for that reason leagues, teams, governing bodies and athletes contorted themselves for any chance to tap into it.
But recent events may have changed that thinking for good, and raised a new question: Is doing business in China still worth it?
The sports world received a hint last week of a changing dynamic when the WTA — one of many organizations that have worked aggressively over the last decade to establish a foothold in the Chinese market — threatened to stop doing business there altogether if the government failed to confirm the safety of Peng Shuai. Peng, a top women’s tennis player once hailed by state media as “our Chinese princess,” disappeared from public life recently after accusing a prominent former government official of sexual assault.
The WTA’s threat was remarkable not only for its reasoning, but for its rarity.
But as China’s top leader, Xi Jinping, governs through an increasingly authoritarian approach, and as its record on human rights has made the country, and those who do business there, a growing target for a chorus of critics and activists, sports leagues and organizations may soon be forced to re-evaluate their longstanding assumptions.
That sort of direct confrontation is already taking place elsewhere: Lawmakers in the European Union recently called for stronger ties with Taiwan, an island China claims as its territory, only months after European officials blocked a landmark commercial agreement over human rights concerns and labeled China a “totalitarian threat.”
For most sports organizations, the WTA’s position remains an outlier. Sports organizations with multimillion-dollar partnerships in China — whether the N.B.A., England’s Premier League, Formula 1 auto racing or the International Olympic Committee — have mostly brushed aside concerns.
Some partners have acquiesced at times to China’s various demands. A few have issued humbling apologies. The I.O.C., in perhaps the most notable example, has seemed to go out of its way to avoid angering China, even as Peng, a three-time Olympian, went missing.
But an evolving public opinion may get harder for sports organizations to ignore. A report this year from the Pew Research Center, for instance, found that 67 percent of Americans had negative feelings toward China, up from 46 percent in 2018. Similar shifts have occurred in other Western democracies.
Mark Dreyer, a sports analyst for China Sports Insider, based in Beijing, said the WTA’s standoff with China represented an escalation in the “them or us” mentality that appeared to be forming between China and its Western rivals.
The threat from the WTA, then, could serve as a sign of showdowns to come, in which case, Dreyer said, China could lose out.
“Frankly, China is a big market, but the rest of the world is still bigger,” he said. “And if people have to choose, they’re not going to choose China.”
To some experts, then, the WTA’s extraordinary decision to confront China head-on might actually signal a turning point rather than an aberration.
“The calculation is one part political, one part moral, one part economic,” said Simon Chadwick, a professor of international sports business at Emlyon Business School in Lyon, France. He said that the WTA’s dispute with China reflected the “red line” growing between the country and many of its Western counterparts, with the sides seeming more entrenched in diverging sociopolitical ideologies.
“I think we are rapidly heading toward the kind of terrain where organizations, businesses, and sponsors will be forced to choose one side or another,” Chadwick added.
The WTA’s own about-face was stark. Only three years ago, the organization was heralding a deal that made Shenzhen, China, the new home of its tour finals for a decade starting in 2019, accepting promises of a new stadium and a whopping $14 million annual prize pool. In 2019, just before the pandemic, the WTA held nine tournaments in China.
Fast forward to last week, when Steve Simon, the WTA’s chief executive, said in an interview with The New York Times that if China did not agree to an independent inquiry of Peng’s claims, that the tour would be willing to cease operations in the country.
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“There are too many decisions being made today that aren’t based on what is simply right and wrong,” Simon said. “And this is the right thing to do, 100 percent.”
The language raised eyebrows around the sports world.
“They are not the first ones to have had a run-in with China,” Zhe Ji, the director of Red Lantern, a sports marketing company that does work in China, said about the WTA. “But I haven’t seen anybody else come out with as strong a wording as that.”
The run-ins have proliferated in only the last few years.
The N.B.A., for instance, was seen as a pioneer when it played its first games in China in 2004, including a game featuring Yao Ming, the Chinese star for the Houston Rockets. The ensuing years brought prosperity for the league there, and relative peace. It was praised for its patient, culturally sensitive approach to building there. Then, in 2019, Daryl Morey, the general manager of the Rockets at the time, tweeted in support of pro-democracy protests taking place in Hong Kong, and in the blink of an eye a relationship that had developed over several years imploded.
Merchandise for the Rockets — China’s favorite team in China’s favorite sports league — was removed from stores, and the team’s games were no longer broadcast on television. Fans took to Chinese social media to attack the league. Then, when the N.B.A. issued what was widely taken as an apology, it sparked an almost equally robust wave of criticism back home.
