UFC Deal Shows How the Terms of Engagement in China Have Changed

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The terms of engagement with China for the international sports industry have changed. If overseas organisations want to get a return from the world’s second-biggest economy in 2021, they must be prepared to invest in it.

This month’s wide-ranging media deal by the UFC with video platform Migu is a best practice case study. The UFC managed to get an increase in the value of its media rights, an extraordinary outcome given the dire state of the media-rights market. This is a market that has been correcting hard for the last year, sending rights values plunging.

How did the UFC do it? The groundwork was laid with targeted and significant investments in its presence in China. The deal was supported with further significant commitments to content and in-market activity.

The promotion has had a slice of luck in the emergence of a Chinese champion, women’s strawweight title-holder Zhang Weili. But the importance of those background investments cannot be ignored.

The UFC spent $14m (€12m) to build its Performance Institute in Shanghai, which opened in 2019. This training facility for Chinese and other Asian MMA fighters is three times the size of the promotion’s facility on home turf in Las Vegas. It will invest millions of dollars more each year in the facility and its linked talent academy. The goal: to produce a flow of Chinese fighters that will secure a domestic audience for the property well into the future.

Last year, the company agreed a deal with the Chinese Olympic Committee to make the cutting-edge training resources at the Performance Institute available to Chinese athletes preparing for the upcoming Tokyo Summer Olympics and Beijing Winter Olympics.

Among the raft of content and event commitments included within the Migu deal, the UFC will create health and fitness content for the company’s Migu Fitness app. Leveraging sport to improve the public health and fitness of the Chinese people is an explicit aim of government sports policy. As a state-owned company, Migu is particularly attuned to government policy.

All this investment means the UFC is unlikely to break even in China for a while yet. But it is a longer-term play for the company in a market it considers the most important in terms of its international expansion.

Besides investment in a local presence, an appetite for risk will also be useful for international sports organisations in the Chinese market of 2021.

Economic risks are at all-time highs. Partners in China must be more carefully selected than ever before. Some of the country’s biggest companies and sports investors have been caught out by the economic crunch caused by the pandemic. The plight of Suning, owner of Serie A football team Inter Milan and streaming platform PP Sports, has been particularly damaging. Two of the market’s biggest media-rights deals – for the English Premier League and Chinese Super League football – have been among the casualties.

Suning’s fall has shocked observers. Although clearly losing money on its sports investments, the company was considered a pillar of strength prior to the pandemic – “a bricks-and-mortar Alibaba”, as one industry insider described it to me last week.

Suning is beating a dramatic retreat from sport. Its withdrawal of support for Chinese Super League champions Jiangsu FC was particularly shocking. Football is a politically important sport in China – Suning got into it in the first place for the political gain to be made from backing a sport whose growth is considered a national priority. To pull the rug from under the Chinese league champions, causing headlines around the world and questions to be raised over the future of the elite game in the country, indicated the depth of Suning’s problems. That no one has stepped in to buy the team arguably indicates the depth of the economic problems in Chinese club football.

Political risks are also at all-time highs for many overseas rights-holders in China, with political tensions with the West rising. Some properties are already conducting their Chinese business more quietly than before, without the usual press releases marking their activity.

To prosper in China in the year of the Ox, overseas rights-holders may be well advised to adopt the head-down diligence of the zodiac animal, treading carefully and investing wisely. (Source: sportsbusiness.com)