How media investors hope to play ball in growing sports industry?

A state-owned media company recently said it is setting up a firm to explore businesses in the sports industry, such as holding events.

The new firm will have registered capital of 500 million yuan, Beijing Hualu Baina Film & TV Co. Ltd. said in a statement on June 10. The company and one of its subsidiaries will partner in the investment.

Hualu Baina said the firm is part of the company's strategy to take advantage of opportunities in the sports industry created by government policies. This makes it is one of many firms trying to score in the sports amid a push by the central government to have the industry contribute more to the economy.

Big-time sports in China are young compared to those in Western countries, a report by GF Securities Co. Ltd. said. The industry contributed only 0.6 percent to China's GDP in 2012, while the figure in the United States was 2.59 percent.

President Xi Jinping and other leaders have mentioned many times since late 2013 that they would like to see the industry develop, said Lei Zhenjian, CEO of the sports arm of Leshi Internet Information & Technology Corp., a Shenzhen-listed Internet TV company better known as LeTV.

In October last year, the State Council announced plans to have the sports industry contribute 5 trillion yuan to GDP by 2025. The cabinet also said it will eliminate barriers that hinder the industry's rapid development and encourage private capital to invest in building facilities, and providing related products and services.

This year, the General Administration of Sport, a government regulatory body, has also announced a series of measures aimed at relaxing rules for holding sporting events.

Also, on March 16, the cabinet announced a plan to turn soccer into the national sport. A key aspect of that plan is introducing competition to the handing out of broadcast rights. Two months later, a media company in Beijing called China Sports Media Ltd. beat 13 competitors, including state broadcaster China Central Television, to sign a four-year deal with the Chinese Football Association for the rights to raw video feed for games involving the national soccer teams.

Government policies have also encouraged investors and companies to start new firms, like Hualu Baina's new sports venture, and expand their related products and services.

Nine investors including developer Dalian Wanda Group and Yunfeng Capital, which was co-founded by Jack Ma, provided 800 million yuan to LeTV's sport firm on May 13. Lei said LeTV set up the company at the end of 2013 when it saw the government would lend its support to the industry. "We think it will see explosive growth soon," he said.

The firm plans to run events and provide media content and other value-added services.

Some 50 investors showed interest in the sports firm in August last year when the company made it known it was looking for capital, Lei said. Fundraising had to be suspended because one investor got caught up in a corruption investigation into an official in the northern province of Shanxi. When the firm restarted financing efforts in February, Wanda – fresh off its purchase of the Swiss marketing company Infront Sports and Media for 1.05 billion euros on February 10 – jumped aboard.

Lei said a Wanda representative talked with him for only about 20 minutes before deciding to invest 200 million yuan in his firm. More investors followed suit, such as Yunfeng Capital and Prometheus Capital.

Key to Success

The government's helping hand has encouraged investors to put their money into the industry, said Wang Ran, the founder and CEO of China eCapital Corp., an investment company. However, he said that for now only a few projects are good enough to gain an investment.

In January, Internet giant Tencent Holdings Ltd. signed a five-year, US$ 100 million deal to be the official digital partner of the National Basketball Association (NBA) in China. Tencent will show live games from the U.S. league on the Net and deliver related programming and highlights. An NBA employee said the deal was worth about five times more than a previous agreement Tencent and Sina Corp. had to put NBA games online.

Xie Yuefeng, deputy editor-in-chief of the Tencent website qq.com, said the cost of getting copyright for sporting events like NBA games have increased a lot over the past two years.

Dong Li, a media director of PPTV, a company that provides viewers online videos and other content, said large investors and Net firms encouraged by government policies are pouring money into sports, but are ignoring costs. He warned that these companies may not make enough money to cover their costs if they just sell ads for live games.

Sina failed to win the contract with the NBA, so it has turned to other sports, such as golf, tennis, auto racing, chess and equestrian events, a source with knowledge of the matter said.

Each sport is unique, said Yu Hang, the vice president of the copyright department of LeTV, and even marathon events are interesting to viewers. The key to success is providing different and exclusive services, he said. For example, the TV broadcasts of Formula One auto racing events provide viewers with just one video feed, but LeTV could provide multiple TV angles of the race and let views pick one they wanted.