“The NBA should have anticipated the challenges of doing business in a country run by a repressive single party government, including by being prepared to stand in strong defense of the freedom of expression of its employees, players, and affiliates across the globe,” read a letter sent to the league by a bipartisan group of United States lawmakers.
The letter’s signees — a cross-party group that included Representative Alexandria Ocasio-Cortez of New York, a Democrat, and Senator Ted Cruz of Texas, a Republican — accused the N.B.A. of compromising American values and effectively supporting Chinese propaganda.
“The N.B.A. has adhered to its values by supporting Daryl Morey’s and others’ rights to express their views despite the significant impact to our business,” Mike Bass, an N.B.A. spokesman, said on Wednesday.
Ultimately, the affair showed how even the most conscientious organizations could find their plans undermined by Chinese politics, how any business could unwillingly become a vessel for an international spat.
“If you’re angering both sides, it means there is no middle ground, which I think was significant,” said Dreyer, the Beijing-based sports analyst.
Like other observers, Dreyer suggested the WTA’s stance was potentially game-changing. But he noted, too, that it was possibly easier for the WTA to defy China than it had been for, say, the N.B.A., for two reasons.
First, because the pandemic had already forced the WTA to cancel its events in China for the near future, the tour was not necessarily forfeiting big sums of money in the immediate term. (Severing ties with China permanently would of course require the WTA Tour to replace tens of millions of dollars in revenue and prize money.) Second, because China has essentially erased any mention of Peng and the ensuing international outcry from its news and social media, the WTA’s brand may not take much of a hit there. Many in China simply do not know about Peng, or the WTA’s response.
“With the N.B.A., they were burning jerseys,” Dreyer said. “You don’t have that reaction against tennis.”
To be sure, big sports leagues that have deep, longstanding interests in China, barring some extreme turn of events, will not exit the market any time soon. And some organizations are still going all-in.
The I.O.C., which will stage the 2022 Winter Olympics in Beijing in February, has tuned out any and all calls from critics for the organization to make some statement about China’s human rights abuses, including the treatment of religious minorities in the country’s western regions.
Formula 1 this month announced that it had signed a deal to continue the Chinese Grand Prix, an annual race in Shanghai, through 2025, and the Premier League appears to have patched over a crisis that began when a top player infuriated China by criticizing its human rights record.
Some in the industry, though, have already noticed a change, a slight cooling, among other companies pondering business in the sports market there.
“With increased political tension and the complications of doing business in China, I’ve seen more companies focus back on Europe and the U.S., where the reward may not be as large but the risk is much less,” said Lisa Delpy Neirotti, an international sports marketing consultant and director of the sports management master’s program at George Washington University.
That dynamic has been vivid in European soccer, which had collectively seemed to view China as a sort of El Dorado five years ago, but now seems to be coming to terms with reality after a series of disappointments. In Italy, Inter Milan, one of that country’s most storied clubs, is in a tailspin after its Chinese owner, Suning, a consumer goods company, became engulfed in a major financial crisis. The team has been forced to sell player contracts to meet its payroll.
In England, the Premier League remains in litigation with a broadcast partner that failed to pay up after signing a record-breaking television deal to broadcast games in China. A new partner is paying a fraction of the previous agreement, leaving some clubs disillusioned.
“Over the last five years there had been a perception in the West that China is there for the taking — there’s lots of money, economic growth is strong, a growing middle class, disposal income, and we can go feast on this,” Chadwick said. “What has happened for some sports organizations in the West is that they have not found China as lucrative as they imagined, and they have also found China incredibly difficult to do business with.”
The difficulties appear to be deepening.
Half a decade ago, the Chinese government, emboldened about sports after hosting the 2008 Summer Olympics in Beijing, announced plans to create an $800 billion domestic sports industry, the largest in the world. That captured the attention of Western sports organizations.
What many organizations did not anticipate, though, were the peculiarities of the Chinese business landscape, the extent to which politics is woven through all aspects of China’s economy, and the increasing nationalism under Xi.
“I absolutely think over the long term that major sporting events will be hesitant moving forward to schedule out in China right now,” said Thomas A. Baker III, a sports management professor at the University of Georgia who has done extensive work in China. “The China that welcomed the world in 2008 is not the same China that people are doing business with in 2021.”
Tariq Panja, Matthew Futterman and Christopher Clarey contributed reporting.